Motor Co. turned over much of its top management and launched a new game plan aimed at restarting its stalled-out recovery effort in 2005.
The auto maker ultimately would see more than a half dozen high-ranking executives retire or move on, giving way to a new wave of management tasked with changing the very culture of the company and righting its still-struggling operations in North America.
The reshuffling in the executive suites would lead to another massive restructuring that would call for 14 plants in North America to close, and’s hourly workforce to be reduced by 25,000-30,000 jobs by 2012.
Ford also found itself the unwanted focus of environmental activists and special interest groups that attacked the auto maker’s environmental record and initiated a boycott as a result of its marketing to the gay community.
The year also saw Ford forge a groundbreaking deal with the United Auto Workers union as part of a bailout of a failingCorp., the independent parts maker sprung from Ford operations in 2000. And it also engineered several deals with overseas auto makers for joint development and production of vehicles and engines.
Amid all this, Bill Ford repeatedly tried to overcome his image as a less-than-willing CEO, at one point declaring, “If there was any doubt, I will be in charge…without any reluctance whatsoever.”
It became evident early in 2005 that Ford’s recovery effort launched three years earlier was losing steam. Although the auto maker finished the first quarter $1.2 billion in the black, profits were down nearly 38% from prior-year results, and it was clear the overall market and economic environment was deteriorating.
Some of the shortfall was blamed on rising fuel prices that cut sharply into sales of Ford’s highly profitable SUVs, a situation that would plague the auto maker all year long.
Bill Ford quickly backed off an earlier target of $7 billion in pre-tax profits by 2006, saying, “We will not mortgage Ford’s future by chasing an objective set under vastly different market and economic conditions. We are unwilling to cut the essential investments in the products, technologies, infrastructure and expanding markets that are the very building blocks of our future.” However, shortly after, the company began hinting at cutbacks, saying it could ax an additional 1,000 white-collar employees. Bill Ford announced he would take zero compensation in 2005 as the auto maker’s debt rating slid into junk status according to rating agency Standard & Poor’s.
Things went from bad to worse when struggles atthreatened Ford’s own financial health and its ability to knock out cars and trucks in the U.S.
Visteon remained too dependent on Ford for its business and saddled too tightly with uncompetitive product lines and plants in North America. Ford remained highly reliant on Visteon for parts to keep its plants running.
In late May, a cornered Ford worked out a complex 3-way deal with Visteon and the UAW that had the auto maker assume control of 23 former Visteon plants and research facilities on Oct. 1. The move would save the jobs of 17,500 workers, who either would flow back to Ford under its labor agreement with the UAW or be leased from Visteon by the auto maker. Ford said ultimately most of these plants either would be sold or closed.
In the midst of all that, Ford landed on the losing end of a dispute with the U.S. Securities and Exchange Commission over how it was marketing a 23-year-old retail investment product called the Ford Money Market Account. The SEC said Ford’s marketing materials may have led investors to believe they were buying into a money market mutual fund, rather than purchasing unsecured Ford Credit Corp. debt.
Although Ford continued to deny any wrongdoing, it paid a $764,282 fine to settle the matter and “avoid the further cost and distraction of litigation.”
By the end of June, Ford was making good on its threat to cut white-collar employment, announcing plans to reduce its salaried workforce by an additional 5% during the year, increasing its planned reduction to 3,000 positions. It also eliminated bonuses for salaried employees worldwide and suspended its 401k matching grant, while announcing it would cut purchasing 10%.
In August, the auto maker began a consolidation of its North American sales, marketing and service activities. Darryl Hazel, who had headed up the Ford Div., was named vice president-marketing for the Ford, Lincoln and Mercury brands. Al Giombetti, formerly head of Lincoln Mercury, was put in charge of sales for the three brands. (Later, in January 2006, Hazel and Giombetti would be repositioned again, with Hazel moved to the head of customer service and Giombetti taking Hazel’s old post.)
Field organizations for the three brands were consolidated from 17 to 11 regions.
Shortly after, Ford began signaling much more was in the works, as Bill Ford announced in late August the auto maker would take sweeping action in the fall to realign its cost structure with its declining revenue stream.
“Nothing is off the table,” Chief Financial Officer Don Leclair said of the next round of cutbacks.
It turned out that included a shuffle at the top, with Mark Fields, formerly in charge of Ford of Europe and the Premier Automotive Group conglomerate of luxury brands, replacing Greg Smith (promoted to vice chairman) as a Ford executive vice president and president-The Americas. Fields was charged with leading a massive restructuring, the details of which wouldn’t be brought to light until early 2006.
Other moves included Mark Schultz, formerly head of Asia/Pacific and Africa Operations, to president-International Operations, and Lewis Booth, chairman of Ford of Europe, to executive vice president Ford of Europe and PAG.
Fields later would add Anne Stevens, named chief operating officer-The Americas and the first woman to make executive vice president at Ford, to his inner circle. She would be joined by Dave Szczupak, shifted to group vice president of manufacturing-The Americas and Derrick Kuzak, named group vice president of product development-The Americas, among others.
The logjam at the top led to several departures, including Smith, sales head Stephen Lyons, product guru Phil Martens and others who either retired or moved on to jobs elsewhere. The list of ex-Ford management ultimately included President and COO Jim Padilla, who early the following year announced plans to retire and give up his board seat as of mid-2006.
Good news came in September, when the Canadian Auto Workers union picked the auto maker as its negotiating target, allowing Ford to set the benchmark for the U.S. Big Three on wages and benefits in Canada. The 3-year deal that resulted, reached without a strike and ratified by 95% of Ford’s CAW-represented workforce, called for a reduction of an estimated 1,100 jobs by 2008.
Under the new pact, wages were to be increased by 1.4%, 0.9% and 0.9% over each of the three years, supplemented by cost of living increases expected to be about 2.0% annually. The wage boost was the smallest for the CAW in its 20 years representing Ford workers in Canada.
Ford would end V-6 production at its Essex, Ont., engine plant, where 700 workers were employed. A new engine was promised for the facility, but only 400-450 of the employees would be retained for that program. Another 430 jobs would be cut with the closing of a casting plant in Windsor, Ont.
The contract boosted retirement incentives – the CAW said 996 workers in Windsor were eligible for retirement under the offer – 16% to C$60,000 to C$70,000 ($50,524-$58,944 based on exchange rates at the time of the contract).
For the first time, the CAW failed to secure more time off for workers.
In return, hourly employees were offered C$2,000 ($1,684) off the purchase of a North American-built Ford vehicle.
“I describe it as a modest agreement, but a good agreement for tough times,” noted CAW President Buzz Hargrove.
Meanwhile, in a move to generate cash, Ford sold all of its stake in rental-car agency Hertz Corp. to a consortium of private equity firms for $15 billion, including debt. Ford’s take-home for the deal with Clayton, Dublier & Rice Inc., the Carlysle Group and Merrill Lynch Global Private Equity was $5.6 billion.
But Bill Ford vowed not to followCorp.’s lead and sell a stake in its finance arm, Ford Credit, to help pay for its turnaround.
“We see (Ford Credit) as a strategic asset for us,” he said.
In September, Bill Ford pumped up the rhetoric in an attempt to spark a cultural change at the auto maker, launching an “innovation” strategy that would promise more hybrid-electric and flexible-fuel vehicles on the road.
In rolling out the new strategy at the Ford Scientific Research Laboratory in Dearborn, MI, he also called on workers to push new ideas up the management ladder and make top executives “pay attention” to their suggestions.
“Don’t let us off so easily,” he told research workers. “We don’t want to walk away from something that holds great promise for our customers just because it doesn’t fit in an established program.”
The new plan included a pledge that more than half of all Ford, Mercury and Lincoln vehicles would have hybrid capabilities by 2010 and that 280,000 Ford F-150 pickups and Crown Victoria/Grand Marquis/Town Car passenger cars would be produced in 2006 capable of running on ethanol fuel.
Ford also would embark on a campaign to offset greenhouse gas emissions produced in the manufacturing of hybrid vehicles, Bill Ford said. It later would link up with VeraSun Energy Corp. in an effort to increase U.S. availability of E85, a fuel mixture of 85% ethanol and 15% gasoline.
All that was seen as a way to placate environmentalist groups, such as the Rainforest Action Network, the Ruckus Society and Global Exchange, which repeatedly attacked Ford for building too many fuel-guzzling big trucks and SUVs.
Bill Ford acknowledged the “Innovation” campaign wouldn’t cure all the company’s ills, however, and he promised Fields would roll out a restructuring plan following his first 100 days as head of The Americas.
That game plan wouldn’t be spelled out until January 2006, and even then the auto maker was sketchy on details.
Ford did reveal it would close five plants, including assembly operations in St. Louis (Explorer/Mountaineer), Atlanta (Taurus) and Wixom, MI, (GT, LS, Town Car) by 2008. The final two plants – the Twin Cities facility in Minnesota (Ranger) and Norfolk, VA, F-Series operation – wouldn’t be identified until April 2006.
Also slated for shutdown were a transmission plant in Batavia, OH, where Ford only a few years earlier made a major investment in continuously variable transmission production, and a casting plant in Windsor, Ont., Canada. It also earmarked the St. Thomas, Ont., plant (Crown Victoria/Grand Marquis) for a cut to one shift.
Ford said it would shutter two more unidentified assembly plants between 2008-2012, as well as several other component operations, bringing the plant-closing total to 14. But it also said it would build a new assembly plant somewhere in North America, though it wouldn’t specify timing, location or product.
In all, Ford looked to reduce vehicle capacity by 1.2 million units, or 26%, and slash up to 30,000 hourly jobs by 2012. The auto maker, which had cut a total of 10,000 white-collar positions in 2005, announced plans to reduce those ranks by another 4,000. Ford wouldn’t detail the bottom-line effects of the actions but said the moves would allow it to return to profitability in North America “no later than 2008.”
Just before Christmas, the UAW rank and file narrowly (51%) approved concessions on health care that would save Ford an estimated $650 million annually. In addition to increased health-care costs for workers and retirees, the UAW agreed to forego a 3% wage increase due in September 2006 and defer part of a cost-of-living increase. In return, Ford promised to invest $900 million in product innovation and new technology over the following five years.
The auto maker moved to shore up relations with suppliers, while cutting parts costs and improving quality. Ford’s “Aligned Business Framework” was designed to cull by half the number of suppliers from which it annually bought $35 billion of key “high-impact” commodities, such as axles, brake systems, electronic control modules and exhaust systems. Ford initially named seven suppliers on its “approved” list, which ultimately was to total less than 100. The auto maker planned to cut in half its total supplier network, which numbered 2,500 companies in 2005.
“We have a problem in terms of the business model in this industry,” Tony Brown, senior vice president-global purchasing, said in unleashing the new framework. “It is not working effectively for our suppliers. It is not working effectively for us.”
Ford also closed the book with Bridgestone Firestone in its dispute over the Firestone tire recall that negatively impacted both companies’ reputations and bottom lines. As part of a settlement in a dispute over financing the recall of 13 million tires that cost Ford $2 billion in 2001, Bridgestone Firestone agreed to pay Ford $240 million. Despite the settlement, Ford said it had no plans to use Firestone tires on vehicles sold in the U.S.
Further aimed at reducing costs was a deal withAuto SpA to develop a sub-B-size car for Europe. The new models would replace the Fiat Cinquecento and Ford Ka in 2007-2008, with Fiat taking the lead on development using its Panda platform as the basis for the program. The two cars would be produced in Fiat’s Tychy, Poland, plant, with annual capacity of 240,000 units split equally.
It marked one of several joint development deals for Ford in 2005. The auto maker also deepened its involvement in a diesel engine deal with France’sPeugeot Citroen, as the two invested €332 million ($397 million) in two new powerplants. Ford would produce a new 2.2L diesel for light commercial vehicle applications at its Dagenham plant in Essex, U.K., while PSA would produce a premium version of the 2.2L for passenger cars at its Tremery plant in Moselle, France.
In September, ground was broken on a new engine plant in China, a JV with Changan Automotive Group, Ford andMotor Corp. It was set to begin production in Nanjing, China, in early 2007.
Late in the year, Ford avoided a boycott from the American Family Assn. after it agreed to modify its advertising in gay-directed publications and pull sponsorship dollars from gay and lesbian events. But after a backlash from the gay community, a whipsawed Ford reneged on the AFA deal in mid-December and the AFA followed through on its threatened boycott in early 2006.