U.S.A.:Ford Credit orders overhaul, cost cuts
Layoffs likely as money-making finance arm aims to slash 15% in personnel expenses
By Mark Truby / The Detroit News
DEARBORN -- Ford Credit, echoing a move by parent Ford Motor Co., is launching a widespread cost-cutting effort and reorganization that is expected to include involuntary layoffs, company officials said.
The finance unit is aiming to reduce its personnel costs by more than 15 percent by the end of 2004, according to one Ford official familiar with the plans.
Ford Credit Chairman and CEO Greg Smith told employees in an e-mail Tuesday that the automaker's finance arm "will be undergoing a significant restructuring effort" in response to competitive market conditions.
The restructuring announcement at Ford Credit comes less than two weeks after Ford Motor announced plans to reduce salaried personnel costs by 10 percent by the end of this year. Company officials have acknowledged the Ford Motor campaign could result in job cuts.
Ford Credit expects to reap some savings through attrition, reduced hiring, limited overtime and restricted travel. Employees will be laid off after other cost-cutting measures have been exhausted.
"Involuntary layoffs will be the last resort," Ford spokeswoman Marcy Evans said.
Ford Credit, with $170 billion in assets, is the world's largest automotive financing company, with 19,000 employees worldwide, including 1,300 at its headquarters in Dearborn.
Ford Credit has been Ford's most reliable money maker for decades. But with business conditions in the auto industry deteriorating, every Ford-owned operation is under pressure to cut costs. Ford expects to make $1.3 billion this year, after losing $6.4 billion in 2004.
"The only way you are going to get profit in this environment is cutting costs," said David McKay, an auto financing expert for the Power Information Network, an affiliate of J.D. Power and Associates. "Everybody has to share the pain."
Ford Credit's restructuring is separate from the cost-cutting actions at its parent company, but has similar objectives, Evans said.
"Ford Credit is not exempt from having to go through the same processes," she said.
Under Smith, who replaced the controversial Don Winkler in December 2001, Ford Credit has scaled back high-risk loans and non-auto products such as insurance and home mortgages to focus on providing loans for credit-worthy customers buying cars from Ford dealers.
Because of the moves, Ford Credit is transforming into a smaller, leaner company, with lower top-line revenue than during the go-go Winkler years. As the finance unit shrinks, its payroll must be reduced as well, Ford officials said.
The good news for Ford is that its captive finance arm appears to be healthy again after posting its first-ever quarterly loss in the final three months of 2001.
Last year, Ford Credit earned $1.38 billion. Through the first half of this year, the finance unit made $843 million, accounting for roughly two-thirds of Ford's overall profits.
Ford Credit has resumed paying a dividend to its parent company, delivering $1 billion in March. The payout was in marked contrast to late 2001, when the finance unit needed a $700 million cash infusion to protect itself against rising credit losses.
Captive automotive finance units such as Ford Credit and General Motors Acceptance Corp. reap the benefits of the sky-high incentives automakers are piling on new cars. Higher sales volumes generate more consumer loans and leases while the parent automakers foot the bill for the incentives.
Ford Credit faces some risks in the near future, however. High unemployment and personal bankruptcies could cause a spike in auto loan defaults, particularly if the economy doesn't rebound in the next year.
And if Ford Motor sees its credit rating downgraded, which some ratings services have said is possible, Ford Credit's rating would likely be lowered as well. A ratings downgrade would mean Ford Credit would have to spend more money on the open market to secure the money it loans.
In his note to employees, Smith said the restructuring will come in waves as Ford Credit streamlines its operations, which include eight major service centers and 150 field offices in the United States.
The first move, Smith said, is a reshuffling of senior executives. Smith announced that Michael Bannister was appointed president and chief operating officer of Ford Credit. The chief operating officer position has been open since late 2001. Smith is giving up his president title to Bannister, but remains chairman and CEO.
Bannister, a 29-year Ford veteran, had been president of Ford Credit International. He was replaced by John Noone, another long-time Ford Credit executive.
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My next Ford.....