Plan B: Ford chops at costs
July 19, 2003
BY JAMIE BUTTERS AND JEFFREY MCCRACKEN
FREE PRESS BUSINESS WRITERS
Whether Ford Motor Co. executives want to admit it or not, they are now on to Plan B.
THE MESSAGE FROM SCHEELE
This is part of the note Ford Chief Operating Officer Nick Scheele sent to Ford Motor Co. employees Friday.
To: Ford employees worldwide
When we announced second-quarter earnings earlier this week, we reported another quarter of significant progress in our revitalization efforts. Our cost performance, in particular, has garnered strong interest in the way we're pulling together to make Ford Motor Company a more efficient and cost-effective automaker. In many areas, these cost improvements were critical offsets to lower revenues related to the increasingly competitive marketplace. . . .
Despite this excellent work, we still face uncertain economies around the globe and a fiercely competitive marketplace. As a result, it is imperative that we continue looking at all of our costs globally to achieve even higher levels of efficiency and cost competitiveness. . . .
Each region will examine every method to reduce costs further, including reductions in travel, consulting, and other discretionary expenses. In addition, we have asked each operation to reduce salaried-related costs by about 10 percent by the end of the year. In some cases I anticipate that we can achieve this reduction through attrition, selective hiring freezes, elimination of overtime, and reduction in agency and supplemental workers, and purchased services.
However, where these actions cannot fully meet the targets, we will have to reduce our salaried personnel structure to address the balance.
I recognize that these are difficult actions. We will do our best to keep you informed on our progress as we move forward. . . .
Earnings not enough to stop white-collar job cuts
The mandate to cut white-collar expenses by 10 percent, announced to employees Friday in a company-wide e-mail, could mean up to 1,800 job cuts not envisioned in the original plan.
Throughout its centennial celebrations last month, Ford executives continued to insist that the January 2002 revitalization plan -- which called for closing five plants and eliminating 21,500 jobs in North America -- was on track and not needing further cuts.
Thanks to accelerated cost-cutting and strong earnings at Ford Credit, the company still expects to earn $1.25 billion this year. But to hit the $7 billion mid-decade pre-tax profit target it promised Wall Street, further cuts are needed.
In the memo, Chief Operating Officer Nick Scheele stressed that departments would lower costs through attrition, hiring freezes, reduced overtime and travel, and fewer contractors. But he warned that "where these actions cannot fully meet the targets, we will have to reduce our salaried personnel structure."
Ford executives said Hertz, Mazda and Ford Credit are excluded from the cuts, which will affect 79,000 white-collar automotive employees worldwide.
Scheele said the moves are needed to address "uncertain economies around the globe and a fiercely competitive marketplace."
A marketplace so ruthless that it has become clear that Plan A was not enough and it is time for Plan B.
Longtime Ford insiders wouldn't use those terms, which for them recall eras when it meant changing the plan instead of addressing the problems at hand.
But Friday's memo looks like what to turn to when the first plan doesn't get the job done.
Some analysts who follow Ford for investors have warned that the January 2002 plan was not enough. That plan called for Ford to cut $6 billion from overhead and improve the bottom line by another $3 billion through other means. Ford said Wednesday it had cut $1.9 billion so far this year, including $1.3 billion in the second quarter.
"Obviously the company's under a lot of pressure to cut cost in every single way," said Scott Sprinzen, who studies the auto industry for credit-rating agency Standard & Poor's Corp.
Ford is rated just two notches above a high-risk junk borrower, and Sprinzen has warned that another downgrade would be likely if Ford does not end 2003 with a profit from its automotive operations.
The likelihood of cuts in the salaried workforce also raises the possibility that Ford will look to close more than the five plants -- four domestic and one Canadian -- identified in the 2002 plan.
"It's a fair question," said Michael Jackson, an automotive analyst with CSM Worldwide in Northville. "There are a number of facilities that are clearly under-utilized and that don't have the advantage of flexible manufacturing."
Ford executives have acknowledged that Wixom Assembly -- home of the Ford Thunderbird and Lincoln Town Car -- is under pressure, even though it's not one of the five plants on the closing list.
"Wixom is absolutely up in the air," said a top UAW official familiar with national Ford contract talks. "It has no product and its local chairman is sweating right now."
Also dogging Ford are the buyer incentives that have lowered what people pay for their vehicles.
Incentives such as low-interest financing and cash-back rebates on new cars and trucks have skyrocketed this year, jumping 43.5 percent from a year ago to $2,455 per vehicle compared to $1,710 per vehicle, according to Autodata Corp.
Incentives on Ford, Lincoln and Mercury vehicles have jumped 41.7 percent to $3,082 per vehicle. That's up from $2,175 per vehicle a year ago.
Ford is the second of the domestic automakers to suddenly announce its plans for 2003 were run off the road by heavier-than-expected incentives.
In early June, DaimlerChrysler said its Chrysler division (Chrysler, Jeep and Dodge vehicles) would lose $1.1 billion in the second quarter and struggle to make any money for the year -- just a few months after predicting a $2 billion profit for Chrysler in 2003.
Chrysler -- like Ford -- quickly moved to cut white-collar spending with a hiring freeze, eliminating most white-collar overtime and delaying merit raises for three months.
General Motors Corp., which started the incentive wars, has avoided making any such moves. The mainreason GM has been able to swallow the larger incentives is that it has the most efficient assembly plants, requiring fewer hours to make a vehicle. GM has also been able to use incentives to steer consumers to higher-profit vehicles like the Cadillac CTS luxury car or the Pontiac Trailblazer sport-utility vehicle.
GM incentives are up 52.6 percent so far this year to $3,389 per vehicle, compared to $2,221 a year ago. However, GM has continued to hit its earnings for Wall Street and on Thursday was optimistic about the rest of the year.
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....