Ford may cut factory jobs next
Automaker is playing to the UAW by trimming salaried workers and benefits first, analysts say.
By Eric Mayne / The Detroit News
Ford Motor Co.'s surprise announcement this week of job and benefit cuts affecting its white-collar work force is a sign the automaker will look next to close factories and lay off hourly workers.
Ford is cutting 1,750 salaried jobs, eliminating 2005 bonuses for white-collar managers and suspending 401(k) matching contributions. These tough measures send a clear message to the United Auto Workers: It's time for all Ford employees to share in the pain.
Historically, the UAW won't negotiate concessions during hard times unless company executives, salaried workers and shareholders also have made similar sacrifices.
"We believe all of these steps may be a broader effort to curry favor with the UAW, and make capacity and health care concessions more politically palatable," Himanshu Patel of J.P. Morgan said Tuesday in a research note.
With its sales and profits slipping, Ford is under pressure to cut costs, reduce the size of its work force and lower its ballooning health care expenses.
Rival General Motors Corp. already has announced plans to close several plants and eliminate 25,000 U.S. jobs by 2008. GM also is pushing the UAW to agree to health care concessions.
Ford Chief Financial Officer Don Leclair indicated Tuesday that more cutbacks are likely, but did not elaborate.
"We're taking steps immediately to reduce further our salaried-related costs this year; these are a continuation of a series of actions we plan to take to address our operating challenges," Leclair said in a statement.
And last week, Greg Smith, executive vice president and president of Ford's Americas operations, told The Detroit News that the automaker is prepared to seek any concessions GM negotiates with the UAW that would provide it with a competitive advantage.
Ford appears to be carefully building a case to ask the UAW for concessions, experts said.
"Two intertwined things are going on," said Harley Shaiken, a professor at the University of California at Berkeley who has studied organized labor. "First, Ford's cuts for its salaried employees represent the company's strategic thinking about what it needs to do to bolster the bottom line. Second, cutting salaried worker jobs and benefits has historically been used to send a message to the UAW. It may be a lot more expensive than FedEx, but it's meant to send an unmistakable message."
Earlier this year, Ford Chairman and CEO Bill Ford Jr. said he wouldn't accept any compensation until the automaker's North American operations turned around. The move could blunt criticism that Ford execs are banking huge paychecks while pushing cutbacks on workers.
Some at Ford are concerned that the UAW may work out a deal to help GM, which lost $1.1 billion in the first quarter, but assert that Ford is relatively healthy.
Even after lowering its earnings estimate, Ford is expected to post a 2005 full-year profit of about $2.2 billion excluding special items. And Ford on Tuesday said profits in the second quarter were running higher than expected.
But Ford is far from healthy.
Its North American operations are expected to post a substantial loss this year, reflecting vulnerability to cost, market share and pricing pressures, even though overall industry demand remains robust.
Ford shares closed down 49 cents Wednesday, at $10.68, as major credit rating agencies moved to lower Ford's ratings even further.
Moody's Investors Service, citing escalating competitive and cost challenges, warned it is reviewing Ford's credit rating -- now at the lowest investment grade -- for a possible downgrade to junk status.
And the company's weakening sales performance in the shrinking mid- and large-size sport-utility segments remains a particular concern, analysts say.
"Ford's disappointing financial performance raises the possibility that sweeping and costly additional restructuring actions will be necessary -- going far beyond the incremental salaried employee-related measures that Ford has just initiated," Standard & Poor's analyst Scott Sprinzen said in a statement.
Ford has several underutilized factories across North America. Last year, it used just 86 percent of its North American manufacturing capacity, trailing every major automaker except GM, which used 85 percent of its capacity, according to the latest Harbour Report that measures labor productivity in major auto plants.
Ford closed plants last year in Edison, N.J., and Oakville, Ontario. It also has announced plans to consolidate plants in Avon Lake and Lorain, Ohio.
The future of some Ford plants is clearly in jeopardy.
The automaker's assembly plant outside St. Louis was slated for closure, but the UAW negotiated a reprieve in 2004. Still, the plant operates on just one shift and builds the Ford Explorer, which has experienced a decline in sales.
Many analysts believe Ford could easily consolidate Explorer production at its Louisville plant and close St. Louis.
In August, Ford plans to discontinue production of the Lincoln Aviator SUV at the St. Louis plant.
Ford's sprawling but sorely underused plant in Wixom has long been considered a prime candidate for closure. Ford officials have done little to refute the speculation, and the plant has not been assigned products to build beyond 2008.
Last year, Ford operated 10 plants on one shift -- including the St. Louis factory.
"To have a plant running one shift, you've got that huge asset and you're only using one shift per day," said Michelle Hill, senior manager at Harbour Consulting.
If Ford wants to close several plants, though, it may face complications.
"They can talk about closing plants, but do they have the flexibility to move (production) to another plant?" Hill said.
Flexible manufacturing enables automakers to produce a variety of vehicles at a single plant. Ford is aiming to make 75 percent of its North American assembly plants flexible by the end of the decade, a strategy it expects will produce savings of $2 billion.
Some workers don't expect Ford to close more plants until 2007, when it is scheduled to renegotiate wages, benefits and job security measures with the union. The company's current union contract bars plant closings.
"We're still hanging in there," said Ken Dearing, president of UAW Local 325, which represents workers at Ford's assembly plant in St. Louis. "We're just waiting for 2007 to see what's going to happen."