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Old 06-16-2003, 08:33   #1 (permalink)
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World : Ford hits bump in road 100 years after starting journey

The Daily Yomiuri
Ryan Lawler / Yomiuri Shimbun New York Bureau

Ford Motor Co. will celebrate its 100th anniversary Monday at one of the most precarious moments in the company's history.

After losing 6.4 billion dollars and a large share of the North American auto market over the previous two years due to a widespread tire recall, weaker-than-expected sales and inefficient manufacturing processes, Ford will enter its second century amid an aggressive restructuring program aimed at cutting costs and improving the company's bottom line.

Things were not always this way. In the 1990s, Ford rode the success of its light truck and sport utility vehicle products to record profits and greatly improved its market share. In 1999, Ford posted a net income of 7.2 billion dollars, which at the time was the largest profit ever reported by a U.S. automaker. With those results, the company seemed almost invincible.

A CBS News poll at the time showed 85 percent of Americans believed Ford still would be operating at the end of the 21st century, ahead of Microsoft (79 percent) and General Electric (78 percent), and lagging only behind Coca-Cola (94 percent).

However, Ford's sustainability has now been cast into doubt. Several quarters of disappointing results, as well as a quickly changing and highly competitive marketplace, have caused some analysts to question Ford's ability to once again catch up with its competitors. Citing inefficient and outdated manufacturing and design processes and subsequently shrinking margins, some wonder if Ford can return to profitability, while maintaining its current sales volume.

Merrill Lynch analyst Saul Rubin has even suggested that Ford or General Motors could eventually file for bankruptcy due to fragmentation in the market and greater pressure from foreign competitors. "Part of (Ford's) problem was a hubris issue--they got carried away with their own success and lost sight of costs," said David Bradley, an auto analyst at JP Morgan Chase.

Bradley cites Ford's inability to quickly adopt lean manufacturing processes that have become an industry standard, a fault that he says "has hampered their margins and their growth."

The company is now playing catch-up in the race to install more efficient flexible manufacturing processes, with plans to update five plants and half of its facilities by mid-decade.

Another issue over the last several years has been Ford's over-reliance on old or aging models, such as the F-150 or Taurus. Domenic Martilotti, auto analyst for Bear Sterns said, "A lot of their product is old, and the market is so competitive that it's difficult to stay on top in terms of product segment for more than two years."

Since the company's restructuring plan was announced in January 2002, Ford executives have stressed that the company's recovery would be product-driven. As such, Ford is introducing 164 new or refreshed products over the next five years, including 65 new autos in North America. But these upgrades come at a price, both in terms of adding new content and reducing architecture synergies.

In the 1990s, the company's many design and manufacturing crews worked largely independently, a move that has cost it as new products have been introduced. At the same time, Ford made upgrades that have squeezed its profit margins in an incentive market.

One way other manufacturers have limited costs is by adopting design-for-manufacture (DFM), "a Toyota process technology where you design the product to make it cheap and easy to manufacture," Bradley said.

"It's one of the process technology disciplines that Ford has not mastered as well as they should, and for that to happen, the manufacturing, design, and engineering people have to work collaboratively in the early stages of product development," he said.

With several of Ford's designers and engineers working separately, the company lost opportunities to reduce costs by sharing parts across several different vehicle platforms, a mistake the company is now looking to correct.

In a meeting with analysts last month, Ford said it would increase the commonality of its products, reducing global architectures 25 percent by mid-decade and allowing the company to focus on fewer product platforms.

Furthermore, Ford's attempt to move its products up-scale is hurting its bottom line. The automaker has noticeably improved the quality of its products, a move reflected in a 12 percent rise in J.D. Power and Associates' Initial Quality Study. In J.D. Power's APEAL survey, which measures customer satisfaction, Ford won the most awards of any manufacturer and had five segment-leading products.

However, while some say the upgrades have helped reenergize the brand and provide incentive for higher sales volume, the brutal nature of the pricing market is undercutting the premium Ford pays for upgraded interiors or better brakes. "One of the challenges they have is that they're trying to create a better product by adding more content and offering more features, but that costs more, and the market won't necessarily let you charge for it," Martilotti said.

Despite the difficulties of operating in such a competitive industry, Ford has set high goals for itself over the next several years. The automaker hopes to realize 7 billion dollars in profits by mid-decade, due mainly to cost cutting and improved operations.

Ford executives expect that cost-cutting outlined in the restructuring program will eventually help offset past missteps that the company has suffered and drive profits once again. They cite improved sales, revenues and earnings in the first quarter of this year as proof that the restructuring plan is already working.

"Our first quarter performance demonstrates that the acceleration of our cost-cutting actions and the management team's focus on improving our core business are making a difference," said Bill Ford. Some analysts remain skeptical. "They're probably being a bit aggressive in their profitability assumptions, just because I don't think anyone thought the pricing game would get as ugly as it is right now," Martilotti said.

Whether or not Ford is able to right itself and remain competitive, one thing is certain--the company now stands at a major turning point in its history. How it fares over the next decade could determine whether or not it will celebrate a bicentennial in 2103.
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Old 06-16-2003, 08:36   #2 (permalink)
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Ford goes in for refit after 100 years

Birthday party will be brief as car maker gets back into race for survival

David Teather in New York
Monday June 16, 2003
The Guardian

Ford Motor Company will celebrate its 100th birthday today at a series of events in the company's hometown of Dearborn, Michigan. However, they will only be a temporary respite from the troubles facing the car maker.

The centenary of what has become one of the icons of American industry arrives at a difficult time. The big three US car-makers are wrestling with the combined effects of growing competition from Europe and Japan, huge pension and health care costs, and a damaging increase in incentives to get customers into the showrooms and the prospect of slumping sales.

Ford's share price, at about $10, is a third of what it was four years ago. One well regarded analyst has recently raised the question - roundly rubbished by the company - of Ford even facing the prospect of bankruptcy within a decade. Bill Ford Jr, a member of the fourth generation of the founding family, took control of the company in October 2001, replacing Jacques Nasser, in an effort to restore its fortunes. He has become the recognisable face of Ford, appearing in the car maker's advertising, but at the same time he has been viewed as a reluctant boss.

In a recent interview with Newsweek magazine, he pondered the question of whether he is up to the job. "I feel like I'm carrying the weight of the legacy," he said. "I just don't know how much more I can handle." He complained of insomnia, overwork and people in the street offering unsolicited advice. "Everybody's a car expert," he said.

He also recently underlined the precarious state of the company. "It is a very exciting time for us as a company, but it is also one fraught with peril because wrong decisions can be fatal," he said. "But it's remarkable to me how resilient our business model has been over 100 years, and if you think of industries over that same timeframe, most companies don't make it to 100."

Ford has grown from a business started with $28,000 by Mr Ford's great-grandfather to a company worth $163bn (98bn) with 350,000 workers. The business, which began with 10 employees assembling cars in a converted wagon factory in downtown Detroit, now operates in more than 200 countries. Henry Ford changed the business forever when he created the assembly line.

The family still controls a 40% voting stake through its ownership of special B- class shares. In the past two years, Ford lost a total of $6.4bn. A lack of investment in new models and factories that had become inefficient and outdated were blamed. It also faced the huge cost of replacing 13m Firestone tyres on its Explorer models.

The company's stated target is to reach $7bn in profits by mid-decade through a combination of improving the quality of the cars produced by the business and some savage cost cutting. The company has accelerated its reorganisation plan and is looking to take $500m out of the business this year alone.

It intends to save up to $2bn a year by introducing "flexible manufacturing" systems at its plants to allow it to build up to eight different models on two basic platforms - vehicle underbodies. One of Mr Ford's aims is to increase the number of new models offered by the company in an attempt to excite the buying public again.

In the first quarter, it appeared to be making some progress, reporting $900m in profits, reversing a $1.1bn loss in the same quarter a year ago and beating Wall Street expectations.

Sceptics remain. UBS Warburg analyst Saul Rubin recently said that either Ford or its larger rival General Motors could end up in bankruptcy because of heavy debt and dwindling demand.

Alarm bells rang this month when DaimlerChrysler warned that its US business would post a $1.2bn operating loss for the second quarter. The company blamed intense competition and the rising cost of matching incentives offered by its larger rivals in the fight for market share. It abandoned its full-year profit targets.

General Motors also cast doubt on its earnings forecasts, suggesting that market conditions might derail the industry's efforts to return to health.

The big three Detroit car makers have been locked into offering incentives including 0% financing since they were introduced to kickstart sales in the weeks following the September 11 terrorist attacks. There are signs that the incentives are beginning to lose their allure for the American public. Ford said that sales in May dipped by 0.7%.

Ford and General Motors have announced that they intend to scale back production by up 15% in the third quarter as they confront bloated inventories.

For now, Mr Ford has underlined the importance of "slavishly" following the restructuring plan, which calls for cutting 35,000 jobs, closing five plants and discontinuing four models. He intends to outline his vision for the company later this year, once the restructuring has been completed. That, analysts suggest, will be the more difficult task.
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My next Ford.....
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