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Reductions covered areas from advertising to office supplies, kept recovery on track

By Eric Mayne / The Detroit News

Ford Motor Co. will report Friday that it exceeded a net cost reduction target of $3 billion for 2003.

Excluding costs tied to vehicle design or production, Ford has identified and eliminated spending with a gross value of $1.5 billion, senior executives said Tuesday.

The savings cover expenses ranging from advertising to office supplies, said Jim Padilla, Ford’s president of the Americas.

Ford won’t disclose total cost-savings until a briefing with industry analysts Friday.

The improvements stem from a sweeping cost review program called “team value management.”

Largely dependent on supplier input, it was conceived by Ford of Europe executives, said David Thursfield, president of international operations and global purchasing.

The savings are significant because it keeps the automaker’s turnaround on track. But analysts said it’s no replacement for sagging sales and shrinking U.S. market share.

Ford made steady progress on the waste reduction front in 2003. Its initial 12-month savings target was $500 million, which it exceeded before the year was half over.

Ford then set a $2.5 billion savings goal, which was upped to $3 billion after it reported year-to-date savings of $2.7 billion at the end of the third quarter.

There are numerous examples of where the savings are coming from.

When uniform supply contracts were reviewed, Ford realized it was duplicating a lot of purchases.

“We saved $3 million!” Padilla said. “Just on uniforms! When costs are analyzed, it’s amazing what you can do.”

The same scrutiny will lead to savings on the product side, Padilla said, but not as readily as nonproduct waste. “They need more lead time,” he said.

An example of where Ford can cut product costs: the Ford Explorer, which already shares many of its components with the Lincoln Aviator, said Nick Scheele, president and chief operating officer.

Employee teams looking for savings discovered the vehicles have different door latches — an unnecessary cost considering the part isn’t needed to differentiate Explorer from its upscale cousin.

Burnham Securities analyst David Healy said the savings moves won’t offset a 4 percent sales decline in 2003 that contributed to a market share drop from 20.2 percent to 19.5 percent.

“You can’t cut your way to prosperity,“ Healy said. “It would be better to have a stable full of hot new models.”

Ford has used this year’s North American International Auto Show to demonstrate that new car, crossover and truck models are on the way. This year will see a new-generation Mustang, two large sedans — the Ford Five Hundred and Mercury Montego — the Escape Hybrid and the Ford Freestyle, which features the combined attributes of a minivan and an SUV.

Scheele, Padilla and Thursfield also dispelled persistent rumors there is discord among them. Thursfield chided the media, saying such reports not only saddened him, they are “amusing to me.”

The trio said they are working well together, following a transition period during which they had to “gel,” Padilla said.

(Photo)Gov. Jennifer Granholm chats with racing legend Carroll Shelby as she sits behind the wheel of Ford's new Shelby Cobra Mustang at the auto show in Cobo Center.

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