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'Black Monday' looms over Ford's future

Ten plants, 25,000 jobs ride on Bill Ford's 'Way Forward' strategy to be announced Monday.

Bryce G. Hoffman / The Detroit News

Ford's plan
People familiar with the plan say:
*Ford will cut at least 25,000 jobs and close 10 parts and assembly plants, likely including plants in St. Louis; St. Paul, Minn.; and Wixom.
*Ford will reduce its North American manufacturing capacity by about 25 percent or by 1 million units.
*Salaried layoffs will begin Monday.

Ford Motor Co. workers already have a name for tomorrow.

"It's Black Monday," said Mark Mockaitis, a line worker at Ford's assembly plant in St. Paul, Minn.

Like workers from Wixom to St. Louis to Mexico, Mockaitis is anxiously awaiting Monday morning when Chairman and Chief Executive Officer Bill Ford Jr. takes the podium in Dearborn to outline a massive restructuring plan he calls the "Way Forward."

As The Detroit News first reported Dec. 7, Ford will shutter at least 10 assembly and parts plants and cut at least 25,000 blue-collar jobs in North America over the next five years, according to people familiar with the plan.

The automaker also plans to cut 4,000 salaried jobs by April 1. The layoffs begin this week. Ford also will commit to reducing its number of top executives by March 1.

While workers like Mockaitis wonder where their jobs will be tomorrow, Wall Street waits to see whether the plan goes far enough.

The company that led America to greatness and put the world on wheels now faces one of the biggest challenges in its 103-year history. And for Bill Ford, the great-grandson of Henry Ford, the stakes are not only the fate of a storied company, but the legacy of one of America's last great dynasties.

"It's the most serious crisis at Ford in modern times," said David Cole, head of the Center for Automotive Research in Ann Arbor. "I think they view this as a last shot."

The situation could hardly be more critical. Ford's market value has plunged by an astonishing $40 billion since 2001. Its North American automotive business is hemorrhaging cash and market share.

Ford posted a net profit of $1.88 billion for the first nine months of 2005, but its North American unit has lost more than $1.4 billion before taxes. The numbers are expected to look even grimmer Monday when final 2005 financial results are reported.

Meanwhile, Ford's domestic brands -- Ford, Lincoln and Mercury -- saw their combined share of the U.S. market fall 4.7 percent last year, from 18.3 percent in 2004 to 17.4 percent in 2005. A decade earlier, Ford's market share stood at nearly 25.6 percent. Every percentage point of market share represents 170,000 vehicles.

"We do have a North American auto business issue and we are committed to fixing that," Bill Ford said. "It's going to be painful for some people."

So far, Ford has responded by cutting its white-collar work force, selling its Hertz rental car business and reshuffling senior management. But one fundamental reality remains unchanged.

Ford's North American manufacturing operations still look a lot like they did when the company built one out of every four cars and trucks on the road. Ford has the factory capacity to build 4.5 million vehicles in North America, but produced just 3.3 million last year. As a result, Ford's factory utilization rate is the lowest in the industry -- just 79 percent, Harbour Consulting said last week.

Trimming the fat

Most manufacturers would have been forced to downsize a long time ago. However, like the other domestic automakers, Ford's union contracts limited its ability to trim manufacturing operations to match its greatly reduced market share.

Even if Ford boarded up all of its American factories tomorrow, it would still have to pay the 87,000 United Auto Workers members who labor in them, while also continuing to cover health care and pension costs not only for them, but also for twice that many UAW retirees and their dependents.

The plant closings and layoffs that Ford announces Monday will either require the approval of the UAW or have to wait until the current contract expires in 2007.

Analysts have identified several factories that could get the ax Monday. Ford assembly plants in St. Louis, Atlanta and St. Paul are in jeopardy, along with one in Cuatitlan, Mexico. Ford's vastly underused plant in Wixom is also expected to be closed.

The Detroit News and other media outlets reported last week that Global Insight Inc., a leading industry analysis firm, believed the Wixom plant would be spared and Ford's plant in Atlanta would close. Since then, Ford insiders have said the Global Insight forecast was flawed.

On Saturday, Gov. Jennifer Granholm expressed hope that the Wixom plant, which employs more than 1,500 workers, will remain open. "I and my administration continue to be in regular contact with Ford officials related to any impact on Michigan facilities. The company has not provided any specific information about its plans," Granholm said.

UAW officials said last week they had not seen Ford's plan, but were bracing for bad news.

"You're talking about people, communities, hopes and dreams and aspirations, and it's very difficult and trying for our membership," said UAW President Ron Gettelfinger. "We don't like to see any jobs go away. We're always in hope that, down the road, we'll be able to reverse some of those decisions."

In total, Ford is expected to reduce its North American factory capacity by about 25 percent, or more than 1 million units.

Including hourly and salaried job cuts, Ford will commit Monday to reducing its 120,000-member North American work force by about a quarter, according to people familiar with the plan.

Top executives will not be spared. Bill Ford also is expected to announce a significant reduction in the number of corporate officers at Ford by March 1, according to people familiar with the plan.

One of those expected to leave is Steve Lyons, group vice president over sales and marketing for Ford, Lincoln and Mercury. He is negotiating to become a Ford dealer in Phoenix.

However, Mark Fields, president of the Americas Division -- the chief architect of the "Way Forward" plan -- stresses it is about a lot more than just closing factories and laying off workers.

A new strategy unfolds

Ford is expected to outline a strategy to bring a host of new cars and trucks to the market with emotionally charged design and better quality.

The automaker will detail plans to slash vehicle development time and costs through more centralized engineering processes and more sharing of components and platforms. At the same time, Ford will continue to retool factories to allow them the flexibility to build several cars on the same line and respond to market demand.

"They haven't been able to do that in the past. Every Ford, Chrysler and GM plant was basically dedicated to a product -- and that's not the case with the Japanese," said manufacturing expert Ron Harbour. "As they improve that flexibility, you can have fewer plants and more highly utilize them."

And Ford will discuss a new marketing strategy designed to sell vehicles with lower rebates and increase profit margins for new vehicles. To do that, Ford has to make cars and trucks people want to buy. That is why another part of the plan will focus on strengthening the company's brands and product offerings and eliminating poorly conceived or outdated models.

Ford does not plan to eliminate any brands. As The News reported in November, Fields took a hard look at killing the Mercury brand. However, that study concluded that Mercury brings in more money than would be saved by eliminating it. Instead, the company will try to re-energize Mercury by giving the brand new product designed to appeal to women and more youthful buyers.

Ford is also looking at ways to make its core Blue Oval brand more appealing to younger buyers.

Though the "Way Forward" plan is focused on saving the company's struggling North American automotive operations, executives will also discuss a new Asia strategy that will strengthen Ford's focus in the fast-growing Chinese market.

While all of these aspects of the plan will be harder to quantify and take more time to realize, analysts say they are no less important to the long-term success of the company.

"The revenue side is just as important as the cost side," said Rob Hinchliffe, an analyst with UBS Securities LLC in New York.

Heir apparent

If Ford were any other company and Bill Ford were any other CEO, Wall Street might have written them off by now. But Ford is unlike any other company.

Founded in 1903 by a man whose name became synonymous with industrial progress and innovation, Ford Motor Co. may not have invented the automobile, but did give it to the masses. In the early years of the 20th century, Henry Ford and the company that bore his name transformed the car from a luxury that few could afford to a commodity that no one could do without. In the process, they helped transform America itself from a minor power to the industrial empire it is today.

Though publicly traded, the Ford family retains controlling interest in the company through their ownership of restricted shares. The Ford family used this power to put Henry Ford's great-grandson in charge.

When Bill Ford took over as CEO in 2001, the company was barreling down the road to financial ruin. Ford had just posted its first consecutive quarterly losses in nearly a decade and was reeling from the Firestone tire scandal. There was growing concern about quality issues and product delays, and Ford's credit rating was falling fast.

When Bill Ford ousted controversial CEO Jacques Nasser and took control of the company, some employees wept openly at the sight of Henry Ford's scion striding into the Glass House to set things right. Almost four years ago to the day, Bill Ford announced a massive restructuring plan that called for 20,000 job cuts in North America, several plant closures and the elimination of vehicles like the Mercury Cougar. He promised not only a return to profitability, but also a boost in annual pretax profits of $7 billion by 2006.

That seemed like a big stretch, considering that Ford Motor Co. ended 2001 with a loss of nearly $5.5 billion. But Bill Ford's fix-it plan narrowed that loss to $980 million in 2002 and restored the company to profitability in 2003. Ford ended 2004 with earnings of $3.5 billion.

But the spreading insurgency in Iraq was pushing gasoline prices higher and higher, and the buying public's love affair with high-margin sport utility vehicles that had done so much to boost Ford's profits was quickly coming to an end. Even before Hurricane Katrina showed Americans just how painful the pump could become, SUV sales were falling fast, forcing Ford to idle more and more workers and igniting a rebate war with rival automakers that further eroded its profits.

"The plan -- even now, looking with hindsight -- was the right one," Bill Ford said. "We are profitable again. We have been profitable every year through the plan, which wasn't true in '01 when the wheels fell off and we lost a lot of money as a corporation. So a lot of what we put into place was right."

Some analysts agree.

"Generally speaking, Bill's done a good job. The last restructuring was pretty much hitting all its milestones for the first 75 percent of its life," said Craig Hutson, an analyst at Gimme Credit, a corporate bond research company. "They've done many of the things they said they were going to do, but there were a lot of things outside their control."

Others in the financial community are more critical of Bill Ford's performance as CEO, pointing out that his efforts have done little to help the foundering North American automobile business.

"(Wall Street) gives people credit for results, and the results were not acceptable," said Rod Lache, who follows for Deutsche Bank Securities Inc. in New York. "I cannot say kudos for anything."

But even Bill Ford's critics are willing to give him at least one more chance to turn the company around.

What Wall Street wants

"He's the right man for the job," said Bradley Rubin, vice president of credit research at BNP Paribas Securities Corp. in New York. "But he's made some big mistakes."

Chief among them, Rubin said, was his decision to bail out Ford's former parts division, Visteon Corp. The agreement Ford inked with Visteon last year required the automaker to keep some 18,000 UAW members leased to Visteon on its payroll. Rubin said that shows a reluctance to make the sort of deep, painful cuts that will be necessary to restore Ford's North American operations to profitability.

Rubin's concern is shared by others on Wall Street. Two of the nation's leading credit rating firms -- Standard & Poor's Ratings Service and Moody's Investors Service -- lowered Ford's credit rating deeper into junk bond territory this month, despite the promise of a comprehensive corporate restructuring.

"The company's financial and competitive position will remain under considerable stress through 2007," Moody's said in a statement explaining its decision.

Most analysts want Ford to provide a detailed timeline Monday, one that includes clear and quantifiable benchmarks by which they can gauge the plan's success.

"If that's not part of it, we'll be pretty disappointed," Hutson said.

And, while analysts recognize it will take some time for many of the plan's elements to be realized, Wall Street wants to see some tangible improvements by the end of the year -- at the latest.

"I don't think the market is going to be thrilled by a five-year plan," Lache said. "People are going to want to see targets both near term and long term -- and long term means three years."

Fields, the man tapped by Bill Ford to fix the automaker, acknowledged Ford is on the clock. "The clock's ticking," he said.

"Obviously, given the competitive situation, we can't dawdle."
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