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Ford teams to attack costs

As carmaker considers cutting jobs and benefits, two groups will reduce product, operation costs.

Bryce G. Hoffman / The Detroit News

DEARBORN -- Ford Motor Co. has formed two internal teams to reduce costs in product development and manufacturing operations and review capital investments as part of an acceleration of its North American turnaround plan launched in January.

The automaker is also contemplating additional cost-cutting moves -- including more white-collar job and benefit cuts, The Detroit News has learned.

The new cost-cutting teams come as Ford posted a larger-than-expected $123 million loss in the second quarter.

One team -- led by Raj Nair, a Ford engineering executive -- is charged with poring over the company's product development and manufacturing operations to root out inefficiencies and identify new ways to make better cars and trucks for less money.

The team will report to Anne Stevens, chief operating officer of Ford's Americas group.

The other group will examine Ford's capital investment strategy to make sure money is being spent in the right areas.

"It cuts across the whole product side of the business," said Ford spokeswoman Sara Tatchio. "Quality will not be compromised. In fact, our aim is to improve it."

High-level employees learned of the new cost-cutting initiatives last week in briefings conducted by management after the company announced a second-quarter loss.

Ford has cut more than 4,000 salaried positions and is on track to eliminate as many as 12,000 factory jobs by the end of the year as part of its "way forward" plan.

The plan calls for idling 14 factories and axing some 30,000 factory jobs by 2012, but Chairman and CEO Bill Ford Jr. said last week that those plans have to be accelerated.

"While 'way forward' as launched in January is working in virtually every respect, the conditions that we're facing now are different," he said, referring to a dramatic market shift from sport utility vehicles and pickups. "We need to go farther and faster."

While Wall Street remains skeptical, some analysts are cautiously applauding this effort to shift the "way forward" plan into a higher gear.

On Tuesday, Merrill Lynch analyst John Murphy raised his rating for Ford from "sell" to "neutral" on the strength of this new effort. The rare upgrade helped push Ford shares up 23 cents to $6.59 Tuesday.

"The 'way forward' plan is currently a repeat of the old 'revitalization,' " Murphy said. "However, it is on the verge of being accelerated with the update expected by mid-September. We believe the key is accelerating headcount reduction."

Ford is evaluating additional moves aimed at further cutting payroll costs and reducing excess production capacity in North America. Employees were told that options on the table include further headcount reductions, cuts to employee benefits and additional plant actions.

Ford said it plans to provide details on new cost-cutting actions within 60 days.

But the company says it can also save money by working more efficiently. Ford had already had some success in Europe by forming cross-functional teams to look for ways to reduce waste.

"We are looking very intently in terms of looking at commodities and systems and components and how we leverage our scale globally," Bill Ford told analysts and media last week. "As it pertains to products, clearly anything that we do in this area has to make sure it delivers the brand and the brand promise."

Ford has taken a close look at the way its Japanese rivals operate -- tearing down Toyotas and Hondas, dissecting them like anatomy students to see how they are put together. While this is common practice among automakers, Ford plans to increase the amount of reverse engineering it does to ensure that it's using the best practices.

Ford has already taken several pages from the playbooks of Japanese automakers. It is pushing designers and engineers to use common parts wherever possible and put the most money and attention on the portions of a vehicle that consumers can see and feel.

Ford has also developed its own innovations, using computer technology to improve its vehicle design and engineering. Using this virtual approach, design problems can be identified and corrected before the first prototype is ever built.

The purpose of Ford's new product development cost-cutting team is find even more ways of improving efficiency and reducing expenses.

"They're not likely to get anywhere near the type of savings they could get from headcount, benefit and capacity cuts," said Craig Hutson, an analyst with Gimme Credit. "But it's certainly prudent on their part to look at everything."
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