Turning Ford Motors Around
NEAL CONAN, host:
This is TALK OF THE NATION, I'm Neal Conan in Washington.
It doesn't sound like a way forward so much as a way out. The venerable Ford Motor Company plans to slash up to 30,000 jobs and close 14 plants in a massive restructuring it hopes will turn its North American auto business back into a profitable venture. Both Ford, the number two automaker, and number one, GM, are reeling from an inability to adapt to a changing market, and from some poor decisions. GM announced similar cutbacks last November. The companies blame falling sales of profitable SUVs, rising material costs, and what they describe as tough labor contracts. Both are losing market share to more agile foreign competitors.
These days most Taurus's are relegated to police and rental fleets, while more and more people choose Camrys and Civics instead of Escorts and Malibus. So, how do you save a struggling company in the global economy? The American auto industry isn't the only business looking for a way ahead. And as bleak as their prospects might look now, it has been done before. Many companies have recovered from serious difficulties to prosper again; telecommunications companies, airlines, and small businesses that start so far behind the eight ball they have to be pretty clever to compete at all.
This hour we'll talk about saving a company, how businesses are performing a balancing act in order to crawl out of a hole, placating unions, trying to churn out cutting edge design and fend off foreign competitors. Join the conversation. Are you an employee of Ford or GM? Have you owned or managed a business struggling from the red into the black? Our number here in Washington is 800-989-8255, that's 800-989-TALK. The email address is firstname.lastname@example.org.
Later in the program Shibley Telhami joins us to discuss today's Palestinian elections, but first, joining us to explain what happened at Ford and why, is John McElroy, an automotive journalist and host of the television program, Auto Line Detroit. He's in the studios of our member station in Detroit, WDET. Nice to have you on TALK OF THE NATION.
Mr. JOHN MCELROY (Editorial director, Blue Sky Productions): Thanks for having me Neal.
CONAN: So, how did Ford find itself in this position?
Mr. MCELROY: Well, you know, it's a long story. This is not an easy one at all, but, you know, basically what's happened with the domestic auto industry, GM and Ford in particular, is that for a number of decades now, this is not an overnight phenomena, they really have not been coming out with the kind of products that truly tug at the consumer's heartstrings, that people say, Boy, that's the one I've got to own. On top of that, they've got these legacy costs, as it's known in the industry, pension costs, healthcare, what they call the jobs bank, and a number of other things too that have got their costs going way beyond anything that their competitors face.
CONAN: Well, given that, I mean, they should have seen this coming, no?
Mr. MCELROY: Well they did see it coming. I mean, and everyone's been talking about it, but, just as in a democratic society, even in a corporate environment, sometimes you need to have a crisis before anyone starts to truly take the tough decisions.
CONAN: So they, in some ways this is a crime of inertia? They just couldn't change course?
Mr. MCELROY: Well, you know, they could have. Obviously they could have, and should have. I mean, some of these problems could have been caught a couple of years ago, but it's, it's not that easy. It's not as if they've just had their head in the sands. There are a lot of forces that are working on them to try and keep the status quo, but clearly, the position that they're in right now cries out for drastic action. And we've seen GM and Ford just announce some drastic action.
CONAN: Yeah. Ironically, Ford made money globally. The one problem area, of course, is North America, which is, of course, their core business.
Mr. MCELROY: And, you know, you raise a good point. Ford and General Motors both have been bleeding money in Europe, as well. They've gotten that straightened out. They're doing relatively well in Latin America right now, and both of them, especially General Motors, are off to the races in the Asia Pacific region, particularly China.
CONAN: And, given that, I mean, we did see what GM did last November, in what ways are the problems at GM and Ford similar and in what ways are they different?
Mr. MCELROY: It's, they're very, very similar problems. It tends to be a matter of degree, not so much difference in problems. General Motors just having been such a much larger corporation has a bigger number of people in its pension load. They just have that many more retirees. Same thing happens when it comes to employees, in the case of health care, their costs are just that much higher. But other than that, their problems are remarkably similar.
CONAN: Um hm. Can you talk about product planning and how that's changed in the industry? How did Ford use to design cars, and how do they design them now?
Mr. MCELROY: Well, from a technological standpoint, it's been absolutely amazing to see the technology that they use today. You can simulate everything. You can design a car in a computer, you can run it down the road in a computer, you can crash it, you can build an assembly plant in a computer, you can simulate how you build the car in that; that's absolutely transformed how the way that cars are being designed today. Not so much that the cars themselves look different, but automakers, their engineers, their designers, and their manufacturing processing people, can try out all different kinds of things in the computer before they determine what the optimal design is, then they go build that. That has allowed the industry to build many more models than it did before.
Here's a good example. In 1960, there were about 60 different models sold in the American market. Today, depending on how you count it, and the like, there are over 400. And the great explosion in that product has literally come about in the last ten years or so. It's not just that there are more car companies coming into this market, and there are, it's just that every single one of those car companies can now make many, many more different types of vehicles than it ever did in the past. So that's one thing that we've seen change, from a technological standpoint.
But where I think Detroit kind of lost its way is that it was much too financially driven. You know, we have quarterly financial reports, we have earnings guidance that we provide to Wall Street; well, in Europe, for example, they don't have quarterly earnings reports, they put out two reports a year. Same in Japan, the Japanese in particular are much more product oriented, much more customer oriented.
If you talk to the top CEO in just about any American company, but this is especially true of GM and Ford, they'll tell you their job is there to maximize shareholder value. If you talk to the top CEO's in Japan, especially, they'll you, What we're trying to do is figure out how we can delight the customer." So I say, who's car do you want to buy? The ones who are maximizing shareholder value, or the ones who are trying to really delight their customers?
CONAN: Let's get some listeners involved in the conversation. If you'd like to join us, our number is 800-989-8255, that's 800-989-TALK. Our email address is email@example.com.
Let's begin with Ryan. Ryan's calling from Muncie, Indiana.
RYAN (Caller): Hello.
RYAN: I work for BorgWarner Automotive, building transfer cases for the Ford Explorer, and I'm going to be laid off this year. It's been planned for awhile of course, because of the slumping sales of large SUVs. And, it seems to me like executives in the auto industry have a feeling of entitlement. And it's almost a mirror image of what happened in the 1970's when the fuel prices and they were making large vehicles and the Japanese weren't. And I was wondering what your thoughts were on that?
CONAN: John McElroy?
Mr. MCELROY: Sure thing. You know, I would say that the United States has almost been the most protected market in the world because of our low gasoline prices. You know we're crying crocodile tears now, with gasoline prices in the $2.30, $2.50 range. We saw it spike up over three bucks a gallon nationwide back last summer with hurricane Katrina. But the rest of the world laughs, laughs, they think it's funny that we think those are expensive gasoline prices. When I go over to Europe, it's six bucks a gallon; some countries it's seven.
In Japan, it's five bucks a gallon. So, they have a whole plethora, a whole portfolio of products that are designed for high gasoline prices. It's very easy for them to say, ah-ha. Looks like gasoline prices are going up. We think America is probably going to start changing its buying habits. Why don't we start exporting some of those cars to America? Whereas here, if you want to change a vehicle design, as I'm sure you are well aware, despite how everybody is talking about how they can come out with new cars and trucks faster, from start to finish, it still takes about three years to come up with a new program.
So, the new vehicles you see coming out right now today were designed in the 2002 to 2003 timeframe when gasoline was still a buck fifty a gallon. And I'm sure they're scrambling right now to come out with new vehicles, but the more fuel efficient ones probably are not going to show up for another two to three years yet.
CONAN: Mm hmm. I think Ford announced today, in fact, that, I think tomorrow at the Washington Auto Show they're going to debut a research vehicle that can use ethanol. That's one of the, I guess, new direction they're going in.
Mr. MCELROY: Well, you know, actually this is one area where I think the Big Three have a huge advantage in the marketplace. They've been building E85 vehicles for years now. E85 means that the vehicle can run on as much as 85 percent ethanol, only 15 percent gasoline.
Now the reason that they've been building them is there's a loophole in the fuel economy laws that says if you build an E85 vehicle, we'll count it as 75 miles to the gallon. That's what the vehicle is worth. So they've been using this as a loophole to boost up their overall fuel economy standings.
By the way, they didn't lobby for this law. That was a gift to them from the farm lobby, which really wants to push the use of ethanol because you grow corn to make it, or at least that's how it's predominantly done in this country.
CONAN: Mm hmm.
MCELROY: But now they've got a huge advantage here because they've been building these E85 vehicles for years. There are literally millions of them out there.
A little known aspect of the Energy Bill that was enacted last year is that it commits the United States to using 7.5 billion gallons of renewable fuels by 2012. Now that's about five percent of our transportation energy needs. It's a small step, but a very important step. And if I were the big three, you know, GM, Ford and Chrysler, I would run with this. I would jump on the bandwagon because virtually none of the import brands have E85 vehicles. There's a one or a two there but not really very much.
So, here's something that they could jump on, say, Hey, help us help the United States. Here's an opportunity for us to grow our fuel in the Midwest rather than import it from the Mid-East. We're building the vehicles, we're doing our part; you can do your part by buying them.
There's only one catch though. Where do you go get E85? I mean here in the state of Michigan there are only four filling stations where you can buy the stuff. So clearly, there's an infrastructure issue, but it's one that could be overcome relatively quickly.
CONAN: And I did omit an important word in there that is hybrid research vehicle. That's another word.
Mr. MCELROY: Yeah.
CONAN: Ryan, before we let you go have you made plans? You got a look for the way ahead?
I'm actually going to go work at a Lexus plant in Southern Indiana.
CONAN: A Lexus plant.
RYAN: Yes, which has just been reopened, or just opened. It's brand new in the past three years.
CONAN: To take advantage of their growing market shares no doubt.
CONAN: Okay. Ryan, good luck to you, 'appreciate the phone call.
John McElroy, stay with us. We're going to take a short break.
We're talking today about the Ford Motor Company, its announcement to close some 14 plants and layoff 30,000 workers. So how do troubled companies find their way back from difficulties and the brink of disaster: 800-989-8255, 800-989-TALK; e-mail us, firstname.lastname@example.org.
I'm Neal Conan, back after the break. It's the TALK OF THE NATION from NPR News.
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CONAN: This is TALK OF THE NATION, I'm Neal Conan in Washington. We're talking today about the Ford Motor Company and its announcement that it plans to close 14 plants, lay off some 30,000 workers. As dire as the future may seem, Ford is hardly the first company that's had to make drastic cuts to turn itself around. It will not be the last. What are the strategies that companies employ to stay competitive in today's global economy?
If you'd like to join the conversation, our number is 800-989-8255, 800-989-TALK; our e-mail address is email@example.com.
Our guest is John McElroy, an automotive journalist and host of the television program Autoline Detroit.
And joining us now is Professor Henry Farber, the Hughes Rogers Professor of Economics at Princeton University. He joins us from their studios and it's nice to have you on the program today.
PROFESSOR HENRY FARBER (Hughes Rogers Professor of Econonics, Princeton University): Thank you, Neal.
CONAN: Professor Farber, 30,000 layoffs and 14 plants to shut down essentially. How big, this could have an enormous impact on Ford workers.
Prof. FARBER: Yes, any time workers lose jobs, obviously, even if one worker loses a job it has an enormous impact on that worker. And when so many workers lose jobs in one area it also spills over into the local, what we call the local labor market and makes it hard for people to find jobs.
CONAN: And as our previous caller said, it, worked for a company that supplied parts, it affects companies other than just Ford.
Prof. FARBER: Absolutely. There's a trickle down through the supply chain. And more than that, in the communities that are affected, people who provide goods and services to people who live there and earn money in the auto plants and then don't have that money to spend. They're affected as well.
CONAN: Mm hmm.
Prof. FARBER: So the labor market effects can be quite broad.
CONAN: Now would it have been appropriate for Ford, or GM for that matter, to have brought the unions into their decision-making process a little earlier?
Prof. FARBER: Well, I don't think the problem here is not bringing the union into the decision-making process. In fact, for many years the contracts that the auto companies have signed with the UAW have included many provisions regarding what happens to workers when they get laid off, what responsibility the automakers have to those workers so there are what they call, the job banks program...
CONAN: Mm hmm.
Prof. FARBER: ...and buyouts and so on. But it's been a tenet of American labor, and this differentiates it from labor movements elsewhere in the world, it's called the right to manage model which basically means that, in fact the unions have in general not been very interested in being part of the decision-making process.
CONAN: And that means that...
Prof. FARBER: I don't mean, by the way, not to interrupt, but I don't mean to say that they never want to have a say in that, but in many cases, they're not front and center on that.
CONAN: And unlike in Germany, where they're on the Board of Directors.
Prof. FARBER: Correct.
CONAN: Now, following the announcement at Ford the union leaders, UAW leaders said workers are being made to pay for bad decisions by management. But is management right? Are those labor contracts onerous?
Prof. FARBER: The labor contracts are onerous in the sense that they do impose substantial costs going into future on the automakers. And, but the fact is the automakers agreed to these contracts. It's not as if the union forced them to sign those contracts. So it's a little disingenuous to say the union made us do this because it was a result of collective bargaining.
And, you know, the big long run problem is a little bit akin to the problem of the Social Security System. Which is that as the baby boom ages, there's fewer and fewer workers who are out there to earn the money to pay the benefits of the retirees because the pool of retirees gets bigger relative to the pool of workers.
Well, as the auto industry shrinks and the union, I'm sorry, and the manufacturers have a commitment to pay pension and health benefits to their retirees, there's fewer autoworkers, there's less profits, there's less production that is needed to fund that. If the automakers would have foreseen that they were shrinking, what they should have done is they should have funded these long-term liabilities. And they haven't done that. It's on a pay-as-you-go basis for a substantial segment of that.
CONAN: Now it seems obvious that the unions and the companies have a, you know decided interest in the profitability and health of the industry in the future. Should one of the innovations that GM and Ford look at is a new kind of partnership with their workers?
Prof. FARBER: Well, they could and there have been some experiments in that regard. In terms of, there was work 20 years ago looking at the Japanese model, the NUME, New United Motors, which, a joint venture between GM and Toyota in Freemont, California, was meant to have somewhat different labor relations. You know, the Saturn plant was meant to have different labor relations and so on. There's always a question is GM, are GM and Ford producing the product that consumers want? I think the union has a point when they say, Gee, we are paying, as others are, for the bad decisions made by the manufacturers.
CONAN: Mm hmm.
Prof. FARBER: I don't think you can lay design problems on the workers.
CONAN: No they say that, you know, the metal that's shaped on the outside, we have nothing to do with that.
Prof. FARBER: Right.
Mr. MCELROY: Hey, Neal, let me jump on this a little bit.
CONAN: Sure, John McElroy, go ahead.
Mr. MCELROY: Sure thing. You know, here's a great bar bet: when was the all time peak in automotive employment in the United States? And the answer is the year 2005. We keep hearing the headline and reading the headlines and hearing the headlines of all the layoffs and all the problems that General Motors, Ford and I'm told recently Chrysler was in, no, looks like Chrysler may have turned the corner.
CONAN: Mm hmm.
Mr. MCELROY: But the American auto industry is booming. It's going great. It's just being led by companies named Toyota, and Honda, and Kia, and Hyundai, and BMW, and Mercedes, and the like. And they all manufacture in the United States. Not only do they manufacture here, all the ones that I just named are expanding their manufacturing operations here.
The key difference between their operations and those of the Big Three is a lack of a union. So there's no question, I'm not trying to put this all on the union because I agree with what the professor is saying there. Most of the blame can be laid with management, but there's no question that these union agreements are onerous. And it's the key difference between how the traditional domestic automakers are performing and how the new ones are.
CONAN: Let's get another caller on the line and this is Jonas. Jonas, you're on the air; go ahead please.
JONAS (Caller): Hey, how are you doing today?
JONAS: Hey I just want to say I am sort of amazed at how many people seemed to be surprised at all this. I don't think it's the union's job to determine how car manufacturers compete in the United States besides the global positions. I think it's the leadership and the corporations. And we've seen ship building and all sorts of other manufacturing go overseas and everybody acts surprised about it, but the Asians and the, well especially the Asian seaboard has been just gobbling up manufacturing jobs.
And it's based on labor costs and the willingness to put out a product that really operates well and lasts well. And I just, I feel bad for all these workers that have trusted their unions to, you know, keep their wages high and their benefits in place when the manufacturing leadership is building cars, are as big as dinosaurs and run on something called fossil fuel.
And I just, I feel sorry for the companies that are suffering, but it's just been foreseen by so many of us. I don't know what the big surprise is. And I just think that they should really start considering the rest of the manufacturing jobs and jobs in general in America and take a little bit different leadership stance and decide how they're going to compete in this global marketplace that they seem to be dumbfounded by.
CONAN: Yes. Henry Farber, I wonder if you had any reaction to that?
Prof. FARBER: Yes, I think the caller makes some good points. What workers have to do is ask in the global marketplace what do they have to offer that workers elsewhere don't? There's skill, the fact is capital is a very important part of this. In other words, if you go to the Far East and you go to China, what you see is, roughly speaking, this is changing, but it's a capital poor country. So they produce with much more labor. Labor is lower cost and much less capital.
In the U.S., what we can do is we can combine highly skilled workers with modern capital because we're a capital-rich country and a skill-rich country really. And we have to focus on those advantages and that, indeed, the success of the new car manufacturers in the U.S., the foreign manufacturers who open production plants in the U.S. is that they're reasonably high tech but they use modern capital. They use a highly skilled workforce and it shouldn't really be minimized. They do tend to locate in states which, historically, have not been, let's say, strongholds of the union movement.
CONAN: Mm hmm. Yes, North Carolina, Texas, places like that.
Prof. FARBER: Yes, North Carolina, Mississippi, Alabama, South Carolina, you know, et cetera. And they do it, you know, that's done on purpose. It's certainly true: the union is perceived as restricting the way the workplace operates. It's seen as imposing higher costs of production. You know, it's certainly true everyone is building big vehicles, everyone is building vehicles that work on fossil fuels, and, you know, that raises a whole set of very long-run issues.
Prof. FARBER: But in the short run, frankly, the, you know, the industry, one of the great strengths of the American economy as a jobs-creation machine, and we are, we do create jobs at a tremendous rate here, is that industries do grow and industries do decline and disappear. This is not different in some fundamental way from what happened, for example, to the textile and shoe industry in New England 50 years ago.
CONAN: Professor Farber, thanks very much for being with us today.
Prof. FARBER: Okay, you're welcome.
CONAN: And Henry Farber is Hughes-Rogers professor of economics at Princeton where he specializes in labor economics and he joined us from his office there at the university.
And John McElroy, you mentioned Chrysler earlier. Just a few years ago, Chrysler was in just as bad trouble as GM and Ford are in today, and they seemed to have turned it around by developing some cars that people do want to buy.
Mr. MCELROY: That's exactly right, and that's the magic of the auto industry. If you hit the product right, if you just nail it, people will come out of the woodwork to buy the thing. And Chrysler has been able to do that, most notably with the Chrysler 300, the sort of, some people think, gangster-like sedan, but it's proved immensely popular. However, it wasn't just that. They took the bitter medicine that GM and Ford have just announced they're about to take. Chrysler did that back around 2001.
They laid off some 20,000 people, they outsourced a whole bunch of operations, probably getting rid of another 30,000 workers on top of that, but then they really got themselves lean, mean, focused, and came out with the kind of products that people really like. And as I said, it looks like they've turned the corner.
CONAN: Well, Donald Sull joins us now. He's professor of management practice at the London Business School and author of Revival of the Fittest: Why Good Companies Go Bad and How Great Managers Remake Them. He joins us by phone from London. Appreciate your time this evening.
Professor DONALD N. SULL (Professor of Management Practice, the London Business School): My pleasure, thank you.
CONAN: So, Professor Sull, what kinds of strategies can companies employ to survive and, well, be it Chrysler as opposed to stay in the kind of trouble that GM and Ford are in right now?
Prof. SULL: Yeah, I think the, the first thing that they have to recognize, I think that often gets lost in the discussion about the auto industry is a turnaround is not a transformation. I mean, a turnaround is the patient, you know, the company is wheeled into the emergency room, it's in crisis, you fix that, and the transformation is about fundamentally rebuilding its capability, it's about rehabilitation. In, you know, in a turnaround, you create value by just cutting the losers, what's losing money, you know, workers you don't need, plants you don't need.
In a transformation, you create value by growing profitably. And I think here's the punch line for the auto companies: a turnaround takes a year or two, maybe; a transformation, rehabilitation to grow profitably takes a decade. And it seems to me that the auto industry has been, not Chrysler as one of the other speakers just mentioned, but Ford and GM, they just kind of reel from crisis to crisis to turnaround to turnaround without ever really engaging in the hard work of transforming to grow profitably.
CONAN: You can find a timeline tracking the Ford Motor Company and a Q&A explaining how the company hopes to lure back its customers at our Web site, NPR.org. And you're listening to TALK OF THE NATION from NPR News.
And, is the automotive business, you're speaking sort of in general terms, is it fundamentally different? Its got its own specific set of problems, but is it different from an airline or a telecommunications company?
Prof. SULL: No, no, I don't think so. The, if you, there is no such thing as an industry where nobody makes money. Take the hardest industry - steel - Mittal Steel, now the leading steel company in the world, started in a single mini-mill in Indonesia about 20 years ago. The owner is, you know, has a net worth in tens of billions of dollars, you know. Cement with CEMEX. Emirates Airline in airlines. You know, no matter how hard the industry is, you can find value-creation stories.
The problem, I think, is that what it requires, and a couple of the speakers have mentioned this, is agility. You can't just win on having a lot of plants and a lot of people, just hoping that resources will win. It's the ability to anticipate opportunities, gaps in the market, provide the products, do that quickly, get out of the things that aren't working. And it's those agile companies that are dominating and creating a lot of value in these other tough industries. And I think it's, it's the same thing that Ford and General Motors have to get to. It's just the problem is, it's a long way from their legacy.
CONAN: Well, how do they get more agile? I mean, for one thing, I would think being smaller will help.
Prof. SULL: Yeah, they have to. I mean, it's, you know, the U.S. auto companies have always struck me as the Ottoman Empire, you know, it's this vast thick empire for decades and decades and decades, and the leaders just tried to hold onto everything, even though, it was, you know, their resources were spread too thin, it was too weak to do that. And then along comes Kamal Mustafa and says, no, listen, we're going to shrink down to Turkey and that's something we can defend and build on, and we'll give up the empire to get, shrink down to something we can defend, and that's, that's the first step. I mean, that's the, in a sense, the easy step, but they have to do that.
CONAN: Let's get another caller in. This is Randy, Randy with us from Niles, Michigan.
RANDY (Caller): Hi, Neal. Thank you very much for taking my call. I've dealt with the auto industry from a, what I'd call a close customer relationship in the recreation vehicle and custom vehicle conversion industries...
RANDY: ...and we've found, and I've found also as a member of an ad agency that worked with one of the major auto makers or auto divisions that's no longer around, Oldsmobile, what appalls me about them is that their middle managers are almost obsessed with retirement. This is what they talk about. It's almost, it's like this litany of that's why they're there, you know, they're there to put in their time, move up the ladder as far as they can, and then retire and go to something on the side or become a consultant for the car company you just left, and things like that. I've never felt that any of the people I dealt with, or very few of them, had any real fire for the industry or the companies that they worked for.
CONAN: John McElroy, is that right?
Mr. MCELROY: There's a lot of that. There's no question. In fact, they often refer to the clay of middle management, that nothing seeps through. But you know what? That's something that I think you can lay with the top managers. If they're not able to motivate and really get their people to do something, shame on them. That's where I lay the blame, not so much on the middle managers, but with the lack of leadership at the top.
CONAN: And, is that, would you agree with that, Don Sull?
RANDY: To a certain extent yes, but I think there is this whole corporate culture that values conformity and not rocking the boat, things like that, and I think that affects the senior management, as well. Nobody really wants to be seen as an instigator or an agitator because that's evil, for instance, and as far as the agility of the companies, the two industries that I've worked with are probably the most agile, in terms of responding to consumer needs and things like that. And the one industry in particular, the vehicle customizing industry, has been strangled with regulations and the, you know where the legal departments of the auto companies...
CONAN: I'm afraid, we've got to, we've got to end it there. Randy, thanks for the call. Don Sull and John McElroy, thank you both very much for being with us. We're going to continue this conversation with another guest after a short break and talk about Palestinian elections. This is NPR News.
CONAN: This is TALK OF THE NATION. I'm Neal Conan in Washington. Here are the headlines from some of the other stories we're following here today at NPR News.
Palestinians voted today in their first parliamentary election in a decade. Voter turnout was heavy in both the West Bank and the Gaza Strip after a hard-fought campaign, largely between the ruling Fatah movement and the militant Islamic group, Hamas. More on that in a couple of minutes.
And Secretary of Defense Donald Rumsfeld is disputing reports that suggest the U.S. military is stretched too thin. That comes after a study conducted for the Pentagon reportedly said the Army is over-extended in Iraq and cannot sustain troop levels there long enough to break the back of the insurgency.
You can hear details on those stories, and much more, later today on ALL THINGS CONSIDERED from NPR News. Tomorrow on TALK OF THE NATION, we'll talk about a new study that looks at the lives of day laborers, who they are, how they live, and at the tension in some communities where they look for work. That's tomorrow on TALK OF THE NATION.
Today, we're talking about restructuring companies and helping them to remain competitive in a global economy, case in point, Ford, which announced a massive restructuring earlier this week. Mark Gottfredson is a partner at the consulting firm, Bain and Company. He heads the Global Performance Improvement Practice, and he joins us now by phone from his office. Nice of you to be with us today.
Mr. MARK GOTTFREDSON (Head of Global Performance Improvement Practice, Bain and Company Consulting): Good to be here. Nice to talk to you, Neal.
CONAN: Companies like Ford often use consulting firms to help them strategize. What do you think their options were? Is this the way forward?
Mr. GOTTFREDSON: Well, I think it's a good step forward. I think they have to take some action. It's pretty clear that they're in a situation where they have much more capacity than they have sales, and if they don't take the actions that, you know, obviously it would lead to, to much more drastic actions in the future, and so it's, it's a reasonable start. You know, it would have been nice if they had been able to foresee some of the things and, and, and do it so it didn't have to be done in such a drastic way, but that's water under the bridge at this point and I think it's time to, to look forward.
CONAN: And, you say it's a start. What else do they have to do?
Mr. GOTTFREDSON: Well, you know, if you think about it, if you want to really be successful in business, just kind of speaking generically, there's kind of two ways: you either have to the low-cost producer or you need to have something in your product line that gives you something that other people don't have. That could be brand, it could be technology, it could be a lot of different things.
But, you've got to have a good low cost and competitive cost position. And then you need to be doing something with your products. I, and, you know, with Ford, I think that the steps that they're taking, they're taking out a lot of capacity. I think the question and some people are asking, is it enough? I think they need to take a good, hard look at what it takes to be amongst the low-cost producers globally and, and that's going to require a lot of work on their effort.
But I also think there's a lot that they can do on the product side. One, one example that I might give you is just that their products in many cases are, are far too complex. If you forget the wage rates and so on of people in foreign countries, many of the foreign makers in their vehicles have many, many fewer options and have much more packaged vehicles, which creates a lower, lower systems cost all the way through.
And I think there are some things they can do to target the market. They were very lucky in the '90s when SUVs took off. They were in the right place at the right time, and of course, they demonstrated during that time that if you're in the right place at the right time with the right product that you can be very successful, and during the latter half of the 1990s, Ford was incredibly successful in selling a lot of vehicles.
And so, clearly getting the right products, finding the places that there are some white spaces in the market, and having superior product to your competition is going to be critical.
CONAN: Mm-hmm. Let's get another caller on the line. This is Ron, Ron is calling us from San Francisco.
RON (Caller): Good afternoon.
RON: I grew up in Dearborn, Michigan. My mom worked at Ford's, I worked at the Henry Ford Museum there, and I tell ya, I mean, if anybody should be able to buy or want to buy a Ford, it's me, and there's no way I'm going to do that.
I think one of the things that your people are talking about are just about cost reduction and things like that, but I really think that the company has to radically change its image and, you know, basically abandon its aging customer base, re-brand itself, and in effect, sort of become, you know, the Apple of the auto industry, because, as far as I'm concerned, with my experience with the cars from the '70s and the '80s have utterly, completely turned me off from the company, and there's no way that they'll get me back, or even get me to consider their products unless they demonstrate that they are a fundamentally different company from the marketing prospective, not just from costs and other issues that you're talking about.
CONAN: Mark Gottfredson?
Mr. GOTTFREDSON: I agree completely. I think that getting good product is absolutely essential to the long-term health of the company. I do believe that they need to get their costs down to be competitive. You'll continue to lose share if you can't sell a product at a price that people will want to pay for it, but there's no question at all that having the right product for the market is very critical, and I think that there's opportunities for them there to, to develop those kinds of vehicles. I think they have that capability. They certainly demonstrated it during the SUV bill.
CONAN: Ron, thanks for the call.
RON: Thank you.
CONAN: Is it different for companies that actually make things, manufacturing companies, like Ford and GM, as opposed to companies, service companies, or people who deal in products like software?
Mr. GOTTFREDSON: Only in the sense of what their value chain steps are. If you're providing services, you obviously don't have many of the physical assets, a lot of times, that you would have in a, in a manufacturing sense, and that changes the decisions that you have to make, what you're manufacturing footprint is, and certainly, in a global economy, that's the case. But we know from what's happening in services today, and the outsourcing there, that they face many of the same kinds of issues.
At the end of the day, it really comes to thinking about your product line. Do you have a product that meets the market needs, and can you provide them at a cost that is competitive, relative to all of your competitors?
CONAN: Mm hmm. And, as, another thing that these big manufacturers have is, we've been talking about these, about these union contracts. Again, they agreed to them, so nobody put a gun to their heads, but this is something they've got to look in a longer term.
Mr. GOTTFREDSON: Absolutely, and both sides really need to be very thoughtful, both the management and the unions need to be very thoughtful about this. The unions will be, should be very focused on how Ford can become more competitive. I know that the cuts will be very, very painful for them, and it sort of flies in the face of many of their big goals, which are to, you know, improve the number of jobs, to improve the pay that people get, and so on and so forth. But there are real oppurtunities on the productivity side, and things that they can do.
And if they are willing to sit down and work with management to make the company competitive again, do their part, I think there's a bright for the unions, as well. We recently did some research of the 1,500 largest publically held companies in the U.S., and we, it, very interesting thing came out of it. We looked at, over the last three years, companies that had been profitable all three years, companies that had had been unprofitable all three years, and then, profitable one year, profitable two year.
And, basically, the answer is that companies that have been profitable for three years in a row have averaged, in the United States, 12% job growth. Companies that have been unprofitable three years in a row averaged 12% job losses, and the two points in between, profitable two years and profitable one years, follows straight line between those two. And so, it's absolutely critical that the unions help Ford get back to profitability, because that will ultimately mean more jobs and better pay for them.
CONAN: Mark Gottfredson, thanks very much for your time, today. We appreciate it.
Mr. GOTTFREDSON: Nice to talk to you.
CONAN: Mark Gottfredson, a partner at the consulting firm of Baine and Company, he's the head of their Global Performance Improvement Practice, and he joined us by phone from his office.