Cuts Aside, Ford Faces Rough Road Ahead
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The reality is setting in for the Ford Motor Company, which acknowledged this week that its recovery plan was not working. Just last January, the company unveiled what it called its Way Forward, which called for closing 14 plants and eliminating 30,000 jobs.
Ford thought this would make the money-losing company profitable again, but more drastic steps were necessary.
NPR's Jim Zarroli reports.
JIM ZARROLI: Earlier this month, Ford announced it was bringing on a new CEO, Boeing executive Alan Mullaly. This week, Mullaly got an early sign of how daunting the tasks facing him really are.
In a conference call yesterday, company executives said Ford's losses this year would be steeper than expected and the company would lose even more market share than first thought.
Mark Fields is president of the Americas for Ford.
Mr. MARK FIELDS (Ford's President of the Americas): And it is now clear that we were too optimistic in January about our ability to stabilize our market share, given the quicker-than-expected shifts in the marketplace.
The simple fact is that the business model that served us in North America for decades no longer works.
ZARROLI: Ford officials tried to sound positive about the company's prospects, about the promising new vehicles in production. But in the meantime, they said, the company will have to cut annual costs by $5 billion. It will offer buyout plans to all North American hourly workers and eliminate another 10,000 salaried jobs as well. Altogether, Ford will lose a third of its workforce.
Mr. FIELDS: We believe these changes, which are massive, will be enough to put us back on track. But we will remain quick, decisive and flexible in reacting to changing conditions in the future.
ZARROLI: For Ford's employees, yesterday's announcement seemed to raise as many questions as they answered. Hourly workers will have to decide whether to take a buyout. Salaried employees were left to wonder whether their jobs were on the line.
Michael O'Leary(ph), a supervisor in a Ford stamping plant, was outside a restaurant near company headquarters yesterday.
Mr. MICHAEL O'LEARY (Ford Plant Supervisor): We had already had ideas that it was company. And still it's unclear, because we haven't really been given a whole lot of details. When I read the newspaper, I'll probably know like everybody else.
ZARROLI: Sharon Denemy(ph), who works in customer service, said the job cuts went much further than she'd expects.
Ms. SHARON DENEMY (Ford Customer Service): Maybe it's early retirements, buyouts. I didn't think it was going to be actually people letting - being let go. It will be about 30 percent salaried workers and that's a lot of people.
ZARROLI: Ford is not the only automaker struggling right now. Daimler-Chrysler's U.S. subsidiary said Friday it would lose nearly $1.3 billion this year. And General Motors has plans to shut nine plants.
Automakers have been hurt by higher gas prices, which have caused sales of SUVs and light trucks to fall sharply. But critics such as economist Peter Morici of the University of Maryland say the industry also has structural problems, in particular relatively high labor costs. He notes that Ford has lost a big part of its market share in the past decade.
Mr. PETER MORICI (Economist): That process will continue if Ford's labor costs are not aligned with those of Toyota, Nissan and Honda, as they operate right here in the United States.
ZARROLI: For automakers the relatively high cost they face lead to a kind of vicious circle. Sean Egan, managing director of the Egan Jones Ratings Company, says Ford in particular simply hasn't had the money to re-jigger its product line-up.
Mr. SEAN EGAN (Egan Jones Ratings Company): Unlike Toyota, which has about $80 billion in cash that they can allocate to product development, Ford simply doesn't have the free cash flow. In fact, they'll probably lose about $8 billion this year.
ZARROLI: Egan said yesterday's announcement by Ford that it was accelerating its cuts probably wasn't enough to really turn the company around. That view was widely shared by analysts, many of whom called Ford's announcement disappointing. A Merrill Lynch analyst downgraded the stock from neutral to sell, saying the plan was, quote, "missing a lot."
Jim Zarroli, NPR News.