January 23, 2006

Ford to Cut Up to 30,000 Jobs and 14 Plants in Next 6 Years

Ford's announcement came two months after General Motors said it would close all or part of a dozen factories and eliminate a similar number of jobs.

Including cutbacks that have taken place at the Chrysler Corporation since 2000, the Big Three automakers have eliminated or plan to eliminate 86,000 jobs, or about one-third of their North American work force.

The United Automobile Workers union, which represents workers in the United States, said Ford's cutbacks were "deeply disappointing and devastating" for its members.

But the industry's retrenchment does not spell the end of automotive manufacturing in the United States, Canada and Mexico - indeed, far from it. As Detroit has cut back, foreign automobile manufacturers have created tens of thousands of jobs at new factories from Ontario to Ohio and across the American South to Baja California.

Because of that growth, there was no net loss in North American automotive jobs in 2005, according to James P. Womack, an author and expert in manufacturing efficiency. Meanwhile, foreign automakers including Toyota and Nissan of Japan, Hyundai of South Korea, and BMW and Mercedes-Benz of Germany, which collectively had 60,000 workers at the North American plants last year, all are expanding, helping to offset the cutbacks announced by the Detroit companies.

For Ford, however, the surge by foreign automobile manufacturers only heightens the pressure to reverse a slide that began at the beginning of the decade. Last year, Ford's share of the American car market dropped to 17.4 percent, its lowest level since the 1980's. By contrast, Ford held a quarter of the American market 2000, when its sales were fueled by sport utility vehicles, which are now losing popularity in the face of high gasoline prices.

Because of that decline, Ford's plants in North American are operating only three-quarters full, leading to the company's decision Monday to close factories under a plan it calls "the Way Forward."

Ford's chief executive, William Clay Ford Jr., a great-grandson of Henry Ford, called the cuts "a painful last resort." But he said the company's plan included "the vision and strategic focus to rebuild the business. With it," Mr. Ford said, "we will retake the American roadway."

Ford said it would shut assembly plants in Wixom, Mich., outside Detroit; Hapeville, Ga., outside Atlanta; and in Hazelwood, Mo., a suburb of St. Louis. The automaker also is cutting one shift of workers at its assembly plant in St. Thomas, Ontario, about two hours west of Toronto.

The automaker also said two more assembly plants would close, although it did not identify them. Ford is closing a transmission plant in Batavia, Ohio, near Cincinnati, and auto industry analysts said they expected other Ford parts plants would also shut as the company decides which assembly plants will close.

The 30,000 job cuts are in addition to the 4,000 managerial positions, or 10 percent of its management staff, that Ford has previously said it would eliminate. The company also said today that it would trim the number of corporate officers by 12 percent.

Ford employs 122,000 people in its North American operations and the cutbacks would represent 20 to 25 percent of its work force. The plants it closes through 2008 will represent 26 percent of its production capacity, or 1.2 million cars and trucks.

The company said it would build a new "low cost" manufacturing plant somewhere in North America, but declined to provide details.

Shares of Ford gained 42 cents, or 5.3 percent, to close at $8.32 on the New York Stock Exchange today.

The U.A.W. said the company was focusing too much on reducing capacity and not enough on designing more appealing cars and trucks. "The announcement has further left a cloud hanging over the entire work force because of pending future announcements of additional facilities to be closed at some point in the future," the union's president, Ron Gettelfinger, said in a statement.

Ford's contract with the U.A.W. will be up for renegotiations next year and analyst expect the company to seek additional concessions from workers and retirees, who last year agreed to pay more for health care in a bid to save the company $850 million.

Television news crews lined up this morning outside Ford's product development center, which is across the street from Henry Ford Museum in Dearborn, Mich., in anticipation of the announcement, which was broadcast worldwide.

Analysts said they were not convinced that today's plan would be sufficient to revive Ford, given that the automotive industry is changing rapidly, said Efraim Levy, an equity analyst at Standard & Poor's. The company's ability to increase sales by designing and building better cars will be more important than the cutbacks, which are necessary but not sufficient, he added.

"It's something that they have to do to play in the game," Mr. Levy said about the plan. "I think it's something that will help their profits over the next few years, but I don't think the rest will meet all the objectives that they laid out."

He said he thought Ford was over estimating cost savings, in some cases because its calculations do not seem to fully reflect rapidly rising health care spending. The company said it would save as much as $6 billion in material costs by 2010.

But analysts said those cost cuts and capacity reductions might not keep up with its falling market share, which even the company admitted today would continue to decline for some time.

"We expect management to bring capacity in line with demand by one million units, but question whether this will be enough, given continued declines in market share," Jon Rogers, an analyst at Citigroup, wrote in a research note.

Earlier today, Ford reported better-than-expected fourth-quarter earnings largely because of the sale of its Hertz car-rental business and gains at its financing division, Ford Credit. Losses at the company's main automotive division were larger than a year earlier, and the North American auto business slipped into a loss from a profit in the fourth quarter of 2004.

Over all, the company reported its net income rose 19 percent, to $124 million, or 8 cents a share, in the fourth quarter, compared with $104 million, or 6 cents a share, a year earlier. Excluding onetime items, Ford said it earned $511 million, or 26 cents a share, in the most recent quarter.

Revenue rose 6 percent, to $47.6 billion, from $44.9 billion in the fourth quarter of 2004. For the full year, Ford's profits fell 42 percent, to $2 billion, in 2005.

Acknowledging the widespread skepticism about the company's ability to grow, Mark Fields, who heads Ford's North American business, said the company's new sedans, gasoline-electric hybrids and crossover vehicles, which share features of a sports utility vehicle and a car, were a significant departure from past models and would allow it to reclaim lost market share eventually, although he would not say when that would happen.

"It's time to play offense," Mr. Fields said. "It's time to fight back."

Ford's successful new Mustang sports coupe and F-series pickup trucks demonstrate that the company has been able to reclaim some lost ground in recent years, but it could take a few years for the company to make strides in the rest of its lineup, said George Magliano, director of automotive research at Global Insight, a research firm.

"You won't know until you essentially see the product out there, and you wont see the product out there for a couple of years," he said. "That's the crux of the issue."

Beginning this year, the company said it would no longer provide Wall Street with financial forecasts because it does not want to focus on the "short term." Executives did signal that profits would be under pressure this year because it was a transition year and it would be operating without the profitable Hertz business.

Micheline Maynard reported from Dearborn, Mich., for this article, and Vikas Bajajfrom New York.



 
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