Ford Motor May Eliminate 25,000 Jobs to Stem Losses (Update4)
Ford Motor May Eliminate 25,000 Jobs to Stem Losses (Update4)
Jan. 20 (Bloomberg) -- Ford Motor Co. will eliminate 25,000 or more jobs in the next four years as the world's third-biggest automaker seeks to stem North American losses, according to people familiar with the reorganization.
Chief Executive Officer William Clay Ford Jr. will announce the job cuts, equivalent to about 20 percent of the company's automotive workforce in North America, on Jan. 23 as part of a plan called ``Way Forward.'' Bill Ford said this month the plan would include job reductions without specifying how many. The loss of 25,000 jobs would be the biggest such reduction at Dearborn, Michigan-based Ford since 2002.
``Ford views Monday's announcement as the last restructuring in the sense that they may not have a chance to do something more after this,'' said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan. ``It's one of the major pivot points in their history.''
The plan follows 10 straight years of U.S. market-share losses for Ford Motor. Most of that share has been taken by Asian competitors such as Toyota Motor Corp. Ford has lost money in its North American automotive business for four of the past five quarters, and its U.S. sales have dropped by more than 1 million units annually since 1999.
``It's going to be painful for some people,'' Bill Ford said last week, without being specific. ``Is everybody going to be happy? No. And they shouldn't be.''
The Jan. 23 plan will mark Bill Ford's second restructuring since taking over as CEO in 2001. Toyota passed Ford as the world's No. 2 automaker in 2003. Ford captured 18.6 percent of the U.S. market last year, down from 25.7 percent a decade earlier.
`Comprehensive'
``It's a comprehensive plan,'' Executive Vice President Mark Fields, who is overseeing the changes, said in an interview last week. ``It's a total look at the business.'' He told reporters at the auto show that he would take Ford's plant capacity ``and align that with demand.'' Fields, who turns 45 next week, became president of the Americas unit on Oct. 1.
``They're going to exit some businesses. Minivans are gone and there may be more: small pickups, large sport-utilities, any number of things,'' said Cole, who said he discussed the plan at a Jan. 5 dinner with Fields.
Ford may also reduce the number of corporate officers, said the people, who didn't want to be identified because the announcement hasn't been made. Ford currently has 53 executives with the rank of vice president or above. North American sales chief Steve Lyons will leave the company, and Vice President Darryl Hazel will be reassigned, the people said.
``We're not commenting on any of the speculation out there,'' spokesman Tom Hoyt said in an interview. ``All we're saying is stay tuned and we'll make our announcement on Monday. Hoyt declined to comment on Lyons and Hazel.
Shares Down
Shares of Ford dropped 21 cents to $8.01 at 11:30 a.m. in New York Stock Exchange composite trading. The stock has declined 41 percent over the past 12 months through yesterday. The company's 7 percent bond due in October 2013 fell 1.75 cents on the dollar to 87 cents on the dollar, according to Trace, the bond price reporting system of the National Association of Securities Dealers. The yield rose to 9.41 percent from 9.06 percent.
Ford had 122,877 employees in its North American auto operations at the end of 2004, including 35,000 salaried employees. General Motors Corp., Ford's bigger U.S. rival, has 142,000 auto employees in the U.S., with 36,000 salaried workers. GM doesn't break out North American numbers.
``The plan will include a great deal of white-collar job cuts,'' Cole said. ``Ford's white-collar employment is similar to GM's, meaning it's disproportionately high.''
4th-Quarter Earnings
Ford is also scheduled to disclose its fourth-quarter earnings on Jan. 23, three hours before the restructuring announcement.
The company is expected to report fourth-quarter earnings of 1 cent a share, the average estimate of 17 analysts polled by Thomson Financial. The figure excludes costs the company considers one-time items. Ford in the past has classified job- cutting expenses as one-time items.
Ford said last month it expects to report a pretax gain of $1.1 billion to $1.3 billion for the quarter from the sale of Hertz Corp. to an investor group including Carlyle Group, Clayton, Dubilier & Rice and a Merrill Lynch & Co. buyout unit.
Earnings from loans to buyers of cars and trucks kept Ford profitable throughout most of the North American automotive losses. The company didn't have an overall loss until 2005's third quarter, when a $284 million net loss snapped a streak of six straight quarters of profit.
Net Income
Ford had net income of $1.87 billion for the first nine months of 2005. Ford Motor Credit Co., the auto-finance unit, had net income of $2.03 billion during that period.
Ford began exploring factory closings even before Fields took the post. Company negotiators told Canadian Auto Workers negotiators last year the automaker was considering closing as many as four U.S. vehicle-assembly plants.
Ford's list also included a St. Thomas, Ontario, plant, CAW President Buzz Hargrove said in November. Ford didn't identify the U.S. plants, he said. The Canadian union and Ford completed negotiations in September, and the CAW said the accord included an investment of C$200 million ($172 million) at St. Thomas that would keep the plant open through 2009.
Ford may be more likely to close an Atlanta vehicle- assembly plant than a factory in Wixom, Michigan, analyst Catharine Madden at consulting firm Global Insight Inc. in Lexington, Massachusetts, said this week on a conference call. A plant in Cuautitlan, Mexico, is ``woefully underutilized'' and may close, she said yesterday. Madden also identified plants in St. Louis and St. Paul, Minnesota, as candidates for closure.
Windsor Factory
Bill Ford told analysts and reporters on Oct. 20 that the closings would include a Windsor, Ontario, casting plant that makes engine parts. The CAW agreed to the shutdown as part of its new contract with the automaker.
Ford is being squeezed by declining sales of profitable mid-and large-sized sport-utility vehicles. The Explorer mid- size SUV generated $13 billion in profits for the company from 1990 to 1997, according to a deposition by a Ford financial analyst in an Explorer rollover court case. Ford normally doesn't disclose profits of specific models.
Explorer sales fell 29 percent last year and hit a 15-year low in November. GM's Chevrolet TrailBlazer deposed the Explorer as the top-selling SUV. Sales of the large Expedition also fell by 29 percent; the mid-sized Mountaineer by 26 percent; and the large Navigator by 29 percent.
`Under Attack'
``Their biggest profit-margin lines are under attack,'' said Brian Reynolds, chief market strategist for MS Howells & Co. in Dunstable, Massachusetts.
Ford's St. Louis plant is one of two that makes the Explorer and Mountaineer. Ford originally announced in 2002, in Bill Ford's first restructuring, that St. Louis would close. The company agreed during 2003 talks with the United Auto Workers to keep it open and close a Lorain, Ohio, factory instead. The St. Louis plant was cut to one shift from two while Lorain closed in December.
The company under Bill Ford has had a mixed record with its new models. Sales of a redesigned Mustang sports car rose 24 percent in 2005, and the company said its new Fusion mid-size car had stronger sales than executives anticipated.
A redesigned Explorer, which went on sale in October, didn't prevent a sales slide. Two new minivans, the Freestar and Monterey, generated only 85,751 vehicle sales in 2005 in the U.S. compared with an initial company target of 200,000 annually.
Minivan Plan
The Freestar and Monterey will be replaced by new vehicles based on a prototype called the Fairlane at the 2005 Detroit auto show, the Detroit Free Press reported today, citing people familiar with Ford's plans. The company called the Fairlane a ``people mover'' rather than a minivan. Spokesman Hoyt declined to comment.
Ford has ``to come up with hard numbers and hard deadlines and they have to meet one,'' said Dan Genter, president of Los Angeles-based RNC Genter Capital Management, whose $2 billion portfolio includes Ford bonds. ``You've taken me to the altar a few times. Now people want the evidence.''
The automaker ``should have made the cuts two years ago,'' said Sean Egan, managing director of Egan-Jones Ratings Co. in Haverford, Pennsylvania. ``It will help a little bit, but it won't significantly change the direction of the company.''
To contact the reporters on this story: Bill Koenig in Southfield, Michigan, at wkoenig@bloomberg.net; John Lippert in Southfield, Michigan, at jlippert@bloomberg.net
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