Amidst Deep Job Cuts, Ford Promises Greater Focus on Hybrids

Ford told Time there would be greater emphasis on hybrid gasoline-electric engines and other environment innovations and bolder designs.

Published: 24-Jan-2006

Motor Company workers faced bleak prospects on Monday as the United States auto giant was to announce huge job cuts and plant closures in a bid to counter its loss of market share to Asian rivals.

News reports said up to 29 000 job cuts and 10 plant closures could be announced by company chairperson and chief executive Bill Ford.

"We're going to do what we have to do. It's just very, very sad," Ford told Time magazine ahead of the announcement. But he added: "My goal is to fight Toyota and everyone else and come out on top."

Detroit's daily, the Detroit News, quoted people familiar with Ford's "Way Forward" plan as saying that 25 000 factory workers would lose their jobs over five years and 4 000 clerical and managerial jobs would be cut by April.

It said 10 plants could be closed under the plan, which follows a similar huge cost-cutting by General Motors, the world's biggest car maker.

Including hourly and salaried job cuts, Ford is to commit to reducing its 120 000-member North American work force by about a quarter, according to the newspaper's sources.

Media reports said unions and workers were already talking about "Black Monday".

Among plants expected to be shut down is Ford's St Louis operation, one of two plants that produces the Ford Explorer sport utility vehicle, a segment of the industry squeezed by rising fuel costs.

"Analysts have identified several factories that could get the axe Monday. Ford assembly plants in St Louis, Atlanta and St Paul are in jeopardy, along with one in Cuatitlan, Mexico. Ford's vastly underused plant in Wixom is also expected to be closed," the Detroit News added.

Ford told Time there would be greater emphasis on hybrid gasoline-electric engines and other environment innovations and bolder designs.

"The old way of doing things doesn't work," Ford told the magazine. "Is [this] risky? Of course it's risky, but I tell you what: going the way we were going is the highest risk of all."

Analysts said investors are more worried about whether Ford will get its auto operations back to profitability.

"The near-term savings are not going to be as much as it needs to be," Brian Ropp, an auto analyst with T Rowe Price brokerage, said.

But for expert Dave Cole, president of the Centre for Automotive Research, "it's a good move because Ford can't be a full-line manufacturer. They have to focus on investing their money where they'll make money. If they get one million units out of production, they can go forward to regain profitability."

The savings from job cuts are limited by the auto maker's contract with its main union.

Hourly employees who do not take early retirement packages enter the jobs bank retraining programme, in which they collect full pay and benefits while waiting for a spot to open up on the assembly line.

Cutting production levels also will not help Ford's declining market share. In the past 10 years, Ford has seen its share of the US market drop from 26,4% to 17,4%, the lowest level since the 1920s.

Ford boosted overall sales in the 1990s with sports utility vehicles, but its market share in that segment waned as Japanese rivals introduced smaller, car-based crossover SUVs.

The real trouble hit in 2005 when US gasoline prices topped $3 a gallon and Ford's light truck sales -- which include the SUVs -- fell by 8,7%.

Ford's North American division posted a $1,4-billion loss in the first nine months of 2005 and Standards and Poor's has warned the unit's pre-tax losses could reach $2-billion for the year.

While the company as a whole is expected to announce a 2005 profit, that is largely a result of money it earned from loan operations at Ford Credit, said Burnham Securities analyst David Healey.

Healey forecast losses in the North American automotive unit would rise to $2,9-billion in 2006.

The key to Ford's turnaround will be to make vehicles that attract US customers without resorting to costly incentive programmes.

New products introduced at this month's Detroit auto show, however, met a lukewarm reception. Goldman Sachs recently forecast that Ford would see its market share continue to deteriorate with sales down by 4,7% in 2006.

The plant closures are a necessary step to reduce excess capacity, said Rebecca Lindland, an analyst with Global Insight in Lexington, Massachusetts.

"They've got the capacity to build about 4,4-million vehicles a year, but they actually only produce 3,3-million," she said. "They are running at about 74% of their capacity utilisation, we want to see them at 95% or in the nineties."

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