Ford Calls for Job Cuts, Plant Closings As It Reports Loss
Friday, October 21, 2005
Ford Motor Co. reported a $1.2 billion third-quarter loss in its core North American division and warned that it would begin another major overhaul in January with "top-to-bottom" job cuts and "significant" plant closings.
Ford's announcement came days after General Motors Corp. announced its own restructuring plans. The carmakers' troubles have tipped the nation's biggest auto-parts supplier into bankruptcy protection and put pressure on unionized workers to make concessions. Responding to a sustained slide in market share, the auto companies are undertaking two of the largest restructurings in years. GM and Ford are aiming to be smaller, lower-cost producers with fewer plants and fewer workers.
William Clay Ford Jr., Ford's chairman and chief executive, said the industry's changes are painful but necessary. "In the most open market in the world, the landscape is constantly changing," Ford said. "Our industry is beginning a dramatic restructuring which is sorely needed."
Executives at Ford and GM said the collapse of the market for large sport-utility vehicles has hastened the pace of the industry's revamping this year. Ford yesterday said the future arrived faster than the automaker had anticipated because of the sharp rise in fuel prices. He said the company is tackling cost-cutting with a "renewed sense of urgency." He said Ford's management team would outline its restructuring plans in January.
GM and Ford have steadily lost market share in the United States because of escalating global competition. They are stuck with high overhead costs from too many plants and too many workers for the number of cars the company sells, analysts say. Ford's condition isn't as bad as at GM, which has lost money in each quarter this year, the analysts said. Including its latest quarterly results, Ford has earned $1.87 billion this year. It reiterated its forecast for a profitable year.
Collectively, in September 1990, GM, Ford and Chrysler, now a division of Germany's DaimlerChrysler AG, represented 75 percent of the U.S. market, according to J.D. Power and Associates. In September 2005, the automakers had 55 percent of the market after relatively strong sales in the summer. The loss of 20 percentage points of share would be roughly equivalent to 3.4 million vehicles in the current market, or the yearly output of 23 North American vehicle assembly plants. The calculation is based on analysts' expectations for industry-wide sales of 17 million vehicles this year and typical plant capacity of 150,000 vehicles annually.
Ford has many key products in the flagging SUV category and has been described as the industry's North American truck company. It benefited from the SUV boom because of its traditional strength in trucks. Ford was a pioneer in the category by using truck frames as the basis of its large SUVs. Ford makes the Expedition and Explorer SUVs and the F series pickup trucks. Over the years, the models have come under fire from safety advocates because they were more prone to roll over and to squash smaller cars in accidents.
As gas prices have risen, consumers have been racing to trade in the large SUVs for cars and for smaller SUVs that are engineered and assembled more like cars than trucks.
Japanese rivals, which also sell large truck-based SUV models, have managed to defend their traditional leadership in passenger-car segments despite the introduction of new or updated models from GM and Ford. In his remarks yesterday, William Ford said the company had high hopes for the Ford Fusion, a new mid-size car that is competing with the Toyota Camry and Honda Accord, two of the best-selling vehicles in the country.
Ford said buyers are increasingly turning to cars and gasoline-electric hybrids. Last month, Ford pledged to increase hybrid output by 250,000 by 2010, up from about 25,000 planned for this year. "The days of unlimited inexpensive gas are over, and we are planning our product line accordingly," Ford said.
Ford has two hybrid models on the market, the Ford Escape and Mercury Mariner, two small SUVs. In the hybrid race, Ford is ahead of GM and DaimlerChrysler in bringing out technology. Still, Ford trails Honda Motor Co. and Toyota Motor Corp., the industry leaders in hybrids. Ford said it is working with other suppliers to reach its hybrid goals. Ford licenses hybrid technology from Toyota, which has big goals for its own hybrid models.
Ford's worldwide automotive operations lost $1.3 billion in the third quarter, reflecting losses in its Europe division and at Ford's luxury brands, which include Volvo, Land Rover, Jaguar and Aston Martin. The automotive losses were partially offset by a profit at Ford's credit arm. Company-wide, Ford reported a $284 million after-tax loss, or 15 cents per share, in the quarter.