A very different Ford Motor Co. is struggling to rise from the rubble of the U.S. auto industry's collapse last year.
In the past 18 months, Ford has suffered unbelievable financial losses -- $2 billion in its U.S. automotive operations last year -- losses that are forcing profound changes in the company that put the United States on wheels 73 years ago with the birth of the Model T.
Ford, whose most enduring symbol was the paneled family station wagon, is looking more and more like a "small car" company. It still produces cars of all sizes and many of its truck lines remain strong, but its meal ticket now is the new family of Ford Escort and Mercury Lynx subcompacts, by far the most popular of Ford's auto products.
Some industry analysts believe the Escort line will account for over half of Ford's passenger car sales by 1982. Ford, like the rest of the American auto industry, must learn how to make money on small cars.
To balance sharp declines in sales, Ford has had to cut deeply into its fixed operating cost, laying off production workers, discharging white-collar staffers and closing down unprofitable plants. To fill those voids, Ford is turning increasingly to foreign producers for essential car components.
The most graphic example of this trend if Ford's growing relationship with Toyo Kogyo Co. of Japan, the manufacturer of Mazda cars and trucks, which is 25 percent owned by Ford.
This fall, when Ford doubles the production of its Escort line to nearly 1.1 million units annually, it will be depending on Toyo Kogyo for three-quarters of the transmission-axle assemblies. The transaxle, which delivers the engine's power to the front wheels, is probably the most sensitive, critical component in the front-wheel-drive cars.
Ford comptroller Allan Gilmour says the demand for cars and trucks obviously will continue to grow in the United States. "The question is where those cars and trucks are going to be built?
"We have an opportunity to do more business with Toyo Kogyo," Gilmour says, with a New Englander's native understatement. Just as obviously, the more Ford buys abroad, the less it will build in the United States.
The immediate challenge to Ford, however, is not what to buy, but what to buy it with.
In the industry's last boom year, 1978, Americans bought more than 11 million cars. Nearly 23 percent of those car sales went to Ford, pushing the company's sales revenues to $42.8 million. Ford's income from operations was $2.4 billion and its profit after taxes, a healthy $1.5 billion.
Then came the fall of the former shah of Iran, the gasoline lines and the escalation of fuel prices, and Ford's ample stock of big LTDs, Thunderbirds and Lincolns became white elephants overnight.
Car sales fell to 9 million in 1980, and Ford's share of the American car market withered to less than 17 percent. Sales revenues tumbled to $37 billion, the operating loss was $2.3 billion, and the net loss (diminished by tax credits) was $1.5 billion.
If the magnitude of that fall is hard to comprehend, a comparison with Ford's old rival General Motors Corp. helps sharpen the picture. As the 1970s began, Ford was fighting General Motors Corp. toe-to-toe for dominance of the American car market. GM's share was nearly 40 percent in 1970, but Ford's was 27 percent and in the most important slice of the market, full-sized Fords outsold Chevrolets.
Last year, Ford's market share dropped below 17 percent. In two years, from the boom of 1978 to the bust in 1980, Ford's U.S. auto sales dropped 41 percent, or more than one million fewer cars. Worldwide, the company's car and truck sales dropped by 2 million units.
Usually, auto companies pile up cash in good years and live off it in lean years. In Ford's case, the cash disappeared like water down an open drain. Its working capital stood at $2.3 billion on Jan. 1, 1980. At the end of the year, $487 million was left, less than Chrysler Corp. had when its banks closed the door on further loans.
Ford is not Chrysler, however -- not for the forseeable future. In Europe and Latin America, Ford is an established automotive power, and its sales there are insulation against losses here. Its nonautomotive divisions, let by its auto credit and aerospace subsidiaries, are profitable. The question surrounding Ford's future, in the opinion of auto analysts, is not whether the company is about to fail, worldwide, but whether it can regain anything like its former place in the U.S. market.
The problem is close to a vicious circle, says David Healy, an auto analyst with the Drexel Burnham Lambert investment firm. To take advantage of a recovery in U.S. auto sales, Ford must have new products and modern plants. Those require heavy investments in machinery, materials, engineering and training at a time when Ford's capital has been stretched to the breaking point.
Ford Chairman Phillip Caldwell, yielding no ground to the opposition, says Ford will undertake the biggest investment campaign in its history over the next five years, pouring $20 billion into new plants, tools and equipment, two-thirds of that in this country. It can do no less and stand up to the relentless challenge from well-heeled General Motors at the top of the line, and the Japanese and European competitors at the bottom. Even with a $20 billion investment, Ford would not catch up to GM's changing product lines until 1984.
GM is spending $40 billion on its model changes and plant modernization between 1980-85, and is concentrating its push in the compacy and intermediate-sized models, where Ford must make do with older models for several years more.
There is skepticism among industry analysts that Ford can meet the investment goal, however. Healy, for instance, thinks Ford will be fortunate to afford $2.9 billion a year in 1981 and 1982.
A look at Ford's potential cash-flow problems shows why. Eisenberg, who ranks among the optimistic analysts of Ford, projects that Ford's worldwide revenues from sales will climb back to $46 billion in 1981. Thanks to Ford's cost-cutting campaign, which has reduced its fixed costs by $2 billion this year, Ford could make a small, after-tax profit. He picks $142 million as the figure.
Add $2.2 billion in revenue sheltered from taxation through depreciation and amortization, and Ford's internal sources of cash would be $2.3 billion in 1980, well under what Ford needs to meet Caldwell's target for investment in new plants and machinery. In Eisenberg's scenario, however, Ford can make up the difference by using the $2.2 billion cash it had on hand April 1, drawing that down to the bare minimum by year's end.
Then, a recovery in the auto market in 1982 and 1983 gradually will return Ford to health, Eisenberg predicts.
Eisenberg acknowledges that his scenario won't happen unless the economy is heading upward before the final three months of the year, with lower interest rates and some enthusiastic car buying. Ford executives believe, as an article of faith, that another boom in auto sales is just over the horizon. The last one was 25 months ago.
"The impression is that we've run out of money," comptroller Gilmour complained in an interview. Ford's overseas position is strong and to get through the current crunch, the U.S. operations need only break even, he added. "We don't see any particularly tight cash problems for 1981 and 1982." a
But with the prime interest rate still hovering around 20 percent, that outlook is no sure thing. If, as Healy expects, Ford doesn't break even this year, but loses $700 million more, its capital investment plan would be out of reach unless Ford went further into debt. That almost certainly would mean more short-term borrowing, said Phillip Fricke of Goldman Sachs, something Ford hopes to avoid because of today's high interest rates. "The costs would be prohibitive," said Fricke.
Ford has two other options. The first is to try to win wage and benefit concessions from the United Auto Workers in the 1982 contract negotiations that are comparable to what Chrysler Corp. received in January.
These amount to a $600 reduction in the cost of a Chrysler car, and offset a large part of the price advantage Japanese cars enjoy because of lower labor costs in Japan, Chrysler says. If Ford could get equivalent reductions, they would be worth $2 billion to the company, according to industry sources.
The other option is to buy more parts and components overseas. "The key for Ford is reducing its fixed costs," said Eisenberg, and one sure way of doing that is to buy as much as possible offshore. In addition to the Toyo Kogyo transaxles going into the Escort, Ford will buy a small diesel engine from its Japanese partner and a larger diesel from BMW, both for use in the United States.
"What we do beyond that relates to the cost of doing business in the United States versus foreign countries," said Gilmour.
Eisenberg says publicly what Ford officials only hint at: The two options are related. The more concessions by the UAW, the less Ford will have to buy in foreign countries.
How far this trend goes is one of the critical questions and, according to some industry analysts, it is a question that divides Ford's management.
David McCammon, a Ford vice president and chief strategist, kept both doors open in a recent interview. "We still intend generally to produce the cars where they're sold and to have the components produced generally in the same areas." But each time Ford plans a new plant or schedules production of a major new part, it will have to decide where the best location is, "and cost is a key consideration," said McCammon.
One way or another, Ford has to find the $3 billion-plus a year to modernize its manufacturing and assembly plants, adding the robots and the computer-controlled processing monitors that are the key to meeting the public demand for high quality.
If it can't, it must make the risky choice on which models to build and which to scrap. The last time that happened was in 1975, as Ford was coming out of that year's recession. To conserve the company's strained cash reserves, Henry Ford II overruled Lee A. Iacocca, then Ford's president, and vetoed a plan to downsize Ford's car and truck lines. The decision looked brilliant until the 1979 gasoline lines formed.
Iacocca says today he was set to build a small, front-wheel-drive car with a Honda engine in the fall of 1977, and a mini-van six months later: "Ford pulled out $3 billion. I got fired over it, so I have some feeling when I say this . . .
"Those two products alone would have had Ford's profits singing. That was the fork in the road."