Ford’s plan: Cut operating costs by $5 billion

updated 6:04 p.m. ET Sept. 15, 2006

DETROIT - Ford’s top officials were jolted this summer when they realized that their business model was not only outdated but a threat to the existence of the nation’s second-largest automaker.

On Friday, they tried to shift Ford back to the future, announcing a dramatic acceleration of job cuts and other restructuring moves designed to shrink the company from a manufacturing behemoth into a sleeker, more competitive business.

Ford plans to slash 10,000 additional white-collar jobs and offer early retirement and buyout packages to all of its 75,000 hourly workers.

The new cuts would reduce Ford’s total North American work force by 29 percent, from about 130,000 now to about 92,000 by the end of 2008. The salaried job cuts represent about a third of that work force.

It also plans to shutter two more plants — bringing the total to 16 since a restructuring plan was first announced in January — and get out of the minivan business. Its shares slumped 11 percent on Friday, in part because it also eliminated its 5 cents per share quarterly dividend.

Facing rising health and pension costs, falling market share and intense competition from Asian manufacturers with more fuel-efficient cars, Ford said it would cut $5 billion in annual operating costs this year and roll out new products on a faster schedule.

“Were dealing with the world as it is — not as it was 10 years ago,” said Mark Fields, Ford Motor Co.’s president of the Americas.

The announcement came as Chrysler’s parent said it would cut U.S. production through the end of 2006 and follows similar big reductions at General Motors earlier this year. The downsizing moves are due mainly to consumers shifting from trucks and sport utility vehicles to cars and car-based crossover vehicles — a particular strength of Toyota, Honda and other Asian competitors.

The blue-collar cuts at Ford are another blow to organized labor, which has been losing members as the auto industry reshapes itself amid fierce competition from lower-cost, nonunion rivals.

Friday’s announcement was bad news for workers at a stamping plant in Maumee, Ohio, and the Essex engine plant in Windsor, Ontario. The Ohio plant will close in 2008, and the Windsor factory will be shuttered in 2007.

Ford also said it will close an assembly plant in Norfolk, Va., in 2007, a year earlier than previously announced, and will cut a shift there in January. An assembly plant in St. Paul, Minn., which is scheduled to close in 2008, will see a shift reduction in 2007.

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The company has identified nine of the plants to be closed through 2008, but Ford officials would not talk about which facilities would be shut down after that.

Ford said it would complete its cuts of about 30,000 hourly jobs by the end of the 2008, four years ahead of its previous target. The company said it already cut 4,000 salaried positions in the first quarter of this year.

Ford’s method of slashing jobs is similar to cuts made earlier this year by larger rival General Motors Corp. At GM, 34,410 hourly workers have accepted buyouts or early retirement offers this year. The company has cut its white-collar work force by 2,000 in 2006.

FORD'S RESTRUCTURING Highlights of Ford Motor Co.’s restructuring plan: — Reduce salaried employees and contract workers doing similar work by 10,000 in the U.S., Canada and Mexico. This follows 4,000 positions eliminated in the first quarter of 2006. Together, the 14,000 positions are about a third of the North American white collar work force total at the start of the year. — Reduce the number of hourly workers in North America by 25,000 to 30,000 by the end of 2008, four years earlier than previously announced. — Reduce the vehicle production capacity of its North American factory capacity by 26 percent from 2005 levels. — Close a Maumee, Ohio, stamping plant in 2008 and an Essex, Ontario, engine plant in 2007, on top of previous plans to close 14 plants. Move up the previously announced closing of a Norfolk, Va., assembly plant to 2007 from 2008.

Ford, GM and DaimlerChrysler AG’s Chrysler unit are struggling with the need to reduce their so-called “legacy costs” of big pay and benefits packages for workers and retirees to compete more effectively with foreign automakers.

Ford’s former business model, designed to produce more cars and trucks than the company is now selling, no longer works in today’s competitive auto market, Fields said.

So the new plan will reduce North American factory capacity by 26 percent compared to 2005 levels, the company said.

The $5 billion in cost cuts would come mainly from offering early retirement and buyout packages to all hourly workers and to white-collar employees. Ford plans to expand buyout and early retirement offers worth up to $140,000 to its entire U.S. blue-collar work force of more than 75,000.

Fields said the restructuring assumes that gas prices will remain high. He said the plan should hold up, but Ford will check progress and change it if necessary.

“We’ll look at external environment. We’ll look at changing consumer preferences, and if we need to make adjustments we will, but it will be within the framework of the plan that we’ve laid out,” he told The Associated Press in an interview.

During the teleconference, Executive Chairman Bill Ford said there were no plans for the Ford family to buy back its shares and take the company private.

As news of the cuts made its way to Ford facilities nationwide, workers began weighing a choice to leave the struggling company or stay on.

At the Sharonville, Ohio, transmission plant near Cincinnati, millwright Hank Dingus said that he likely would keep working because he has only seven years with the company.

Although he’s eligible for a buyout, Dingus, 31, of Milford, Ohio, said it’s not something he could afford.

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