Ford to Cut Up to 30,000 Jobs and 14 Plants in Next 6 Years

This is also from The New York Times:

DEARBORN, Mich. Jan. 23 - The Ford Motor Company said today that it would close as many as 14 factories and cut up to 30,000 jobs over the next six years. The move was the latest sign of a fundamental restructuring of the Detroit automakers.

Ford's announcement came two months after General Motors said it would close all or part of a dozen factories and eliminate a similar number of jobs.

Including cutbacks that have taken place at the Chrysler Corporation since 2000, the Big Three automakers have eliminated or plan to eliminate 86,000 jobs, or about one-third of their North American work force.

The United Automobile Workers union, which represents workers in the United States, said Ford's cutbacks were "deeply disappointing and devastating" for its members.

But the industry's retrenchment does not spell the end of automotive manufacturing in the United States, Canada and Mexico - indeed, far from it. As Detroit has cut back, foreign automobile manufacturers have created tens of thousands of jobs at new factories from Ontario to Ohio and across the American South to Baja California.

Because of that growth, there was no net loss in North American automotive jobs in 2005, according to James P. Womack, an author and expert in manufacturing efficiency. Meanwhile, foreign automakers including Toyota and Nissan of Japan, Hyundai of South Korea, and BMW and Mercedes-Benz of Germany, which collectively had 60,000 workers at the North American plants last year, all are expanding, helping to offset the cutbacks announced by the Detroit companies.

For Ford, however, the surge by foreign automobile manufacturers only heightens the pressure to reverse a slide that began at the beginning of the decade. Last year, Ford's share of the American car market dropped to 17.4 percent, its lowest level since the 1980's. By contrast, Ford held a quarter of the American market 2000, when its sales were fueled by sport utility vehicles, which are now losing popularity in the face of high gasoline prices.

Because of that decline, Ford's plants in North American are operating only three-quarters full, leading to the company's decision Monday to close factories under a plan it calls "the Way Forward."

"We will be making painful sacrifices to protect Ford's heritage and secure our future," Chairman and Chief Executive Bill Ford said. Jeff Kowalsky/European Pressphoto Agency

A couple things about this story. First, the jobs that Ford is cutting are higher wage / higher benefits union jobs. By cutting those jobs, Ford is also slashing its labor costs, and will possibly be able to slash how much Ford will pay out for health care and pension costs. Second, I wonder how much is Ford shifting its production outside of the US--possibly to Canada, Mexico, and China, where labor, health care and pension costs would be much lower. Consider this aspect of the story:

Ford said it would shut assembly plants in Wixom, Mich., outside Detroit; Hapeville, Ga., outside Atlanta; and in Hazelwood, Mo., a suburb of St. Louis. The automaker also is cutting one shift of workers at its assembly plant in St. Thomas, Ontario, about two hours west of Toronto.

Ford is shutting down two assembly plants in the US, but is only closing one shift in a Canadian plant. Interestingly enough, the foreign car manufacturers are setting up their own production facilities into the US, hiring up the the laid off autoworkers. Remember, there is no net loss of American autoworker jobs:

[F]oreign automakers including Toyota and Nissan of Japan, Hyundai of South Korea, and BMW and Mercedes-Benz of Germany, which collectively had 60,000 workers at the North American plants last year, all are expanding, helping to offset the cutbacks announced by the Detroit companies.

Ford employs 122,000 people in its North American operations and the cutbacks would represent 20 to 25 percent of its work force. The plants it closes through 2008 will represent 26 percent of its production capacity, or 1.2 million cars and trucks.

The company said it would build a new "low cost" manufacturing plant somewhere in North America, but declined to provide details.

Shares of Ford gained 42 cents, or 5.3 percent, to close at $8.32 on the New York Stock Exchange today.

The U.A.W. said the company was focusing too much on reducing capacity and not enough on designing more appealing cars and trucks. "The announcement has further left a cloud hanging over the entire work force because of pending future announcements of additional facilities to be closed at some point in the future," the union's president, Ron Gettelfinger, said in a statement.

Ford is in major trouble. For the last fifteen years or so, Ford has been concentrating on producing the big SUVs, with high profit margins and low gas mileage. The company was short-sighted in continuously cranking these SUVs out, believing that gas prices would remain cheap. I doubt there was a plan set up to invest or adapt hybrid technologies into new cars or existing cars. When gas prices went up to $3.00 a gallon, people left the big SUV market, and started buying the Toyota Prius. Now Toyota has been adapting the hybrid technology to their regular car lines, such as the Corolla and Camry. And you can bet the other Japanese car manufacturers of Honda, Nissan, and Mitsubishi have also been investing in hybrids. Ford has to play catch-up. Finally, there is the interesting quote from the UAW, claiming that Ford is too busy reducing capacity, rather than redesigning new cars and trucks. A part of this is true. Ford is tackling this problem in a "bean counter" approach of reducing capacity to keep its profits in line with short-term Wall Street expectations. Consider this:

Shares of Ford gained 42 cents, or 5.3 percent, to close at $8.32 on the New York Stock Exchange today.

Over all, the company reported its net income rose 19 percent, to $124 million, or 8 cents a share, in the fourth quarter, compared with $104 million, or 6 cents a share, a year earlier. Excluding onetime items, Ford said it earned $511 million, or 26 cents a share, in the most recent quarter.

Revenue rose 6 percent, to $47.6 billion, from $44.9 billion in the fourth quarter of 2004. For the full year, Ford's profits fell 42 percent, to $2 billion, in 2005.

This is probably after Wall Street learned of the Ford job cuts. But in order to grow and regain market share, Ford needs to certainly design new and innovative cars and trucks, and to design those cars whose quality is superior to the quality of the Japanese cars. Ford certainly can design new and innovative cars--just look at the new Mustang or the GT40 race car. But Ford needs to design and build a better car than the Japanese, if Ford is to survive. Ford's management needs to work with the UAW, not only to help keep costs under control, but also to develop more efficient production techniques, improve quality control, and to boost employee moral. Will Ford be able to succeed?

I don't know.