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Ford to Slash 12% of U.S. Salaried Positions
29 May 08
Citing plummeting truck sales and rising fuel and commodity prices, Ford is planning to cut a significant chunk of its white-collar workforce—and soon.
Global Insight Perspective | | Significance | Ford Vice-President Jim Farley announced at a town-hall meeting with his senior employees that the company is looking to slash 10-12% of its U.S. white-collar workforce through involuntary dismissals as early as 1 July. | Implications | The move comes as pick-ups’ share of the U.S. retail market has fallen from 11% to 9% in just a matter of weeks; with the loss of so many high-margin trucks, Ford has begun to cut costs any way it can in order to salvage its turnaround plan. | Outlook | The company can ill afford to lose more white-collar personnel, as it is already lagging behind the industry in terms of new model introductions of fuel-efficient vehicles. Ford’s decision to follow up the already-announced 11,000 white-collar employee cuts with another 2,000 suggests that its situation is worse than generally understood. |
Ford Motor Company has announced that it is to dismiss as much as 12% of its U.S. white-collar salaried workforce as early as 1 July in a bid to offset plummeting truck sales and skyrocketing commodity prices. The message was delivered along with an early warning about merit increases last week by Vice-President Jim Farley, in a town-hall-style meeting with Ford's sales, marketing, and service senior employees. Farley signalled that the dismissals will not take the form of voluntary buyouts, as the company simply cannot wait months for answers as to whether or not employees would take these up. "These are estimates", said Madeleine Eason, human resources chief for the division Farley heads, according to a report by the Detroit News. "We're still in the process of finalizing some of the details", she added. The move could eliminate as many as 2,000 employees from the company's 24,300 salaried positions in North America. "We just can't afford it", Eason said. "We're looking to be as humane...as we possibly can." The move comes in the wake of an alarming report by Chief Executive Officer (CEO) Alan Mulally late last week in which the executive stated that Ford was no longer expecting to return to profitability in 2009, and instead would likely still be making a loss or barely breaking even by that time. With commodity prices such as steel rising dramatically and sales of the company's most profitable big-truck products plummeting as a result of high fuel prices and a collapsing housing market, swift action to cut costs in order to keep the company's turnaround plan on track is in order. In an interview with the Detroit News last week, Mulally reportedly stated that US$3.50 per gallon was a threshold fuel price for car buyers, and that American consumers would begin abandoning the truck segments for cars once that price was reached. The article further reported that pick-up sales comprised 11% of all retail sales in the United States in April, but that this had fallen to just 9% by the second week in May. "I don't think we've ever seen a decline week over week like this", Mulally said. "It was clear to us it was time to act." Outlook and Implications The shift to small cars has indeed hit a threshold point, as announced earlier this week by Web site AutoObserver.com. Its analysis of buying trends in the last two months alone indicated that a massive and dramatic shift has finally taken place, with consumers abandoning the truck segments in droves, and sales of small, fuel-efficient and hybrid cars reaching a fevered pace. Despite the fact that smaller cars are now sellng for more money (thanks to increasing demand), the replacement of super-high-margin trucks with just average-margin cars has had a seriously deleterious effect on Ford's income. One cannot replace the US$10,000-plus earned on a Ford Expedition with the fractional amount earned on a Ford Focus without a significant impact on the rest of the organisation. However, Ford's sudden move to cut nearly 10-12% of its U.S. white-collar workforce, a group that has already been reduced by a huge 11,000 personnel since 2005, suggests a desperation that goes deeper than the announcement made by Mulally last week delaying profitability to beyond 2009. It suggests that the company has cut all the fat that it can, but is in such dire financial straits that it now needs to begin cutting muscle as well. Ford has already struggled to maintain development schedules with its reduced white-collar headcount, relying on new procedures and techniques to try to streamline the vehicle development process and speed new, relevant products to market. Yet even now, it finds itself behind the market in terms of getting new products to North American customers (the Flex crossover was needed a year ago; the Fiesta B-segment car due in 2010 is desperately needed immediately). How Ford is going to compensate for the loss of additional personnel when it frankly needs everyone it can get in order to simply get the new products out onto the market is a serious question that needs to be addressed. Ford executives have announced that the pressures of the market may force other automotive companies to do the same. "I would expect other car companies to make similar announcements", Jim Farley reportedly told his employees. "They have the same issues that we do—even Toyota." But this is not entirely correct—true, commodity prices have risen for everyone and truck sales have dropped across the board, but companies such as General Motors (GM) are actually hiring engineers as fast as they can find them in order to flesh out development of new powertrains, alternative energy programmes, and hybrid-electric vehicles. Toyota is not likely to cut staff either, especially not voluntarily, as it too has plenty of sales and work to keep it busy. If Ford is having to involuntarily let a chunk of its critical salaried staff go in order to keep the lights on, then investors may start looking at the recent offer by billionaire Kirk Kerkorian a little more positively.
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