Ford Motor Co. said yesterday that it will cut up to 30,000 jobs over six years and close 14 manufacturing plants, marking the latest phase in what industry experts call a long-overdue effort by U.S. automakers to rethink time-worn strategies in the face of competition from more nimble foreign competitors.
The sweeping cuts will save $6 billion in annual costs and hit plants in Michigan, Missouri, Ohio, Georgia and Ontario, Canada. The moves will reduce the carmaker's production capacity by 26 percent and leave up to a quarter of its 122,000 employees in North America out of work.
But analysts were just as skeptical that Ford's "Way Forward" plan would pump new life into the U.S. auto industry as they were in November, when General Motors Corp. announced that it will eliminate 30,000 jobs in three years as part of its own comeback effort. GM shut its van assembly plant in Baltimore in May.
Many see the cuts at both companies as the beginning of a long and painful recovery that could include bankruptcy reorganization, as the industry tries to undo years of uninspired car designs and the impact of labor contracts and pension plans that now look lavish compared with those of many competitors.
Analysts say the challenges mirror those faced by many U.S. manufacturers as they struggle to compete with companies overseas that have access to cheaper labor, land and materials. Between 2000 and October 2005, the number of manufacturing jobs in the U.S. fell 17 percent to 14.3 million, according to the National Association of Manufacturers.
"We no longer have the luxury as a nation of being the world's greatest manufacturer with everybody else light-years behind us," said Jack W. Plunkett, chief executive of Plunkett Research, a market research firm in Houston and publisher of Plunkett's Automotive Industry Almanac. "The companies that are going to survive and do well are going to adapt to that reality."
Like GM, Ford has been hammered by the declining popularity of its once-dominant sport utility vehicles in the face of rising gas prices. Its design team also has fallen behind Japanese automakers, which have been faster to the market with efficient hybrid cars and popular SUV crossovers. It recorded a companywide profit of $2 billion for the year, down 42 percent from $3.5 billion a year ago. But profits were dragged down by the North American operations, which posted a $1.6 billion loss last year.
The company said it will be less conservative in its designs in the future and cut the time it takes to introduce new models to 3.2 years from 4.4 years. It also plans to make its North American plants more flexible, allowing them to build several models at the same time. The plan includes building a new North American assembly plant, though the company gave no specifics.
Its shares closed up 42 cents, or 5.3 percent, to $8.32 per share in trading yesterday.
"It's a change-or-die situation," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "We know the old business model is absolutely dead."
This is Ford's second restructuring in four years. About 35,000 jobs were cut and five plants were slated for closing in the first round - a plan that shaved costs but failed to stave off Toyota, Honda, Hyundai and other competitors from gaining market share.
Ford sold 2.9 million vehicles last year for a 17.4 percent share of the U.S. market, down 6.6 percentage points from its 2000 share of 23.9 percent, said Rebecca Lindland, an auto industry analyst for Global Insight.
Japanese and other Asian automakers accounted for 36.5 percent of the U.S. market last year. Toyota passed Ford as the world's No. 2 automaker in 2003.
"The 'Way Forward' contains some strong medicine for our North American business, but it also contains the vision and strategic focus to rebuild the business," said Bill Ford, who in 2001 took over as chief executive of the company his great-grandfather founded. "With it, we will retake the American roadway."
Many analysts see parallels to the U.S. airline industry, where legacy carriers have been forced into bankruptcy by leaner bargain airlines that lack the restrictive union work rules of their larger competitors. Similarly, foreign automakers such as Nissan, BMW, Hyundai and others are building modern, non-unionized plants across the South turning out high-quality, inexpensive cars that can be sold without costly incentives.
Analysts see the trend continuing.
"I think that we're going to be making cars in North America for a long time and about as many as we make now, but more will be made by the transplants," said Peter Morici, a professor of international business at the University of Maryland, College Park.
Morici said Ford's plan looks like the same old promises to do better but doesn't give enough specifics or go far enough.
"The plan lacks a clear statement of how Ford is going to get its labor and design costs in line with its Japanese competitors," he said. "Lacking that, Ford will not be able to offer vehicles that are competitive in price, quality and content."
Both Ford and GM face staggering pension and health care costs that their rivals have avoided. Analysts say dealing with both issues - and ending restrictive work rules - is critical to any recovery.
"What is in jeopardy in this case is the unionized, long-term, lifetime jobs in the industry," said Lindland, the Global Insights analyst. "That's the thing that's going to go away."
Cole, the analyst, said unions will have to accept that traditional "defined benefit" pension plans - those that are corporate-funded - are a relic. It's true across the economy, he said, as shown by such companies as IBM, which recently announced that it was freezing pension benefits and moving workers into a "defined contribution" 401(k) plan, where employees contribute to and manage their retirement funds.
"The 'defined benefit' mentality ... does not compute in the world we live in today," he said.
Ford will negotiate a new labor contract with the United Auto Workers when the current contract expires in September 2007. It is expected that the union will be asked for further concessions on pensions and health care costs.
"Certainly, today's announcement will only make the 2007 negotiations all the more difficult and all the more important," the union said in a statement. "Like the 2002 plan, Ford's new 'Way Forward' is based on cutting jobs and closing facilities to align Ford's production capacity with shrinking demand for Ford's vehicles.
"Then, as now, the focus should instead be on striving to gain market share in this competitive market by offering consumers innovative and appealing products."
Analysts don't see the automaker scoring any big wins with its current lineup of cars. The company's Lincoln and Mercury brands continue to have weak brand identity, said Tom Libby, senior director of industry analysis for JD Power & Associates in Westlake Village, Calif. Lincoln has fallen well behind Cadillac in the hunt for luxury car buyers. The Ford Five Hundred sedan is struggling, while the Chrysler 300 has recorded big sales and Toyota prepares to launch its new Camry.
"I don't see anything coming out in the near future that's going to be a smash hit to help turn around the company," said Haig Stoddard, an analyst for Wards- auto.com, a research firm in Southfield, Mich. Ford and GM will have to make more cuts in order to shrink capacity to meet diminished demand, he said.
"The reason is that the competition is just very strong and getting stronger," he said. "Other manufacturers are going to increase capacity in North America and, no matter how good their products are coming out in the future, everybody else is going to have good products coming out, too."
The automaker will cut up to 25 percent of it NOrth American work force and close 14 plants in a restructuring:
* Five assembly plants and two other factories will be closed by the end of 2008.
* Two more assembly plants and five other factories to be announced will be closed by the end of 2012.
* Up to 30,000 workers will be laid off.