Ford aims to remake itself as smaller, sleeker model

Beset by falling sales and ballooning costs, Ford Motor Co. said yesterday that it would accelerate its turnaround plan by speeding the tempo of cutbacks in its factory work force and slashing an additional 10,000 jobs from its white-collar payroll.

Ford also said that its key North American auto operations would not return to profitability until 2009 - a year later than expected - and that it was suspending payment of its quarterly stock dividend for the first time in more than 20 years.


The announcement was a concession by the No. 2 U.S. automaker that the restructuring plan it unveiled in January - dubbed the Way Forward - was not enough to turn itself around.

"It is now clear that we were too optimistic in January about our ability to stabilize our market share," said Mark Fields, head of Ford's North American auto operations. "The simple fact is that the business model that served us for decades in North America no longer works."


Wall Street, which typically cheers news of corporate downsizing, reacted sourly. Ford's stock fell as much as 15 percent before recovering to end the day off 11.8 percent.

Some investors clearly were hoping for bolder moves, such as finding a buyer for Ford's money-losing Jaguar brand or selling a stake in its profitable lending division, Ford Motor Credit - both of which the company ruled out.

"Overall, I was underwhelmed by the announcements," said Craig Hutson, an automotive analyst with corporate bond research firm Gimme Credit in New York.

The sharp increase in gasoline prices this year has caused buyers to desert Ford's bread-and-butter pickups and sport utility vehicles in favor of more fuel-efficient vehicles, accelerating the broader shift from the bigger-is-better ethos that ruled the auto market since the 1990s. In addition, commodity costs have hammered Ford's bottom line, Fields said.

As a result, Ford lost $1.4 billion during the first half of the year and saw its domestic brands' share of the U.S. new-vehicle market shrink to an all-time low of 16.8 percent through August, down from 25.7 percent for 1995.

Ford had said in July that it needed to revamp its restructuring effort. Another sign that more profound changes were in store came last week when Chairman William Clay Ford Jr. gave up his post as chief executive to make room for Alan R. Mulally, a turnaround specialist from Boeing Co.

Mulally, who will take over daily operations Oct. 1, attended yesterday's announcement with Ford and Fields.

Ford Motor will increase the number of cuts in its white-collar work force to 14,000 from 4,000. The automaker also will offer buyouts to all 75,000 of its union workers, with the goal of reducing its hourly payroll by 25,000 to 30,000 by the end of 2008, four years earlier than planned. Also, the company added two factories to the roster of 14 slated for closing.


The goal is to cut costs by $5 billion a year by the end of 2008.

In addition, Ford will speed the introduction of new vehicles and the redesign of existing models. By the end of 2008, 70 percent of Ford, Lincoln and Mercury vehicles will be new or significantly upgraded, up from its previous estimate of 50 percent.

In looking for ways to cut costs, Fields said, Ford chose not to skimp on development budgets "because this is a product-led recovery."

With slowing sales of its mid-and full-size SUVs such as the Explorer and Expedition, Ford is pinning much of its hopes on so-called crossover vehicles. Crossovers resemble SUVs but are built on car platforms and generally get better gas mileage.

New models

The company expects the Ford Edge and the Mercury MKX, due this fall, to be hits. In addition, it announced plans yesterday for a full-size crossover based on the Fairlane wagon concept that will go on sale in 2008.


Ford also said it would, in 2008, introduce a revamped version of its F-150 pickup - long the best-selling vehicle in the U.S. - and next year will roll out updates of its Ford Five Hundred sedan, Freestyle crossover and Focus compact. It also will have yearly updates of its popular Mustang and will continue to sell the Lincoln Town Car.

The company gave little guidance, however, about promised new compact cars to compete with the likes of Toyota Motor Corp.'s Yaris and Honda Motor Co.'s Fit.

"It would've been nice to have had small cars on the market during the past nine months or so," said Ken Elias, a partner in automotive research firm Maryann Keller & Associates.

The company expects to reduce annual production capacity by 26 percent to 3.6 million vehicles by the end of 2008 and aims to stabilize its U.S. market share at 14 percent to 15 percent. A market share of 14 percent would indicate the need for annual production capacity of only 2.5 million vehicles, according to Hutson of Gimme Credit. "There's still a big gap between capacity and what the demand will be in North America," he said.

Ford's decision to offer buyouts to its union workers mirrors a move this year by General Motors Corp. GM, Ford and the No. 3 U.S.-based automaker, the Chrysler unit of DaimlerChrysler, are trying to lighten the burden of providing union-scale wages and benefits to workers and retirees.

Ford has cut its dividend several times since the late 1990s but hasn't suspended the quarterly payment to its shareholders - currently 5 cents a share - since 1982. Ford's stock closed yesterday at $8.02, down $1.07.


Merrill Lynch analyst John Murphy downgraded the company's stock from neutral to sell and said the plan focuses on buyouts and doesn't address other issues.

"It does not materially accelerate product introductions. It does not provide a solution for the troubled facilities assumed from Visteon [a supplier spun off from Ford]. It does not cut capacity deeper. It's missing a lot," he said.

But Morgan Stanley maintained its equal-weight rating.

"While we are pleased to see greater cost reduction and more acknowledgment of the reality-gravity of the situation, we remain concerned that current results are worse than we think," analyst Jonathan Steinmetz said in a note to investors.

Dealer reaction

As news of Ford buyouts and deep employee cuts reverberated throughout the country yesterday afternoon, Kenny Shreve sat down at his desk to pen a goodbye letter. "It saddens me to make this announcement," he wrote. Shreve, 44, is closing his Ford Mercury dealership in McLeansboro, Ill., after 16 years of selling Ford trucks and cars in the small community.


He's leaving one of the strongest dealer networks of all the automakers. Experts say other dealers are likely to follow Shreve as Ford shrinks.

"There's just not enough sales to support the dealer network," said Jim Ziegler, a Georgia-based retail consultant for dealers. "Ford officials are encouraging dealers to consolidate Ford and Lincoln Mercury dealerships, but all consolidations and closings are voluntary."

"We're working with [dealers] on finding solutions that will make their business sustainable as well as our business sustainable," said Lydia Cisaruk, a Ford spokeswoman.

"The plan is ultimately to make dealers stronger in the long run." Cisaruk said while Ford wants to shrink the size of its dealer network, it has no target number for consolidations or closings. "We're working to get them the right products at the right price [and] working with them to reduce their inventory," she said.

Martin Zimmerman writes for the Los Angeles Times. The Associated Press and The Detroit News contributed to this article.