Ford Motor Company on Monday announced details of a comprehensive plan to restore profitability to its automotive business in North America no later than 2008.
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The key points:
- North American capacity realigned to match demand – with 14 manufacturing facilities closed. Capacity will be reduced by 1.2 million units or 26% by 2008, resulting in significant cost savings.
- 25,000-30,000 jobs axed.
- Salary-related costs cut 10% in North America with the previously announced reduction of the equivalent of 4,000 salaried positions by the end of the first quarter.
- Executive ranks thinned 12% by the end of the first quarter.
- New low-cost manufacturing site for the future.
- North American automotive profitability achieved no
later than 2008. - Comprehensive North American “Way Forward” plan focused on customers to build stronger Ford, Lincoln and Mercury brands, a strengthened product line-up and greater quality, competitive costs and improved productivity.
- Product investments in new vehicles in new segments to reach more customers – including small cars and more crossovers – while maintaining truck leadership.
- Committed to stabilising US market share in the near term.
- Competitive cost structure includes net material cost reductions of at least $6 billion by 2010.
- Productivity improvements use global product development scale and lean and flexible manufacturing system to introduce more products faster.
- Straightforward vehicle pricing continues to be introduced with new models.
- No more earnings guidance with focus on sustainable profitability over time in all regions.
“We will be making painful sacrifices to protect Ford’s heritage and secure our future,” said Bill Ford, chairman and CEO, as he announced the major restructure.
Ford in North America – the Way Forward
Mark Fields, executive vice president and president, The Americas, called the plan the “Way Forward” and said it touches every piece of the North American business to make it more customer-focused, product-driven and efficient.
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By GlobalDataKey to this will be a complete rework of the Ford, Lincoln and Mercury brands.
“We will maintain our commitment to our loyal truck customers, while delivering innovative and boldly styled cars, crossovers, SUVs and other all-new products that will appeal to people who are still inspired by the American dream,” Fields said.
Hybrid versions of the Ford Five Hundred, Mercury Montego, Ford Edge and Lincoln MKX will debut in the 2008-2010 timeframe.
Ford will also introduce new “white space” products to reach customers in new segments, and accelerate plans to bring even more crossover vehicles and new small cars to market. It will also increase investment in the F-series truck line, introduce more design innovations – for more “at a glance” sheet metal changes – and introduce more safety innovations throughout its North American lineup.
“With more focused brands, new product investment and innovation, Ford will slow the rate of loss and then stabilise our US market share in the near term, even as competitors add new models,” Fields said. “Our plan will deliver more products – from small cars to our largest trucks – that are unmistakably Fords.”
He added that the automaker would be “more aggressive” in appealing to Mercury customers with “clear, modern differentiation in the design of Mercurys, a unique purchase experience and marketing that is targeted, personalized and interactive.”
Lincoln will be positioned as “the reward for consumers who are living the American dream” and will be the larger volume contributor to the Lincoln Mercury business.
The company plans to give Lincoln vehicles an “even clearer point of view” through powertrains, unique comfort and convenience features and unique designs.
Ford also plans to build on the clear-and-simple pricing strategy that began with the introduction of the Fusion and Mustang. It will reduce reduce the retail price of its products and “dramatically” reduce and cap rebates as it introduces new products.
“We started introducing clear pricing two years ago. The success of Mustang and Fusion proves that it works,” Fields said. “ We will bring sticker prices more in line with actual transaction prices and cap ‘cash on the hood’ rebates as we introduce new cars and trucks into the marketplace. It will protect our margins and consumers, too, through higher resale values.”
Reduced development costs
To reduce product development costs, Ford will use more global vehicle architectures in North America, particularly for cars and crossovers, to reduce investment spending and improve quality. It will also share more parts and systems that are invisible to the customer, such as brakes, suspension and underbody components, across its North American, European and Asian brands to leverage its global purchasing power for lower costs and better quality.
Ford will continue to implement its global product development system – which is based, in part, on Mazda’s highly successful and efficient model – to reduce product development times by six to 12 months.
An it will continue to invest in lean and flexible manufacturing, with 75% of its North American assembly capacity being “flexible” by the end of 2008.
Improved quality will be achieved, in part, through the “aligned business framework” agreements with select strategic suppliers. The agreements are designed to strengthen collaboration and create a more sustainable business model for both Ford and its key suppliers to improve mutual profitability.
“We are committed to developing strong relationships with a select group of more capable, more financially stable strategic suppliers on a long-term basis,” noted Anne Stevens, executive vice president and chief operating office, The Americas.
Manufacturing facility cuts
Achieving a lean fixed-cost structure and significantly improving Ford’s North American assembly capacity utilisation are seen as critical components of the Way Forward plan.
14 manufacturing facilities will be idled and cease production by 2012, including a total of seven vehicle assembly plants.
Assembly capacity will be reduced by 1.2 million units or 26% by the end of 2008 and a new low-cost manufacturing site is planned for the future.
Ford will, by 2008 close its St. Louis, Atlanta and Wixom assembly plants, the Batavia transmission plant and Windsor Casting. Two more assembly plants, to be determined later this year, also face the axe.
Production at St. Thomas Assembly will be reduced to one shift.
All this will reduce total North American employment by 25,000-30,000 people in 2006-2012 and comes on top of the previously announced reduction of the equivalent of 4,000 salaried positions in the first quarter of 2006 – or 10% of salary-related costs – and a reduction in the company’s executive ranks by 12% by the end of the first quarter.
The estimated pre-tax financial impact of the North American plan in 2006 includes US$250 million for hourly personnel firings and $220 million for fixed asset write-offs.
“Our cost structure will improve as we progress through 2006 and increasingly thereafter, and we’ll return to profitability in our North American automotive business no later than 2008,” said Don Leclair, executive vice president and chief financial officer. “We’re confident in our plan and optimistic we can achieve our goals.”
