Detroit -- Ford Motor Company will slash jobs, close plants and end model lines as part of its long-anticipated restructuring plan to revive profitability.
The plan, finally announced Friday, involves cutting 22,000 jobs by 2005 and ceasing production in 2002 of what Ford President Nick Scheele called four low-margin vehicles – the Ford Escort, Lincoln Continental, Mercury Voyager and Mercury Cougar.
The job cuts will take place as Ford closes five plants, significantly reduces operations at 11 plants, forces the ‘voluntary” retirement of at least 5,000 white collar positions and cuts 1,500 agency positions.
The five plant closures will occur by mid-decade, once the current union contract ends in 2003, says Scheele.
They include three major assembly plants – in Edison NJ, St. Louis MO and Ontario, Canada. Two powertrain plants – Vulcan Forge in Dearborn, MI and Cleveland Aluminum – will be closed.
It’s part of Ford’s strategy to reduce its potential production capacity potential from 5.7 million vehicles to a more realistic 4.8 million vehicles, say Ford executives.
Some other cuts appear mostly symbolic gestures. Ford instance, CEO William Clay Ford Jr. will forgo and salary and bonus this year. Instead, he will be paid in stock options. The cuts also are being extended to company amenities such as the elimination of coffee and food at meetings and the selling of corporate aircraft.
A major lynchpin in Ford’s strategy to return to profitability includes significant investment in product development. By mid-decade, Ford plans to spend 5-6% of its total revenue on product development – a figure that is very “competitive,” says Scheele.
Scheele defines the “back to basics” philosophy the company has been preaching as the “designing, building and wholesaling the best vehicles in the world.”
The investment in product development will result in the introduction of 20 new models annually by 2005 – ten of which will be major product introductions.
In addition to the model introductions, Ford also is focusing on quality and increasing customer satisfaction.
Scheele admits the capital spent on product design and research and development will continue to create margin pressure the next several years but the situation will be reversed by mid-decade. Ford is projecting that its “margins will be restored to healthy levels resulting in strong profitability.”
Ford also is continuing to emphasize the Premier Automotive Group, saying the luxury division will contribute at least one-third of Ford’s global profits by mid-decade. Scheele says that PAG is comfortable with the positioning and direction of its four import brands but acknowledges the only question is with the Lincoln Mercury brands – “What are their appropriate platforms?”
PAG will be taking a long look at the Lincoln Mercury brand in the next few months. Details of how the company plans to maximize the brand will become evident in future months, says Ford.
Also part of the plan is a redefined mission for Ford Credit. The captive finance company will now focus solely on supporting the sale of Ford products worldwide instead of being a high growth company with a broad range of products.
The credit company also will improve its build risk management processes and its origination and collection practices. Ford Credit will accept a $700 million infusion of capital from the parent company this year to help cover recent losses.
Ford’s strategy is designed to get the company profitable by the end of 2005. There still will be some intense pain as Ford says the first quarter of this year will be the toughest. But the company expects to start seeing positive results as some of the new product is introduced.
The full effect of the plan won’t be seen until later, Ford admits, due in part to its inability to close plants until 2003. “There is some backloading of the program,” Ford’s CEO notes.