Article in August 18, 2006 Wall Street Journal

Ford Plans Sharp Production Cuts
As Part of Accelerated Turnaround

Moves Come as Auto Maker Mulls
More Plant Shutdowns, Deeper Cuts

By JOHN D. STOLL and JEFFREY MCCRACKEN
August 18, 2006

Ford Motor Co. announced plans to aggressively reduce its North American production as part of the effort to accelerate its Way Forward turnaround plan.

The moves come as company is also looking to close more factories and cut salaried jobs and benefits by 10% to 30%, according to people familiar with the auto maker's plans.

In an announcement early Friday, the company said it will cut fourth-quarter production by 21%, or 168,000 units, that would force it to partially shut down plants in the U.S. and Canada in the quarter. The revised plan also reduces the company's previously announced third-quarter plan by 20,000 units.

Ford Chairman and Chief Executive Bill Ford Jr. outlined the decision to cut production in a note to employees, explaining the move is part of broader efforts to accelerate the company's North American turnaround. He said full details of additional actions will be announced in September. "We know this decision will have a dramatic impact on our employees, as well as our suppliers," Mr. Ford said. "This is, however, the right call for our customers, our dealers and our long-term future."

Mr. Ford is under pressure to speed up cost-cutting efforts after the auto maker -- No. 2 after General Motors Corp. in terms of production -- reported a $254 million loss in the second quarter and worse-than-expected July U.S. sales.

The revised production plan is expected to sharply reduce the supply of several models and ease pressure on sales incentives. The plan also reflects expectations for lower industry sales of light trucks and sport-utility vehicles, as high gasoline prices are expected to continue to encourage demand for more fuel-efficient passenger cars and crossovers.

Mark Fields, executive vice president and Ford's president of the Americas, said the "tough-but-important" reduction in production plans underscores the seriousness with which the company is approaching its North American turnaround.

Plant Closures, Salaried-Job Cuts

Ford investors are also bracing for further moves to shore up the company. People familiar with the company's plans said any move, if enacted, would come on top of the company's Way Forward restructuring plan, which called for cutting North American white-collar salary costs by 10% by the end of 2006's first quarter and closing 14 plants by 2012.

The Dearborn, Mich., auto maker could cut North American white-collar costs by about 30% under one scenario, but the final figures could be less if Ford can find savings in other areas, said people familiar with the matter. That amount would encompass reductions in compensation and benefits, including pensions, not just head-count reductions, these people said. Ford first would look to make white-collar cuts through attrition and voluntary departures before looking to layoffs, these people said. The company has about 35,000 salaried workers in the U.S.

White-collar pension cuts could be a way to extend an olive branch to the United Auto Workers, which would have to sign off on new or accelerated plant closures.

Ford is considering further plant shutdowns, these people said, though it isn't clear what plants are in question. Company officials are studying accelerating previously disclosed plant closings in Wixom, Mich., Norfolk, Va., and Windsor, Ontario.

Ford has a revenue team that is studying ways the company can boost sales and a separate cost-cutting team, these people said. The teams also are looking for savings in advertising and marketing budgets and product plans.

Further Reducing Costs

Ford's board is scheduled to meet Sept. 14 to review new plans, and final decisions are expected to be made public a week later, people familiar with the process said. The auto maker is expected to detail some new products at that time to allay concerns among investors that its new-model pipeline is weak. Mr. Ford is scheduled to meet with restructuring teams at the end of August for a review of their plans, according to a senior Ford official.

"The question will be, does this do enough? Does this get across what we need to get across?" said one person familiar with the process. "Whatever it is, it will be sizable enough to be material and needs to be announced."

Ford officials have discussed the need to amend the original Way Forward plan but have given little indication publicly of what will be included. Marcey Evans, a Ford spokeswoman, yesterday declined to discuss the company's plans.

Ford faces increasing competition from other auto makers, particularly Asia manufacturers such as Toyota Motor Corp., which have lower labor and manufacturing costs and have rolled out more popular models.

Under the original Way Forward plan -- which includes reducing its hourly work force by 30,000 -- Ford reduced white-collar worker expenses by the equivalent of 4,000 jobs, many of which were accomplished through layoffs in the first quarter. The reductions include Ford not filling open positions and the dismissal of contract workers as well as cutting employees. In all, Ford cut more than 15% of U.S. salaried worker costs between June 2005 and the end of this year's first quarter, Ms. Evans said.

Company officials have said they believe demand for large and midsize SUVs is heading lower for the long term. A focus for Ford's team studying ways to boost revenue is how Ford should market and advertise the redesigned Ford Expedition and Lincoln Navigator full-size SUVs that the company will roll out this year. Expedition sales are down 38%, while Navigator sales are down 17.9%.