- The Washington Times - Sunday, September 17, 2006

When he stepped down this month as Ford Motor Co.’s president and chief executive, Bill Ford Jr. acknowledged the ailing, 103-year-old automaker must reinvent itself to survive in an increasingly competitive industry.

With the company announcing a deeper and accelerated restructuring plan Friday, it’s obvious the auto giant’s new chief executive, Alan Mulally, formerly executive vice president of Boeing, will lead a leaner, smaller and possibly more focused automaker.

But will that be enough?

“Right now, with so many variables, I would have to say the jury’s still out,” said Jeff Schuster, automotive analyst with J.D. Power and Associates, a global marketing information services firm. “I don’t think Ford is going to disappear. … But they will not recover that ground they’ve lost in the marketplace.

“So the question is: Can they operate profitably and can they have the image they once had? And I think it’s all possible.”

The road won’t be simple or easy.

The company founded by Mr. Ford’s great-grandfather, Henry Ford, lost $1.4 billion during the first half of the year. It is under pressure from Wall Street to make more cuts and roll out new cars and trucks more quickly.

Ford on Friday announced it was cutting more than 10,000 additional salaried jobs, offering buyouts to all of its 75,000 U.S. hourly workers and shutting down two more plants than previously announced.

The cuts are on top of Ford’s previous plans to close 14 plants and will reduce its North American work force by almost one-third.

About 6,500 of the 82,000 Ford workers represented by the UAW have taken buyout and early-retirement offers made earlier this year, mainly at plants slated for closure.

The announcement came after the board of directors met for two days last week to discuss plans to cut jobs and shut factories at a rate faster than previously planned.

Wall Street didn’t think the moves were enough, sending Ford shares down nearly 12 percent Friday to $8.02 on the New York Stock Exchange.

The cuts have the UAW’s blessing.

“Once again, our members are stepping up to make hard choices under difficult circumstances,” UAW President Ron Gettelfinger said.

Blurry focus

The biggest challenge for Ford is simple, analysts say: Produce cars and trucks the public wants.

Ford’s U.S. vehicle sales in August dropped 11.6 percent from a year earlier as the market continued to shift away from trucks and sport utility vehicles. Sales of SUVs and trucks, which the automaker has depended on for most of its revenue, fell 20.8 percent, compared with August 2005.

“Ford is really in the middle of a crisis right now that has been unfolding for some time,” said Charlie Hughes, former head of North American operations for Land Rover and Mazda. “Certainly, the seeds of the problems were sown before [Mr. Ford] took over.”

Ford had success in the 1980s with smaller cars such as the Escort and particularly the Taurus, which sold nearly 7 million vehicles during the past 20 years and had a longer run as the country’s top seller than the Model T.

The company’s F-series pickups and high-end sport utility vehicles also sold well from the 1990s through last year.

“Ford has three pillars of profitability, and they’re all trucks: full-size pickups, full-size sport utilities and midsize sport utilities,” said John Wolkonowicz, an automotive analyst with Global Insight, an automotive research and consulting firm. “Those are the products that make up about 100 percent of Ford’s corporate profitability.”

But they aren’t enough to sustain the company, industry analysts say.

And with the SUV and pickup market as competitive as ever, and higher gasoline prices slowing sales of larger vehicles, Ford’s future profitability remains in question.

“They’re not producing very many products that get the consumer very excited,” Mr. Wolkonowicz said. “When you have a product that the customer gets excited about, they beat a path to your showroom.”

‘Late in the game’

With the exception of the popular Mustang, the company’s car lineup has been devoid of top sellers that can help offset slowing sales in the SUV and truck divisions.

“The market is much more competitive, and the margin of error is just so much smaller than it was, so you really can’t afford to make any mistakes in terms of product,” Mr. Schuster said. “Right now, that’s the differencebetween Ford’s position and GM’s position; GM is showing some progress on the product side, and while at Ford there have been some bright spots, if you look at their whole [vehicle] lineup, they’re lacking in that area with what the market has shifted toward.”

The company turned to a large incentive and rebate program in an effort to attract customers.

“Ford is selling cars at incredible incentives and rebates with zero-percent financing and all these things that in my opinion tends to devalue the brand,” said Laurie Harbour-Felax, a manufacturing analyst who specializes in the automotive and aerospace industries.

The company has high expectations for its new CUV, or cross-utility vehicle, called the Edge — a smaller, more fuel-efficient version of larger SUVs.

“CUVs really are where the market is going, and Ford is a little bit late in the game,” Mr. Schuster said.

Still, the Edge, scheduled to hit the showrooms later this year, has potential to be a big winner for Ford, analysts say.

“This will be an important vehicle for Ford,” Mr. Schuster said.

Partnership options

A merger of Ford with another automaker, similar to the German-American partnership of DaimlerChrysler, remains a possibility.

“Mr. Ford himself said that a merger is something he would certainly entertain,” Mr. Wolkonowicz said. “And I don’t think you’d need to limit it to a European company.”

Automakers Renault SA and Nissan Motor Co. are interested in purchasing a significant stake in Ford rival General Motors. A similar partnership with an Asian automaker “could help” Ford, Mr. Wolkonowicz said.

Others aren’t so sure, saying a joint venture with another automaker would do little to cure Ford’s ills.

“Would a merger help? In my opinion, no, because the issues they face are things that they need to clean up within the company,” Mr. Hughes said.

A less formal relationship, such as the partnership between Japan’s Nissan and France’s Renault, is more likely, Mrs. Harbour-Felax said.

Ford was reported this summer to be considering taking the company private, but on Friday denied it was entertaining that option.

“I wouldn’t rule anything out,” Mrs. Harbour-Felax said. “These guys surprise me every day.”

Expand or streamline?

Rather than expanding through a merger, many specialists say Ford instead should streamline its product line, which they say is bogged down with too many poor sellers. It already is getting out of the minivan business.

Mr. Hughes said Ford overextended itself by acquiring so many companies over the years, which muddied the automaker’s focus and diluted its image.

Ford has sought a buyer for its Aston Martin division. Some analysts add the company also should consider eliminating some other properties, which include Land Rover, Mazda, Volvo, Jaguar and its American icon Lincoln-Mercury line.

“The world we live in today is an oversaturated world. There are too many brands and too many products which are not distinguishable,” Mr. Hughes said.

Ford must focus on strengthening its identity and image by producing more signature products such as the Mustang and F-series trucks, Mr. Hughes said. It also must do a better job branding and marketing those products.

He added the company should focus on its Ford, Volvo and Jaguar lines because each is a well-known worldwide brand.

“A signature product should be an extension of what the brand promises. It can’t be something you stick a badge on at the end,” Mr. Hughes said. “To set yourself apart in the marketplace, you have to stand for something. And whatever you stand for has to permeate in every bit of the company — in everything you do.”

Ford officials Friday made a point of saying that the exclusive Jaguar brand would not be sold.

“Jaguar is not for sale, and we’ll let you know if that changes,” Mark Schulz, president of Ford’s international operations, said during a conference call with analysts after the restructuring announcement.

Selling off divisions may be a tough call for Ford because the company has invested heavily in “commonalization,” a process of sharing parts and designs among many car platforms.

“So to sell off one of those brands I think poses some challenges for Ford if they want to move forward,” Mrs.Harbour-Felax said. “The reason the Japanese are beating us is they have common platforms and common components that you can share.”

Cutting costs

No matter what restructuring path Ford takes, the company will have fewer employees, factories and expenses in coming years.

The company announced in January a “Way Forward” restructuring plan intended to restore it to profitability by 2008. The plan called for $5.5 billion to $6 billion in cuts companywide, primarily centering on reduced hourly labor costs. As many as 30,000 jobs may be cut and 14 facilities closed by 2012.

Ford accelerated those plans in July when the Japanese automaker Toyota Motor Corp. outsold Ford in the U.S. for the first month ever.

On Friday, Ford announced it was cutting an additional 10,000 salaried jobs and closing two more plants.

Despite the cuts, relations between Ford and its unions may not be as frosty as in the past. Industry specialists say there seems to be a willingness in the UAW and other auto-related unions to work with Ford on drafting long-range plans to save the company.

“The unions seem to realize that it’s in their best interest to at least try to be part of a solution and not hold steady to a position that is just outdated,” Mr. Schuster said.

Mr. Mulally is an aggressive leader not shy to make cuts. He cut or outsourced some 50,000 positions at Boeing, his former company, and streamlined its product line.

His tactics paid off, and Mr. Mulally is credited with turning around the once-struggling airplane manufacturer.

“If anyone has a chance to turn around Ford, it’s him,” said Richard Aboulafia, an aviation analyst with the Teal Group. “He’s got tremendous success. He’s got virtually limitless energy, a lot of charisma — he’s a great leader.”

‘No time to waste’

Still, the challenges Mr. Mulally faces at Ford are daunting.

“A lot of people have tried to change the Big Three and failed,” Mr. Aboulafia said.

And Ford lacks a key executive who can foster product development and branding, Mr. Schuster said.

“Ford is only halfway there,” he said. “They have the turnaround guy. They don’t have a product guy.”

Product development in the industry is a laboriously slow process, typically taking five years or more from conception to production. But whatever changes occur must be done quickly, analysts say.

“Nobody in this industry has any time to sit back and be patient,” Mrs. Harbour-Felax said. “Things [in the automotive industry] are moving almost as rapidly as the computer industry.

“There’s no time to waste.”

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