Saturday :: Sep 9, 2006

At Ford, Survival Is Now 'Job One'

by pessimist

Start looking for good deals on classic Fords - the company might not be around much longer!

For starters, Ford is losing its customers to lower incomes, which means that each precious dollar has to buy better quality. As Ford loses customers, and sales, they lay workers off. As workers get laid off, they have less money to spend. As the workers have less money to spend, ...

More Cuts Loom as Ford Under Mulally
By TOM KRISHER Associated Press Writer
Sept. 8, 2006, 2006

Ford's world is far from ideal these days ... its executives head into Thursday's board meeting to present what likely will be a deeper round of cuts and faster new product introductions ... The company has too much factory space and too many workers for its reduced market share to support.

Ford lost $1.4 billion during the first half of the year and is under pressure from Wall Street to do more to cut costs, increase revenue and perhaps sell off some of its assets. In the end, though, Wall Street isn't likely to get what it wants from Ford next week, said Bank of America analyst Ron Tadross.

"They've got a crisis over there, and things aren't going to happen the way they teach you in business school," said Gerald Meyers, former chairman of American Motors Corp. who now teaches leadership at the University of Michigan.

Meyers would know from experience what Ford is about to do - he had to do it all once himself.

Ford has some big problems to fix:

Ford is likely to focus on the production cuts, but even with those, it still has fundamental problems to address such as cutting its number of brands, reducing the sale of discounted cars to rental agencies and paring warranty costs by increasing quality.

This last has been a long-term problem. When I was a new driver, FORD was an acronym for Fix Over-Repair Defective.

So what is Ford going to do? Sell off things they shouldn't have bought in the first place:

Some analysts see the possible sale of Ford assets, namely parts of its Premier Automotive Group that includes Jaguar, Volvo and Land Rover, pushed off until Mulally can study the merits.

But before they can accomplish that and see results, they are going to take the traditional path of correcting for bad decisions - push the work force out the door:

But the analysts say that the company must make sure it has enough money to go through a restructuring that could include expensive buyout and early retirement offers to all of its hourly workers similar to what General Motors Corp. did earlier this year.

That would be the nice way to go about it, but will they? The Virginian-Pilot doesn't think so:

Ford wrecks family legacy
September 8, 2006

For Hampton Roads, nothing good will come from Bill Ford Jr.'s decision to step aside from many of his duties in favor of Boeing executive Alan Mulally. The only possible outcome is an accelerated closing schedule for Norfolk's F-150 plant. The only question is whether Ford will fully keep its word that local workers will receive a cushion of time and money to ease the transition to new careers.

Read this if you want to know what Ford's workers are facing in the way of 'retraining'.

This process is going to be much bigger than the one I wrote about concerning these 2000 or so Indianapolis airline mechanics. How much bigger?

Mulally is widely credited with turning things around [at Boeing], reducing the time to build an airliner by half and introducing the best-selling commercial airplane in history.
The cost was high: 70,000 of Boeing's 120,000 jobs.

Ford has already announced 30,000 layoffs, and it isn't a stretch to suggest that at least a similar number will be announced soon. The 'experts' see only one path for Ford to follow:

Ford's Last Chance
By Joe Benton, ConsumerAffairs.Com
September 6, 2006

Ford is fighting to just hold on. Profits, if any, are a long way into the future. Ford's U.S. market share has been dropping steadily for a decade, falling to an historic low of 17 percent last year.

Things like this don't help much:

It's to be hoped that Mulally has a firmer grasp on reality than [Bill] Ford, who in outlining his platitudinous grand plan, ignored the thousands of consumers stranded by spark plug blow-outs in F series trucks and made no commitment to improve warranty coverage and stand more fully behind the company's often-troubled products.

But it's still 'They'll be throwing roses at us':

Despite mounting losses, Ford insists that he was not pressured to step aside by directors or his family, which holds 40 percent of the voting control of Ford Motor.

"The next chapter in our history will be remembered for a renewed commitment to innovation and as the time we moved boldly to prepare Ford's North American business for global competition," Bill Ford said at a January news conference outlining the massive restructuring plan.

Maybe Ford will remember it that way. It's doubtful anyone else will.

Certainly not Ford's workers. What do Boeing workers have to say about Ford's new Top Gunner?

Reaction from Boeing employees and others

"Some people thought he was very, very pushy..." - Andrew Sones

"I don't think he did all that great. He was a good politician. At that level, maybe that's all that matters. ...."
- Jeff Baldwin, 20-year veteran

Politician, huh? What have THEY got to say?

"I am very grateful to Alan for all of his work in Washington. He is a friend, both personally and professionally, and I congratulate him on this exciting new position. If there is anyone who can return an industry icon, such as Ford, to eminence, it is Alan Mulally." - Gov. Christine Gregoire

"Alan loved that job [at Boeing]. I'm surprised he would leave; and the challenges at Ford are breathtaking. Alan ... is well-liked in Washington state. For the sake of the country, let's hope he can do the same thing for Ford that he did for Boeing."
- Rep. Norm Dicks, D-Bremerton

Remember - that included 70,000 jobs lost.

Ford brings in Boeing's 'axeman' to save giant

Ford has already begun closing 14 plants and cutting 30,000 jobs under a turnaround plan called the Way Forward. Even so, Ford executives are preparing an expanded blueprint of the restructuring programme, set to be unveiled later this month, which may call for more job cuts and plant closures.

The Times of London reports supporting evidence:

Mark Oline, managing director of Fitch Ratings, Chicago, said: “Alan Mulally has a strong track record in manufacturing, guiding Boeing’s commercial airplane division through an extremely challenging time. He has strongly emphasised manufacturing efficiency and outsourcing while facing high structural costs, including a unionised force - all of which apply to Ford.”

The gravy days are over at Ford, which isn't good news for Ford workers and retirees according to this article:

Big Trucks Mean Big Trouble for Ford
September 8, 2006

These cutbacks are calibrated to the unpleasant reality facing Ford: that it may never again compete on the level it used to. Asian automakers have flooded the market with just the kinds of cars American consumers are looking for, and they are capturing the spending dollars.
Ford’s product line strategy appears misguided
in view of ballooning gas prices.
Expensive to fill and hard on gas, Ford’s main revenue flow, big trucks and suvs, is running dry. It appears Ford has been blind-sided by a lack of foresight with its product line choices, and the accident scene has turned investors’ stomachs.

Looking at the success of Toyota, and its prescient move into compact cars at a time when gas prices pinch pocketbooks, the current product line offering Ford has in place won’t offer a speedy solution. And its development cycle prohibits a quick fix: Product line development takes years. It could be a long while before Ford can move its organization into position to build newer models that fit America’s present spending mood.

Another possibility presents itself: Ford’s slide
may actually be taking it toward the takeover cliff.
A smaller, ailing Ford may be an attractive item to an Asian or European automaker hoping to make a big statement like Daimler-Benz, which plucked a gem out of America’s fading industrial crown by swallowing Chrysler Corporation, forming DaimlerChrysler. These facts all reflect the decline in the manufacturing base that helped thrust America to superpowerdom.
It would not be altogether surprising to wake up one fine morning
to read that Ford Company is a thing of America’s mighty industrial past.

But the real bottom line for Ford's rescue isn't in cutting the workers loose, as this article attests:

Costs to cut; style, emotion to restore
By Rick Popely, Tribune staff reporter
September 6, 2006

"You can keep cutting costs and keep closing plants, but the only way you get out of this vicious cycle is to come out with products people want to buy," said Erich Merkle, an analyst with IRN Inc., a Grand Rapids, Mich., forecasting firm.

Mulally is facing problems at Ford that he knows nothing about despite 37 years at Boeing:

Mulally may have a harder time motivating employees as an outsider. "He had been with Boeing 37 years, and he had friends there. That helped him get people on board for what was a fairly controversial plan," Rebecca Lindland, analyst with forecaster Global Insight, said. "At Ford, it's an industry he doesn't know and it's with people he doesn't know, and they don't know him, so that could cause problems for him."

Among other differences Mulally faces is that the Boeing turnaround was against one major competitor, Airbus, among a relative handful of customers. Despite his success at Boeing, Merkle said no one should expect miracles from Mulally. At Ford, he faces eight global manufacturers that roll out new models annually.

"General Motors is no longer a doormat on products. They have several new models coming, and there are a lot of good ones," Merkle said.

Mulally's homies think he's facing big troubles as well:

Detroit may greet Mulally with a hiss
September 7, 2006

He rode out of the desert one day, right when this town was down to its last dust cloud of hope. He had a name, and a legend to go with it, and that's about all we knew about him. He cleaned up this town, mister, and when his work was done, he touched the brim of his hat in farewell and rode off into the sunset.
That's the way the story gets told in the Western movies, anyway, and often in corporate showdowns, too -- the stranger, the loner, the outsider, riding in to rescue the beleaguered townspeople -- or employees or shareholders -- from the outlaws or the evil ranching baron -- or corporate raiders, foreign competitors or inept management.
Sometimes, though, the story has a less heroic ending,
at least in the corporate version:
He blustered into town one day, a 10-gallon ego and a half-pint intellect, a one-man band of noise about all that he'd done for others and all he was going to do for us. Do to us is more like it. He made things worse, if that's possible, and he would have ridden out of town before dawn with all our money -- if we hadn't escorted him out ourselves first, not on the horse he rode in on but on a rail and wearing a tar-and-feather overcoat.
Maybe the outsider was more talk than accomplishment. Maybe the situation was beyond the abilities of the most accomplished gunslinger to contain. Or maybe the outsider's efforts were doomed from the start, not by the villains of the piece but by the townspeople themselves (and if he did accomplish anything, they're not about to give him any credit for it).
A Seattle P-I reader noted that all the problems on Mulally's plate -- foreign competition, labor and retiree costs, excess production capacity, high fuel prices -- may be the least of his worries at his new job.

"There's another huge hurdle to overcome for anyone that comes from outside the automotive industry," the reader wrote. "The U.S. auto industry is a closed, members-only, good-old-boy culture that has Machiavellian characteristics. Mulally will NOT be welcome with open arms by the senior management staff at Ford.

I suspect that there will be a significant contingent
that would prefer to see him fail,
and will do whatever they can
to make that happen

A local Motor City columnist projects it will happen:

Consider the words of Detroit News columnist Daniel Howes, who in writing about a corporate culture he described as 'clubby, often toxic', added that "Ford and the Detroit auto industry have a history of expelling outsiders the way the human body expels foreign objects."

Back to the original article:

Mulally himself acknowledged that he is not a "car guy," damning words in Detroit, perhaps even more so than someone who showed up to run Boeing with only a cursory knowledge of or interest in aviation.

The first use of such phrases as "When I was at Boeing" or "That's not the way we did things at Boeing" will prompt an epidemic of rolled eyes, mutterings that "if you were such a genius at Boeing, why didn't you get the top job," and a unification of the previously warring factions -- against him.

Compounding the problem is that Mulally ... is faced with some unpleasant tasks -- layoffs, pay and benefit cuts, plant closings, sale of some businesses, termination of models and brands -- any one of which will confirm the worst suspicions of "Oh, great, another slash-and-burn artist" and the inauguration of office pools on how long the new guy will last.

Mulally has to tread carefully.

Based on Mulally's managing style, he isn't likely to be making Ford friends, especially if he DOES do things the way he did at Boeing:

New Company, Same Problems For Ford's CEO
By J. Lynn Lunsford and Jeffrey McCracken

As the chief of Boeing Co.'s commercial-airplanes unit, Alan Mulally locked nearly 100 of his top managers in a conference room every Thursday for a meeting he called the Business Plan Review. As Mr. Mulally helped guide the giant plane maker through the turbulence that roiled the airline industry after the Sept. 11, 2001, terrorist attacks, though, those sessions became better known as "Alan's séance."

No control over coming and going - something no corporate executive likes to be subjected to, even as they subject their own workers to it. That would smack of being treated just like hourly corporate employees!

But that is a topic for another post.

"Show me the money!" say the investors. Ford has no money to show. Ford's problems have made the business community - Bu$hCo's 'base' - extremely nervous. They aren't sure that Mulally can pull off a Ford turnaround:

Mulally's Hire by Ford May Be Too Late
By Doron Levin
September 7, 2006

The pity is [Bill Ford Jr.] didn't recruit Mulally three or four years ago, when the automaker founded by his great- grandfather was in better shape.

The No. 2 U.S. automaker's market share in the U.S. is in a free fall, its worldwide automotive losses may be as high as $8 billion this year alone and its credit ratings have dropped to junk territory. As recently as the fall of 2000, Ford shares paid a quarterly dividend of 50 cents each. That has been reduced four times and now stands at 5 cents.

Bill Ford is the latest of a breed of Detroit auto executive not quite in touch with consumers. I'm heartened, though, by the fact that Mulally drives a Lexus because, to paraphrase him, he studied the matter and concluded it's the best car in the world. He probably hasn't driven many Fords lately, so he will undoubtedly be struck by the deficiencies in his new employer's products.

Mulally has to compare Toyota [Lexus is a division of Japan's Toyota Motor Corp.] to the structure and value system of Ford and figure out how to make organizational changes. To survive, Ford must emulate Toyota, not its traditional cross-town rival GM, which suffers from many of the same ills.

GM is currently in merger negotiations with a consortium of Renault and Nissan. Should they fall through, however, it might be a good thing for Mulally to pick up an Infinity:

The first major decision before Mulally -- and the Ford family -- could be whether to join forces with [Carlos Ghosn, chairman of Renault SA of France and Nissan Motor Co. of Japan], who presently is studying an alliance with GM. If GM takes a pass --a good possibility -- Ghosn as early as mid-October might turn to Ford to create the third leg for his global alliance in the U.S.

No matter what actually happens, Mulally is going to be earning his money:

Ford Motor to Pay $20.5 Million to New Chief, Hired From Boeing
By Bill Koenig
September 8, 2006

Mulally will get a $2 million annual salary, a $7.5 million hiring bonus and $11 million to offset forfeited payments he would have received at Boeing, Ford said in a U.S. regulatory filing today. Mulally's total compensation last year at Boeing, where he headed the commercial airplane unit, was $9.96 million, including $7.58 million in long-term incentive pay.

That set of remuneration figures represents a lot of lost Ford jobs, benefits, and pensions! Let's hope that Mulally invests each and every check Ford gives him - for each could be the last.

Then he's in the same boat he's put thousands of others into.

Except that he wold have a bank account of sufficient size to keep him very comfortable. But even so, without a job, maybe there will be a lot of time for him to do what all those laid-off Ford and Boeing workers will be doing - reminiscing about The Good Old Days:

Correcting A Picture In A Thousand Words
by Gene Sperling
August 5, 2004

Gene Sperling is the director of economic programs at the Center for American Progress.

The economy under President Clinton was exceptional, historic and record-breaking, not just the continuation of the status quo. President Clinton not only presided over the longest economic expansion in our nation's history, but broke from the previous period's trend and oversaw exceptional progress on nearly every major economic indicator:

* Sustained income growth, broadly shared: family incomes rose 17 percent – or more than $7,000 per family – from 1993-2000, the period from 1993-2000 saw family incomes in the bottom quintile grow by 24 percent – faster than the median family.

* 23 million new jobs created: The Clinton administration created more jobs than any administration in American history; 22.6 million, 92 percent of which were in the private sector. President Clinton oversaw manufacturing job growth of 303,000 from 1993-2000.

* Unemployment to its lowest level in 30 years: The unemployment rate fell by 42 percent over the course of the Clinton presidency and remained below 5 percent from July 1997 to the end of Clinton's second term in January 2001.

* Near doubling of productivity growth: The fiscal discipline of the Clinton administration helped usher in a virtuous cycle of lower interest rates, stronger investment, and a shift in productivity growth that has been sustained in recent years. Between 1995 and 2000, productivity growth accelerated to 2.5 percent a year, or nearly double the rate of the earlier period.

* Record deficits turned to record surpluses: Under President Clinton, [the United States government] went from a record nominal deficit of $290 billion in 1992 to the largest surplus in history – $236 billion in 2000.

And the economic record under Bu$hCo?

* [T]he independent NBER Recession Dating Committee has established the most recent recession as beginning in March 2001.

* For nearly two years after the recession officially ended in November 2001 our economy continued to lose jobs – something that has not happened since the 1930s.

That is a lot of lost sales of Ford F-150 pickups.

Concerning workers, even the Bu$hCo White House isn't keen on being seen by blue-collar voters as being an ally of the automakers:

The White House has twice cancelled scheduled meetings with the carmakers. A spokeswoman now says that the get-together will not take place until after the November mid-term elections.

I guess this confirms the possibility that the likely voting results are close enough to be making Bu$hCo very uncomfortable! They already have something to be uncomfortable about - the likelihood that the people will connect them to their economic distress - already-few jobs growing fewer than the number needed:

Household Incomes Declined In 46 States From 1999-2005

CNN's John Roberts offered a fact-challenged interview [last] Sunday morning with Labor Secretary Elaine Chao. Chao recited well-rehearsed talking points and used creative math to justify the Bush Administration's economic record:
The interview:

ROBERTS: The latest jobs report, 129,000 jobs created. That's versus a monthly average this year of 140,000... But many economists will say, Secretary Chao, that it takes 150,000 to 200,000 jobs to keep up with economic growth, and that that's not happening.

CHAO: We want the economy to grow. But not at a rate that's going to produce inflationary pressures. So right now, this rate is what we call not too hot, not too cold. It's just about right and sustainable.

That's not what the imperiled workers at Ford are hearing.

I for one won't be too upset for the execs and the investors if the Ford company ends up as another of the derogatory acronyms I knew when I was younger and rode dinosaurs to school:

Found On Roadside Dead

They should have done a better and much more responsible job of running the company.

I will, however, feel a great deal of sympathy for the workers who got to pay for the mistakes of their 'superiors' with their livlihoods, their incomes, their future prospects, and their retirements. They deserved better.

It should have been "Quality Is Management Job One." and not "See Rule Number One".

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