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Ford, The New Way Forward: Some Shock and Awe
Review of Ford’s announcement this morning, Part 2
2006 September 15
© 2006, Libertiny Financial LLC
As I discussed in an earlier article Ford restructuring--Shock and Awe, Part 1 back in 2006 January, the muddled message and lack of details in the original Ford Way Ford Plan was a clear indication that top management didn’t actually know how to implement and execute the plan.
After bringing in Alan Mulally from Boeing as the new CEO (a good move by Ford’s Chairman Bill Ford Jr. with help by retired U.S. Congressman, Richard Gephardt), he wasted no time in accelerating the plan, actually showing projected sales, and providing details of the plan--things that he did while at Boeing.
Mark Fields once again delivered the actual presentation while looking particularly unhappy. The irony is that Mark “blamed” the need to accelerate the plan on increasing fuel costs. Although many of us have predicted increasing fuel costs for years due to the simple fact of America’s increasing usage of fuel and with other major economies coming online, such as China, with their obvious increase in fuel consumption as they grow, the global changes seemed to be a mystery to Ford upper management until the last few months. Where have these folks been hiding?
The results: 10,000 more salaried employee’s jobs are to be terminated in some shape or form by the end of March 2007 (14,000 total including the 4,000 terminations that have already occurred). Hourly workers are hit even harder by the targeted cut of between 30,000 and 40,000 people. Make no mistake, these are massive numbers and coupled with GM’s layoffs, local economies will be significantly affected.
Crunching key numbers for the cost to terminate employees (assuming 50,000 people at an average cost of $75,000 per person): $3.8billion is the ballpark cost to Ford. That’s not inclusive of the cost to actually close down factories and the projected operating loss for calendar 2006 for Ford. A very big number even with Ford’s projected $20billion in available cash by the end of 2006 according to Ford’s Don Leclair (CFO).
Some observations:
1) In less than two weeks since Alan Mulally joined, we have some details. A good step forward
2) However, Alan Mulally was conspicuously absent from the presentation and follow-up question and answer period. Granted that he was physically there and did field a question, but we're expecting a lot of leadership from him and would have thought that he would have taken this opportunity to lead the discussion.
3) Unfortunately, Ford continues to refuse to shed irrelevant and/or money loosing nameplates. Specifically: Mercury, Jaguar and Range Rover.
4) Alan Mulally has his hands full. The details of how to actually move forward with bringing more relevant products to the marketplace at a significantly faster pace then the typical 4-5 year cycle is very much a stretch goal. This is especially true considering the amount of technology development that needs to be developed and launched during this short time period.
What this means to you.
1) The very serious personal and economic pain will hit everyone in about 2-3 years (2008-2009) as the money paid to employees from both the GM and Ford buyout runs out (assuming that the U.S. can not absorb many of these folks). Also, Tier 1 and 2 suppliers and their employees have yet to be significantly affected by this round of reductions. Likely results: More layoffs by these suppliers.
2) Look for a continuing decline in home values in the regions affected by these layoffs since people will likely move out of the region (Note: Wyoming has been very actively recruiting metro Detroit area workers). Personal bankruptcies will increase and people will need to walk away from their mortgages and homes.
3) During the election of our next U.S. President, issues such as Social Security reform, off shoring of high value jobs, China’s monetary policies toward the U.S. and personal finance will be critical issues. This is in addition to any wars that we continue to fight. We need to select our next President very carefully. They can’t be a silver spooned ivy leaguer. They need to be someone with actual experience in the workforce. Something that we haven’t had in a President for a long time. Hopefully our political parties will nominate people that have the proper credentials.
We’re in for a rough ride. But we will make it through it by going back to the work ethic that our country showed after major changes to our country such as the depression and world wars.
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