Ford Drives Toward Change

The automaker plans to cut up to 30,000 jobs and close 14 plants in a bid to restore profitability.
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Updated from 1:41 p.m. EST

The latest attempt from Detroit to reverse the decline of the U.S. auto industry came Monday from

Ford

(F) - Get Report

, which unveiled another drastic restructuring plan and a call for changes in its corporate culture.

Ford Chief Executive Bill Ford outlined a strategy that includes cutting 25,000 to 30,000 jobs and shuttering 14 plants in an effort to restore the automaker's North American operations to profitability by 2008. To accompany the news of more downsizing, the great-grandson of Ford founder Henry Ford said the company would once again embrace "the American spirit of innovation."

The CEO conceded that the company's product decisions in recent years have been driven by a desire to fill capacity rather than to please customers, and he said those days must end.

"Today, we declare the resurgence of the Ford Motor Company," he said. "We will not stand for business as usual," he said. "We cannot succeed in the long run if we're focused only on the short term."

The call for change -- part of a plan called "Way Forward" -- comes as the automaker's market share dwindles in North America at the hands of foreign-based competitors such as

Toyota

(TM) - Get Report

and

Honda

(HMC) - Get Report

, and its health care and legacy costs have soared. Similar conditions exist at Ford's counterpart,

General Motors

(GM) - Get Report

, where investors are speculating about the likelihood of bankruptcy.

Shares of Ford dropped 45% last year, while its credit ratings were cut to junk status. For all of 2005, Ford recorded a loss of $1.6 billion from its North American operations.

The planned job cuts, scheduled to occur by 2012, are the deepest since Ford launched a restructuring program in 2002. The cuts represent 20% to 25% of Ford's North American work force of 122,000 employees. The company also plans to reduce its salary-related costs by 10%.

The company only identified four of the factories to be idled by 2008 -- its St. Louis, Atlanta and Wixom, Mich., assembly plants and Batavia Transmission in Ohio. The company previously has said that Windsor Casting in Ontario will be closed. Another two assembly plants to be announced later this year, and the other seven facilities that will be shut down will be named later.

"This is sort of like déjà vu," says Burnham Securities analyst David Healy. "We went down this same road with Ford a few years ago, and now they turn around and we're going to do it all over again."

Healy does not own shares of Ford, and his firm does not have a banking relationship with the company.

Ford's plan for a new round of job cuts comes as it faces the prospect of negotiating a new labor contract with the United Auto Workers union, which represents its blue-collar workforce.

"Certainly today's announcement will only make the 2007 negotiations all the more difficult and all the more important," UAW president Ron Gettelfinger said in a statement.

The auto industry views labor negotiations in 2007 as a chance to address its cost structure which has spiraled out of control thanks to increasing health care and pension costs. Still, Ford stressed that the company's salvation lies in innovation and sharpening its competitive edge.

"The full story of what's happening at Ford can't be told by cuts," Bill Ford said. "You can't cut your way to success. The full story is about what Ford stands for and what we will no longer stand for. Ford Motor Company stands for a farsighted commitment to growth. We stand for a renewed focus on the customer. We stand for boundless innovation."

Healy says the restructuring program from four years ago was a success as far as the cost-cutting was concerned, but the product innovation was lacking.

"We're still waiting for that

innovation, so you have to wonder whether it's going to work this time," he says. "Toyota's cost structure is better, and it's been delivering on innovation all along."

The cost-cutting announcement comes on the same day Ford reported a 19% increase in fourth-quarter earnings, aided in large part by the sale of its Hertz division. Ford earned $124 million, or 8 cents a share, in the quarter, compared with $104 million, or 6 cents a share, a year earlier.

The latest period includes a gain of 50 cents a share related to the sale of Hertz; a gain of 12 cents a share for tax adjustments; a charge of 39 cents a share to write down Jaguar and Land Rover; and a charge of 29 cents a share for personnel reductions.

Before the items, Ford earned 26 cents a share, beating the Thomson First Call estimate by 25 cents. Automotive sales rose 8% from a year ago to $41.8 billion, topping analysts' forecast of $37.3 billion.

Overall, Ford's automotive operations lost $12 million before taxes in the fourth quarter, compared with a pretax loss of $470 million a year ago. The improvement reflected "favorable volume and mix, net pricing, cost performance and exchange," with unit sales rising by 102,000 from a year ago to 1.85 million.

Ford's North America automotive operations had a pretax loss of $143 million in the quarter, compared with a pretax loss of $470 million in 2004. "The improvement primarily reflected cost reductions and favorable net pricing, partially offset by operating losses incurred by the former Visteon activities now controlled by Ford." Fourth-quarter sales in the division were $22.1 billion, compared with $21.1 billion in 2004.

All of Ford's profits came from its financial services unit, which includes Hertz through Dec. 21, the date on which it was sold. Overall, the financial unit earned $881 million before taxes in the fourth quarter, down from $1 billion a year ago. At Ford Motor Credit, pretax earnings were $465 million, down $78 million from a year ago.

The decrease reflected lower volumes and margins, partially offset by lower credit losses, Ford said.

Ford declined to provide a financial guidance for 2006, citing uncertainty about market conditions and a desire to keep employees focused on restoring profitability.

Shares of Ford recently were up 42 cents, or 5.3%, to $8.32. GM shares rose $1.24, or 6.2%, to $21.29 on Ford's news.