Ford May Match GM’s Job Cuts

The Detroit News, an underrated second-tier paper, reported on Wednesday that Ford Motor Company is likely to match the 30,000 job cuts General Motors announced for its workforce a short time ago. While Ford says nothing has been finalized yet, this non-denial makes one believe the newspaper’s figure is in the ballpark. CEO Bill Ford Jr. (who got the job on merit one presumes) said there will be “significant plant closings.” That can only mean significant job losses.

Detroit became America’s car capital through a confluence of geographical factors: access to steel, lumber and coal, shipping through the Great Lakes and America’s rail hub in not-too-far-off Chicago, as well as a shipbuilding industry that already bashed metal and had skilled engine builders. None of these guaranteed eternal prosperity, and the world has changed. Management hasn’t.

Since January 1, 2005, Ford has run up losses of $1.4 billion before taxes. This has happened in an era of low interest rates and relatively good incomes for many (but by no means all) American households. The culprit is sales, which have fallen for 16 of the past 18 months. With revenues declining, earnings inevitably drop. Cost cutting takes some time, and in doing so, the company may be undermining future sales. That appears to be what GM is doing and what Ford may do, if the Detroit News is correct.

Ford’s future hangs on “crossover utility vehicles,” according to Ford, in particular the Lincoln Aviator and the Ford Edge. These car-based SUVs acknowledge that gasoline is still the far side of $2 a gallon and that parking anything bigger is a pain, if not impossible. However, the field is pretty will filled: the Nissan Murano, the Chrysler PT Cruiser and Pacifica, Pontiac Vibe and Mitsubishi Endeavor all occupy this part of the automotive market. However, this is where the margins are fattest.

The problem is that the “American” car companies (Nissan has been making cars in Tennessee since 1982, so how are those “Japanese” cars?) are cutting capacity and focusing on just the highest margin products. Market share stems from having successes in various segments of the market and having the capacity to increase production as fashions and economic conditions change. Ford, and GM, need to get leaner, but in doing so, the run the risk of getting smaller, below the “critical mass” necessary to flourish independently.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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