Ford cuts jobs, guidance
Early retirement for up to 5,000; sees lower 3Q, 4Q sales, profits
NEW YORK (CNNfn) - Ford Motor Co. is cutting between 4,000 and 5,000 management jobs in North America through early retirement programs, the company said Friday, as it warned that it will miss third- and fourth-quarter earnings forecasts even before $900 million in special charges during the remainder of the year.
The company said the lower earnings is due to slowing sales and production levels, as well as increased marketing and incentive costs, as it tries to hang onto its declining market share. The company also sees reduced earnings from its Hertz rental car unit due to decreased business travel, and expects what it calls "customer satisfaction" costs to rise due to settling a lawsuit on ignition problems as well as engine warranty costs.
The company is now looking at third-quarter earnings per share of 10 cents before special charges, down from the consensus forecast of 28 cents a share from earnings tracker First Call. And it is looking at fourth-quarter EPS of 30 cents before special charges, less than half of current First Call forecast of 62 cents.
Because the battered No. 2 automaker took a second-quarter operating cost due to its recall of 13 million Firestone brand tires on its vehicles, the new guidance puts Ford on track for full-year earnings per share of only 70 cents, rather than the $1.20 First Call estimate.
Shares of Ford (F: down $1.79 to $21.68, Research, Estimates) were slightly lower in morning trading Friday following the announcement.
The company said it has reduced production levels for the second half of the year, reflecting continued decline in auto sales. Martin Inglis, the company's new chief financial officer, said it looked as if August auto sales would be 10-to-15 percent below the same month last year, and that marketing and incentive costs are rising rather than seeing their normal declines that accompanies the introduction of new models.
Ford year-to-date U.S. sales through July are 11 below the year-earlier period, and it has seen its market share here fall to 23.3 percent from 25 percent a year earlier.
"It's a dogfight on share and some of the fuss around Firestone was impacting us more than we anticipated," said Inglis, referring to the recall of almost 20 million Firestone brand tires, mostly used on Ford vehicles, during the last year.
Most cuts through early retirement
The salaried staff reduction will be through a voluntary program, mostly through early retirement. The company expects enough managers to sign up for the program that it does not anticipate any layoffs. The program does not extend to unionized Ford employees.
The program applies to North American managers, and affects 8-to-10 percent of that staff. It is expected to save the company between $400 million to $500 million a year on a pre-tax basis. The employees who take the offer are expected to leave the company by the end of the year.
Ford expects to take a $700 million after-tax charge, or 40 cents a share, in the fourth quarter to cover to cover the separation cost, although most of the cost will be paid out of its pension plan, leaving it only $100 million in costs against profit.
In addition to the 40-cent-a-share charge projected for the fourth quarter, Ford also anticipates a charge of $200 million, or 10 cents a share, in the third quarter related to the write-down of certain investments.
Inglis said further restructuring and cost savings programs are being examined. But he denied reports that the company is looking at cutting product development programs or considering reducing the company's dividend level.
And while he wouldn't rule out plant closings, he pointed out that plant closings are extremely difficult to accomplish under the contract with the United Autoworker union that runs through 2003.
"I've said nothing is off-limit," he told analysts and reporters in a conference call. "But we do not have any near-term specific plans on plant (closures)."
"The voluntary separation program is a difficult, but necessary action," Ford CEO Jacques Nasser said. "These actions will help us operate the business more efficiently, streamline our organization and align our skill base with future needs."
Ford is slashing 4,000-5,000 jobs to cut costs (CNN/File)
Nasser said Ford will work "proactively" with program participants to assist the transition to retirement or new jobs.
"I don't think it's a survival issue. It's an earnings issue. They're not going to go out of business," Prudential Securities auto analyst Michael Bruynesteyn said. "It's not positive for Ford right now, but it's not the end of the world either."
Bruynesteyn noted that the other top automakers, General Motors (GM: Research, Estimates) and DaimlerChrysler (DCX: Research, Estimates), have also initiated job cuts. Domestic automakers have lost what he said was an "unprecedented" market share loss of 6 percentage points in the last 18 months as imports such as Honda and Toyota have produced their own sport/utility and minivan offerings.
The market share loss is equivalent to one million units, or the production capacity at four U.S. assembly plants. "We have never seen that in a two-year period before," he said.
Ford said the cuts are the latest in its efforts to become more efficient. So far this year, Ford has eliminated a shift at its Michigan truck factory, eliminated overtime at several other North American assembly plants, imposed a hiring freeze, and reduced contract worker, travel and other expenses.
Nasser said Ford has reduced total costs by $7 billion during the last four years, but that "we need to continue to accelerate our efforts to improve our efficiencies, while protecting important new product plans."
Ford's sales have been slipping since the recall last year of 6.5 million Firestone tires that mostly came as original equipment on Ford's Explorer, the best-selling sport/utility vehicle in the United States.
Firestone has blamed design problems in the Explorer for causing tire tread separation that led to rollovers in which hundreds of people have died. Ford denies the allegations, saying the tires are defective.
Nevertheless, fallout from the recall, coupled with unrelated recalls on newer Explorers and other vehicles, has tarnished the automaker's reputation for quality. The company posted disappointing showings in two influential industry studies. Ford assembly plants were shown to be last among the U.S. automakers in quality in the J.D. Power initial quality study, and while still first among domestic car companies in productivity, the Harbour Report found Ford's lead diminishing.
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The yearlong economic slowdown has been hard on automakers and other companies struggling with slumping demand. To cope, they have scaled back production and capital investment and laid off workers. In July, the unemployment rate held steady at 4.5 percent as businesses cut fewer workers than the month before.
In January, DaimlerChrysler announced an aggressive restructuring program at its U.S.-based Chrysler division that would result in the loss of 26,000 jobs during the next three years, about 20 percent of the company's North American work force.
In December, General Motors announced plans to cut about 14,000 workers in North America and Europe, including a similar 10 percent cut in salaried staff in both locations, as it announced a restructuring that included closing numerous plants and eliminating the Oldsmobile model.
From staff and wire reports
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