Filed under: Ford, Earnings/Financials
Ford's cost of recovery: Over $11 Billion for accelerated restructuring
In a filing with the Securities and Exchange Commission that surfaced yesterday, Ford estimated that it the accelerated restructuring plan announced last September will cost $11.2 billion when the books are finally balanced. In other words, it will cost Ford$11.2 billion to let go of 38,000 hourly and 10,000 salaried workers. The estimate includes ongoing costs for health care for any workers that didn't take the lump-sum buyout. Who knew it was that expensive to reduce your workforce?
If there is any good news here, it's that Ford has already accounted for $10 billion of that cost in 2006. The rest of the associated costs of the restructuring plan will be billed to the first quarter of 2007. Nothing like pulling the Band-Aid off quickly.
[Source: Automotive News - sub. req'd]
Reader Comments (Page 1 of 3)
The Dearborn Observer 8:11PM (3/02/2007)
To the Ford management;
I'm suprized the buy out cost is that low. That means you have about $12 bils. to spend on Product development. Given the fact that you just got rid of a third of your engineering assets, and for the last few years when I was in Product Planning the primary reason new products could not make it through was engineering containability, how are you going to proceed with your new product development effort?
I'm sorry,I forgot, silly goose that I am, you still have marketing and finance staffs to engineer new products.
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Bob R. 8:32PM (3/02/2007)
#1, I thought Ford had over 30 billion after all their assets were put up. I am wrong?
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The Dearborn Observer 8:49PM (3/02/2007)
to Bob R,
There was a point in time prior to the most recient $23 bil. loan, where we were told that Ford had about about $25 bils in M1 and M2. They have been burning through a couple of Billion a month since then, so unless someone from Finance staff reads this blog (versus the "heros of accounting" blog) and pipes in, it's hard to tell how much Ford actually has.
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Infinihertz 9:13PM (3/02/2007)
It shouldn't be that hard to figure out how much money Ford has. Ford should have to disclose that at least quarterly as a publicly traded company. I thought that when the end of 2006 financials were published in late January, it was a little under $40 billion, more than half of which they have to pay back to the banks over the next few years. That's all off the top of my head though.
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The Dearborn Observer 9:52PM (3/02/2007)
I missed that. Was the $40 bills before or after the $23 bils loan?
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far jr 10:01PM (3/02/2007)
Ford appears to be using more platforms from global sources (Mazda and Volvo) so maybe the enginnering staff cuts in Michigan won't hurt too bad after all.
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Greek Boy 10:31PM (3/02/2007)
So after this 1st quarter, things should start looking up financially. The additional product hitting the streets in the next year (F-150, Taurus, Taurus-X, Sable, Sable-X, Focus, Fairlane, MKS) will be added to the already hot selling new line-up.
Go Ford.
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The Dearborn Observer 10:38PM (3/02/2007)
To far jr.
True, but it doesn't address Ford Management's complicity in the squandering of America's technological birthright. Should this country become an an "assembly" site? Why bother. You can assemble vehicles in Chile or Ceylon for less near term cost.
If we don't continue to develop the design and engineering expertise here, If we don't continue to support manufacturing (i.e the creation of wealth), in this country is doomed to third world economic status. We are in a war for the survival of the American middle class, which by the way I'll contend was invented by Ford. I'm not saying you should by American Cars, I'm saying you should buy stock in in the American auto manufacturing companies and when your proxy statements come, vote the current BoDs out of office for their lack of competitent stewerdship.
If we loose, we will wind up with a society that parallels Mexico where 1% of the population owns 99% of the wealth.
Is that what you want?
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jim 10:42PM (3/02/2007)
As a Ford Dealer employee, I must say that we have not seen any of the effects down in the ranks. We had our reps from Lincoln "moved" to other positions, presumably to fill in for others who were fired, but otherwise, it has been business as usual.
We are hopeful because of the changes at the top (Mullaly) that the company is just in the middle of a storm to be weathered. My only question is, "When is the storm going to hit the dealerships?"
We are an established dealer, mid-volume, but to be perfectly honest, business has been great. Granted, we are selling a much higher volume of used relative to our new sales, but we aren't seeing the decline that others have.
Is it too early for the foundation (dealerships) of the company to feel the effects?
Oklahoma City Ford | Tulsa Used Cars
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far jr 11:34PM (3/02/2007)
Dearborn... of course that is not what I want.
I do however feel that America's auto industy has not upheld traditional roots of Americans designing and producing the best, most inovative, and reliable products that they possibly could. They allowed marketing to take over rather than the engineers.
Sorry but aerospace, defense, electronics, and many other engineering fields have evolved much more rapidly than the automotive industry. We should have had econmical fuel cells or other efficient power sources long ago. How about automated control systems (like Mercedes and Japanese brands). There is very little "cutting edge" technology coming from the American auto industry.
Yes American consumers can be resistant change, but let the marketing people persuade us to buy a better product not slight variations of Henry Ford's model-T from 100 years ago!
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far jr 11:41PM (3/02/2007)
Let me just clarify further. I do not want Ford to fail nor people to loose thier livelyhood. I want Mullaly to do with Ford what he did at Boeing.
They were struggling against Airbus because they kept re-hashing the same jetliners with slight modifications and calling them the "new and improved" version. They are now doing much better because they chose to revolutionize the commercial aircraft with the 787...Major steps forward for Boeing and the commercial aircraft industry.
That is what American auto manufacturers need to do as well.
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Jim P. 11:58PM (3/02/2007)
To #8 You hit the nail on the head. By the way, my uncle just 'retired' from FoMoCo there in Livonia after 31 yrs. He took the buyout that was offered to him. He was in middle management. This nation is losing it's sovereignty and the younger people better snap out of it. Hell, not have we pretty much lost a great deal of manufacturing, but now the white collar jobs are being offshored. Banking, telecommunications, IT just to name a few sectors. Our greed as a nation is going to due us in and we are just starting to see the beginnings of it.
What jobs can't they outsource to a foreign country?
"Would you like a hot apple pie with that??"
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iQuack 1:05AM (3/03/2007)
The auto industry is alive and well in the U.S.A.
It's just that the factories hiring Americans to build many of the best cars are owned by Toyota, Honda, Subaru, Hyundai, and others.
Ford is still a mess, but GM seems to be improving with some really good cars--not just uneconomical trucks and SUVs that kept GM and Ford profitable until gas prices rose.
Chrysler is a disappointment with mediocre cars that aren't nearly as good as buyers expected considering its Mercedes parent.
Chrysler has done as much to harm Mercedes as Mercedes has helped Chrysler. And who needs the latest Mitsubishi-engineered, boring cars in Chrysler drag (Caliber, Compass, Sebring, etc.)?
The only way for the domestic car companies to compete is to free them from the choke-hold of the UAW. The unions are the problem and they must be busted at every opportunity. Then with reduced costs, GM, Ford, and Chrysler can compete with Hondas and Toyotas.
I'd rather own a car built by non-union workers instead of UAW drones who think they work for their union instead of the companies that pay them.
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airport krishna 7:52AM (3/03/2007)
It's all about the talent into which a high percentage of capital is invested in R&D. Is Ford anywhere the best an brightest want to invest their careers? Even if Ford poured more money into R&D, they likely don't have the talent anymore to out innovate the competition, in which case Ford is treading water in good times, submerging when it gets tough.
Where does Ford sit among the best collaborative tech and design talent coming out of school? Bottom of the list like the other Detroit mfgrs.? Competition for talent is what it's all about, and Ford can't legitimately compete right now, maybe ever.
They've squandered millions, maybe billions by putting marketing resources in the hands of senior management who were engineers, finance people or sales operachniks, bureucrats some of them - self-appointed marketers who tried to spend their way and logic their way into Americans' hearts - like an engineer would... it should all logically work out in their minds but there's no magic, people buy magic, not logic. They've been followers and indecisive for so many years in the public's mind - tough to recover an image once you've lost it.
Products are the result of intrinsic forces that Ford hasn't had right now for a while. Maybe it's the toxic effects of wearing too many golf shirts and khakis (the Ford uniform).
Detroit, and Ford in particular used to be the Silicon Valley of the world - the place anyone with entrepreneurial and business brilliance wanted to come to express their talents and thrive prosperously.
Today, thousands are trying to creatively figure how to get out of town.
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The Dearborn Observer 9:08AM (3/03/2007)
Mr. Krishna
I'm inclined to agree with you about the talent problem, but I hope we are both wrong. I do take issue with your throwing engineers in the same pot as marketing and finance.
The last engineer to run Ford was Don Peterson who advanced through the product development and planning ranks. The product plans he established in the early 1990s led to Ford's 24% market share and $10 bils in profits in the late 1990s. Subsequent leaders were Trotman (finance), Nasser (finance) Billy (rich kid), and now Mullaly (engineer, but an outsider), and Fields (marketing). During that time in order to pander to Wall Street, total advance R&D spending went from over $5 billion to about $3 billion, and market share is slipping to its planning "target" of about 14%
When Fields took over North America, His first act was a $100 million advertising blitz to sell what you call "magic" versus developing a solid well engineered product base. Admittedly, he was handed a bag of the well known commodity, but he did exactly what any marketing guy would do, spritz it with perfum and have Taylor Hicks sing it's praises!
Honda, Toyota, Nissian, Mercedes, BMW, and Porsche all have unbroken engineering leadership, and would give the same consideration to having a marketing guy run their respective companies as they would to someone who came up through the food service ranks.
I would feel better if instead of spending money on buyouts, Ford would have gone "all in" on Product development. I'm convinced that Ford can survive and even thrive with the right leadership, I'm not convinced it's there yet.
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Richard 10:39AM (3/03/2007)
iQuack wrote (13) "... Chrysler is a disappointment with mediocre cars that aren't nearly as good as buyers expected considering its Mercedes parent.
Chrysler has done as much to harm Mercedes as Mercedes has helped Chrysler. And who needs the latest Mitsubishi-engineered, boring cars in Chrysler drag (Caliber, Compass, Sebring, etc.)? ..."
By what logic do you absolve Mercedes in the debacle that is the Chrysler Group? Mercedes-Benz's German administrators are not the victims here. They run the company. DaimlerChrysler's good moves and its bad moves were approved by its German leadership. If you want to credit them with the Crossfire, 300C, and Jeep Liberty, then you have to blame them for the Caliber, Compass, and Sebring.
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Greek Boy 11:19AM (3/03/2007)
Ford leads all other manufacturers in spending and in programs that involve many technologies. One of them is alternative powertrains.
Nobody spends more in total on:
Bio-fuels
Clean Diesel
Hybrids
Clean gas
Fuel Cell
Hydrogen
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ToddMN 11:31AM (3/03/2007)
"This nation is losing it's sovereignty and the younger people better snap out of it."
I'd just like to point out that as far as the auto industry is concerned, the young people inherited that mess. It wasn't their doing.
The big 3:
The unions squeezed them, the bean counters squeezed them, and management was arrogant and ignored the sleeping giant in Japan. Haven't been able to recover since. It's amazing and sad how half a century of dominating the market can be squandered away.
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Stéphane Dumas 11:47AM (3/03/2007)
ToddMN you have some good points. However we could add also the devaluation of the yen compared to the dollar and the tariffs to import a US, Australian or European car (I talk of mainstream cars like Renault, Citroen and Fiat not the luxury cars like BMW and Mercedes) in Japan
And who knows? Maybe Japan might face the same music as the Big 3 from Hyundai or China or India.
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The Dearborn Observer 12:00PM (3/03/2007)
Greek boy,
Your may or may not be correct with respect to R&D spending, but that isn't the problem.
The problem is getting new technologies through Ford's formal Program Approval system. Once the Finance guys say "our analysis says we cant afford it", and the Marketing guys say "jeeezz, this is different from what we have done before, we don't know how to sell it". Then they both think "if I sign up to this technology and it fails, I WON'T GET PROMOTED", there is zero chance.
The hybrid Escape program was a notable exception, but remained a battle royal to get into production even after formal approval.
Until Ford starts promoting senior mamagers with technological vision and leadership, versus their political savy, Ford's implementation of new technologies will continue to lag its competitors.
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