The auto industry's putrid performance in May was an eye opener, and companies like Ford now have to readjust the adjustments they just made to their turnaround plans. Ford VP Jim Farley already braced his white-collar work force for a possible 12% reduction in their ranks, but a memo emailed today by Mark Fields, Ford's President of the Americas, reveals that the number of white-collar workers "reduced" will actually be 15%. Fields says in his memo (full transcript posted after the jump) that the company will "reduce salaried-related costs in North America by 15 percent by Aug. 1," which you, me and the guy who sits in the cubicle right under the AC vent know doesn't mean just cutting back on coffee filters.

The reductions will come from a series of steps that should ruin the day for lots of Ford employees wearing a tie or pants suit right now. They include "involuntary separations" (i.e. firings, letting go, RIFs, etc.), attrition (I'm leaving before you can fire me) and a consolidation of open positions (you now do his, his and her job plus what you were doing before). Other cost saving measures include further delaying merit-based raises from July 10th to Oct 1st (the Griswolds will not be going to Wally World this summer), suspending tuition assistance and dependent scholarship programs (education, not so much), and capping company-paid retiree basic life insurance for all existing and future retirees at $25,000 (that's still enough to buy a KISS Kasket for you and your spouse). As our esteemed colleague Mr. McElroy said a few posts ago, "It's a pretty grim picture. And it certainly is going to get worse." And so it has.

[Source: The Detroit News, The Detroit Free Press]

Email memo from Mark Fields

SUBJECT: Detail on Business Plan Updates

Two weeks ago, we announced that rapidly deteriorating business conditions – and a dramatic acceleration in consumer shifts away from large pickups and SUVs to smaller cars and crossovers – have made it necessary for us to accelerate our North America transformation plan.

While the fundamentals of our North American business are stronger than they were when we started our recovery effort more than two years ago, we're facing new and greater challenges as an industry. Lower industry volumes and segment shifts, together with the cost of steel and other commodities, directly affect our bottom line. As we previously announced, we no longer expect Ford North America to return to profitability in 2009.

Clearly as we've seen business conditions deteriorate in North America, it's important for us to act. In addition to realigning production, we need to bring costs in line. As one element of that, we've had to examine salaried-related costs. In keeping with our commitment to communicate decisions first with employees, today I'd like to share the actions that we will need to take.

Our plan is to reduce salaried-related costs in North America by 15 percent by Aug. 1. This unfortunately will result in involuntary separations of Ford employees and agency personnel, as well as cost savings through attrition and consolidation of open positions. We won't know the exact number of job reductions until each function examines its business needs and determines how best to meet their specific cost-reduction targets.

We also are making some employee compensation and benefit changes to further reduce costs.

These include:

• A further delay of merit increase payments for employees in the U.S. and Canada from July 1to Oct. 1;

• An immediate suspension of the U.S. Salaried Tuition Assistance Program;

• An immediate suspension of the U.S. Salaried Dependent Scholarship Program; and

• A $25,000 cap on company-paid Retiree Basic Life Insurance for previously eligible existing and future U.S. salaried retirees, effective Aug. 1. ...

Health care benefits, 401(k) matching funds and other benefits remain unchanged, along with our commitment to keep you informed of the latest challenges.

We realize the effect these actions will have on you and your families. While this has been a difficult period for all of us, it's important to remember our hard work in recent years has positioned the company to better withstand these challenges.

The new products we've launched during the past two years have been successful in the marketplace, and we are on plan with our commitment for 70 percent of our Ford, Lincoln and Mercury lineup to be new or significantly upgraded by the end of this year – and 100 percent by the end of 2010. We have not announced new products beyond that time frame – but we absolutely remain committed to the second part of our plan, which is to accelerate the development of new products that customers want and value.

In the near-term, we already have announced expanding the use of our fuel efficient six-speed transmissions, adding new fuel-saving EcoBoost engine technology in 2009, bringing a new European-engineered Transit Connect in 2009 and the new Ford Fiesta small car in 2010.

We've also shown tremendous progress and resolve in cost reductions and are on track to meet our goal of taking $5 billion in cost out of the system by year-end, while delivering quality products on par with the best in the business. Going forward, we will begin to fully realize the benefits of our more competitive contracts with the UAW and CAW as well.

Ultimately, we believe we have the best plan for facing these industry challenges. And we know that companies that deal with these market realities with the greatest sense of urgency and the best executions of their plans will succeed. We've already seen this as we transformed Ford in Europe and South America. With even greater resolve, we can do the same in North America.

As managers, you will receive cascade materials later this morning to help you in conducting discussions with employees about these actions. Thank you for all your hard work.

-- Mark

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