WSJ: GM v. Ford: Swinging the Axe

[Perian]

Link: wsj.com

THE WALL STREET JOURNAL ONLINE
January 20, 2006 7:07 p.m.

For the past several months, both Ford Motor Co. and General Motors Corp. have faced pressure from investors and their competitors to streamline and strengthen operations. High labor costs have eaten away at earnings, and increasingly fierce competition from overseas has reduced their shares of the U.S. market for automobiles.

Investors have been calling for change, and the companies are responding. Here are details of the companies' restructuring plans.


FORD

On Friday, two people familiar with Ford's planned restructuring said many of the details of the "Way Forward" plan are settled. The plan will be formally unveiled Monday after the company announces its fourth-quarter earnings.

Among other changes, these people say Ford will:

• Hourly jobs: Cut 25,000 positions over the next four years

• Facilities: Close at least 10 plants, including assembly plants in St. Louis and Atlanta

• Capacity: Eliminate at least 25% of its car and truck-making capacity, or more than one million vehicles, from its current operations

• Salaried jobs: Cut nearly 5,000 positions, or at least 10% of the company's white-collar employees. Sales chief Steve Lyons is departing.

The company is also going to put an emphasis on lowering purchasing costs. No vehicle brands are slated to be killed Monday; Ford's Mercury brand was on the table for elimination, but survived because of its ability to draw in female buyers, said people who worked on the plan.

In late December, United Auto Workers employees ratified health-care concessions aimed at cutting the company's expenses. Under the deal, retirees will pay higher premiums and co-payments while employees will forgo certain pay raises and pay more for prescription drugs. The changes will remove about $650 million from its estimated annual health-care bill of $3.5 billion; the company expects its long-term liability will be reduced by $5 billion.


GENERAL MOTORS

In November, GM unveiled a restructuring plan that will include:

• Hourly jobs: Shedding 30,000 manufacturing jobs by 2008, primarily through attrition and in some cases buyouts.

• Facilities: Closing nine North American assembly, stamping and powertrain plants and three parts-distribution facilities.

• Capacity: Lowering North American capacity by one million vehicles, or about 19%, to 4.2 million vehicles.

• Salaried jobs: Cutting U.S. white-collar staff by as much as 7% in 2006, making a cumulative 40% cut in white-collar staff since 2000.

In October, GM announced a deal with the United Auto Workers to secure the contributions of its hourly workers for the company's retiree health-care plan. The deal will reduce GM's liabilities for unionized retirees by about $15 billion, or about 25%. Annualized cash savings are estimated at about $1 billion a year. The deal received preliminary court approval in December.

Since announcing the restructuring in November, GM has shuffled its management, naming the head of its European operations, Frederick "Fritz" Henderson, to succeed retiring Vice Chairman and Chief Financial Officer John Devine. In early January, it unveiled a plan to slash base sticker prices for nearly 80% of its U.S. models, in exchange for sharp cutbacks in its incentive programs. Some incentives remain, particularly on older models and large SUVs.

[tgagneguam]

When GM closed Oldsmobile, GM's US sales fell by exactly what Oldsmobile sold in its last full year (John McElroy of Autoline Detroit pointed that out a while back on his show). While GM saved money in terms of designing, engineering and marketing specific Oldsmobile vehicles, apparently the Company lost revenue and profits(?) from the closed division, too. There appears to have been a net zero gain of conquest buyers to other GM brands. And considering it cost billions to appease Oldsmobile dealers, I'm not so sure GM gained anything in the shortterm or longterm. But, what's done is done.

Ford should invest the money that it would take to close Mercury and put it toward building real cars and trucks. I think that that's a better plan than constantly ceding share to Asian makes. Put up a real fight, for Christ's sake!

[mgescuro]

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Swinging the Ax
January 23, 2006 10:56 a.m.

For the past several months, both Ford Motor Co. and General Motors Corp. have faced pressure from investors and their competitors to streamline and strengthen operations. High labor costs have eaten away at earnings, and increasingly fierce competition from overseas has reduced their shares of the U.S. market for automobiles.

Investors have been calling for change, and the companies are responding. Here are details of the companies' restructuring plans.

FORD

Ford's "Way Forward" plan was unveiled Monday after the company announced stronger-than-expected fourth-quarter earnings. Among other changes, Ford plans to:

• Hourly jobs: Cut 25,000 to 30,000 manufacturing jobs through 2012
• Facilities: Close 14 plants, including assembly plants in St. Louis and Atlanta
• Capacity: Eliminate 26% of its car and truck-making capacity, or more than one million vehicles, from its current operations
• Salaried jobs: Cut nearly 5,000 positions, or at least 10% of the company's white-collar employees. Sales chief Steve Lyons is departing.

The company is also going to put an emphasis on lowering purchasing costs. Ford's Mercury brand was on the table for elimination, but survived because of its ability to draw in female buyers, said people who worked on the plan.

In late December, United Auto Workers employees ratified health-care concessions aimed at cutting the company's expenses. Under the deal, retirees will pay higher premiums and co-payments while employees will forgo certain pay raises and pay more for prescription drugs. The changes will remove about $650 million from its estimated annual health-care bill of $3.5 billion; the company expects its long-term liability will be reduced by $5 billion.

GENERAL MOTORS

In November, GM unveiled a restructuring plan that will include:

• Hourly jobs: Shedding 30,000 manufacturing jobs by 2008, primarily through attrition and in some cases buyouts.
• Facilities: Closing nine North American assembly, stamping and powertrain plants and three parts-distribution facilities.
• Capacity: Lowering North American capacity by one million vehicles, or about 19%, to 4.2 million vehicles.
• Salaried jobs: Cutting U.S. white-collar staff by as much as 7% in 2006, making a cumulative 40% cut in white-collar staff since 2000.

In October, GM announced a deal with the United Auto Workers to secure the contributions of its hourly workers for the company's retiree health-care plan. The deal will reduce GM's liabilities for unionized retirees by about $15 billion, or about 25%. Annualized cash savings are estimated at about $1 billion a year. The deal received preliminary court approval in December.

Since announcing the restructuring in November, GM has shuffled its management, naming the head of its European operations, Frederick "Fritz" Henderson, to succeed retiring Vice Chairman and Chief Financial Officer John Devine. In early January, it unveiled a plan to slash base sticker prices for nearly 80% of its U.S. models, in exchange for sharp cutbacks in its incentive programs. Some incentives remain, particularly on older models and large SUVs.

[fuhrwb]

Lets hope that this will get both companies back on top.

[LI CADILLAC]

I hope it will too. I just read that Fords profits were higher in the 4th q last year. So things will hopefully get better.

[stevecmh]

I really and truthfully both GM and Ford can make it.

[johnny smallblock]

It seems like Ford's plan isn't as drastic in light of the fact that it spread out over the next 6 years, and GM's is a 3 year plan.

I'll say it again, I think Ford is in bigger trouble. They're still kicking mercury around, Jag shows no signs of life, Astin Martin is still a niche player that's not contributing much to FoMoCos bottom line.

Plus, the new models do as little as possible to excite.

[kodos78]

I hope they both make it. I just traded in the '04 CTS for a '06 Explorer EB, and am VERY happy with the Ford. We were also very happy with the CTS I think my wife was getting teary eyed when we traded it in (in contrast to getting rid of her '99 Honda Accord, she was jumping for joy when the tow truck came to haul it away -- we donated it to a charity the POS).

It couldn't be helped though, we just had our 2nd child, and the CTS trunk is too small for a double stroller and Costco runs. It served us well, brought back two children from the hospital and was our first car purchase together as a couple.

Anyway, the point is that both GM and Ford are now coming out with some fine product. The 2006 Explorer is a great SUV, lots of room, IRS rear, well done interior (not all materials are soft touch however, but then neither was our highly overpraised Accord's). The '04 CTS was very comfortable and 'sporty enough'. If they can come out with a nicer interior and up the ante on the 3.6L's HP, it would be a knockout in its segment.

We were looking at the SRX, but it felt too small, and wasn't worth the $10k price premium over the Explorer in our opinion. And the dash is just too busy/ugly (mutant CTS) for the money you'd spend. A pity, it's a beautiful car, and we love it. Lesson to Cadillac -- please improve your interiors. If Ford can make their '06 Explorer look like a luxury car, then surely your luxury cars can look like one too.

It's kinda sad, this is the first time I don't have a GM car in my stable in like 8 years. Have an SRT-4 and a Explorer now. I really wanted a new Tahoe, but I think it was too big for my wife. Now that's a GREAT truck.

[FoMoCo Fan]

Originally Posted by johnny smallblock

It seems like Ford's plan isn't as drastic in light of the fact that it spread out over the next 6 years, and GM's is a 3 year plan.

I'll say it again, I think Ford is in bigger trouble. They're still kicking mercury around, Jag shows no signs of life, Astin Martin is still a niche player that's not contributing much to FoMoCos bottom line.

Plus, the new models do as little as possible to excite.

Well Time Magazine seems to think the opposite, in fact they come out and say just that in this weeks issue, that GM is in worse shape overall. After all, despite all the problems with the NA operations, Ford is still making money, GM is losing billions. And GM's legacy costs add over $1,000 to the cost of a new vehicle, where as it's a little over $500 for Ford products.

[01cavalier]

Short term I think GM is in worse shape, though comparing the two, Ford seems worse off in the long term. GM seems to have been making better business decisions about what product to develop for the future than Ford, and GM is working harder at making a more effective turnaround.

[kool_zx3]

Originally Posted by 01cavalier

Short term I think GM is in worse shape, though comparing the two, Ford seems worse off in the long term. GM seems to have been making better business decisions about what product to develop for the future than Ford, and GM is working harder at making a more effective turnaround.

Can you explain that to me??? GM is worse off in just about every category. Thier redoing thier product lines and thier only real true effort lately is in niche product lines. All thier major products are duds. The malibu and impala do nothing but put people to sleep. The G6, nice little car but problematic. The cobalt, can barely compete with the focus. The HHR, a hit that's 1. The solstice selling 20,000 a year, helps but very little. The corvette, awesome car but that adds jack to profit really since it cost so much to make and sales are so low. You see, niche players is all they really got going right now. The profit is in the toilet, but ford is making money. Buick's line is a real snooze fest with nothing spectacular there, they need the enclave soon. The grand prix is already getting long in the tooth, atleast i find. They say new products are coming but when 2011??

Now Ford

Aston Martin makes money, it's a small niche line but they make money, just like ferrari does, small company but makes good money.

Jaguar is just now getting thier product line turned around. Ford is still paying for Nasser's stupid mistakes.

Land Rover's new vehicles are all smash hits and thier sellin boat loads of range rover's and LR3's.

Volvo's new models are doing well and have 3 new vehicles on the way, where's saab's new vehicles???

Mazda, on a roll with just about every new product doing well. Mazda 3,miata,mazda 5. Mazda 6 still does well along with the RX-8. The new CX-7 is on the way. New mazda 6 is coming up also in a few years.

Lincoln - the zephyr is doing well and new product is coming like the Mark X (MKX) Mks will be coming along soon also.

Mercury - They had a better year then last year, new product helps and there is product coming.

Ford - The fusion,f150,mustang etc.. are doing well with the refreshened f150 coming,Edge,redone 500 and freestyle etc... Ford is gettin thier product on the mark, and thier not relying on full size suv's to save them, like GM and the GMT 900's. Nobody can tell me ford is in worse shape then GM.

GM will turn around but ford has a better plan right now, wagoner isn't helping anything.

[ghughes]

You cannot claim mazdas success for fomoco-they only own 20%.

[paul3230]

I sure hope this is the last of the downsizing...

[J..D]

I don't know who is in worse shape and I really don't care they both just need to work out there problems before there is no American automobile. Heck they could always work together with some things like the new GM/Ford transmission to save money till the are both back in good shape.

[haleykeek]

what if Toyota,and GM merged like Mercedes Benz,and Chrysler? could it happen? and if so,could it help GM in the long term?