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Ford to cut 25,000-30,000 jobs

The layoffs will affect nearly a quarter of the automaker's North American workforce.

india Updated: Jan 24, 2006 19:02 IST

Ford Motor Co said on Monday that it will eliminate 25,000-30,000 jobs and close 14 plants in North America in a bid to staunch crippling losses in its auto operations.

The layoffs will affect nearly a quarter of the automaker's North American workforce.

Ford said it hoped its hard-hitting plan would restore profitability in North America by 2008 and result in cost savings of six billion dollars by 2010.

The facilities, including seven vehicle assembly plants, will cease production by 2012, although the bulk of the shutdowns should be completed by 2008.

"These cuts are a painful last resort and I'm deeply mindful of their impact," company chairman and chief executive Bill Ford told a press conference. "We will be making painful sacrifices to protect Ford's heritage and secure our future."

Many analysts were doubtful Ford's "Way Forward" plan would have a major impact but Ford's share price jumped 5.32 per cent to close at $8.32 on the back of a better-than-expected profit report and the restructuring plan.

Unions called it "Black Monday" for the workers, however, and castigated the company for failing to offer a complete list of affected plants months after it first warned of closures.

The announcement "left a cloud hanging over the entire workforce," United Auto Workers president Ron Gettelfinger said in a statement.

The lack of detail also troubled analysts.

"The key question I have is ... is this more than slogans and broad actions?" said Brian Johnson, an analyst at Sanford Bernstein in New York.

Cutting production levels will not help Ford's declining market share, analysts warned.

In the past 10 years, Ford has seen its share of the US market drop from 26.4 to 17.4 per cent, the lowest level since the 1920s.

Ford boosted overall sales in the 1990s with sport-utility vehicles, but its market share in that segment waned as Japanese rivals introduced smaller, car-based, crossover SUVs.

The real trouble hit in 2005, when US gasoline prices topped three dollars a gallon and Ford's light truck sales -- which include the highly profitable SUVs -- fell 8.7 per cent.

Bill Ford acknowledged that "you can't cut your way to success" and said his second restructuring plan in four years includes plans to revitalize the company's product offering and focus on bold design.

The world's third largest automaker hopes to reduce costs and the time it takes a new vehicle to get to market by introducing more commonality across its various products and brands.

Ford plans on producing 250,000 hybrid vehicles by 2010 and also hopes to expand in the small car market, which it sees growing by 40 per cent by 2010. It also aims to sharply reduce "irrational" incentive programs which have hampered profits.

Ford named five assembly plants that will be shut by 2008 -- St Louis (Missouri), Atlanta (Georgia), Wixom (Michigan), Batavia (Ohio), and Windsor (Canada). The other two sites will be named later this year.

It said that in addition to the job cuts, salary-related costs were being cut 10 percent in North America with the previously announced reduction of 4,000 white-collar positions.

The company said managerial ranks were being reduced by 12 per cent by April.

Ford's assembly capacity in North America will be reduced by 1.2 million units or 26 per cent by the end of 2008.

The restructuring comes just four years after Ford cut 35,000 jobs worldwide, and eliminated several struggling brands and one million vehicles of capacity.

Ford reported much better than expected fourth quarter earnings, but a slump in full-year profit.

For 2005, Ford's net earnings slumped 43 per cent to two billion dollars, the automaker said, down from 3.5 billion in 2004.

Much of its fourth quarter profit came from the sale of car rental agency Hertz and Ford's financial services unit, Ford Credit.

Ford's struggling North American automotive unit posted a $1.6 billion annual loss, down three billion dollars from 2004.

"The plan lacks a clear statement of how Ford is going to get its labour and design costs in line with its Japanese competitors," said Peter Morici, a business professor at the University of Maryland. "Lacking that, Ford will not be able to offer vehicles that are competitive in price, quality and content."

Ford's savings from job cuts are limited by the automaker's contract with its union.

Hourly employees who do not take early retirement packages enter the jobs bank retraining program, in which they collect full pay and benefits while waiting for a spot to open up on the assembly line.

Ford said it hoped to obtain about half of the job cuts through attrition but would not speculate on how many employees would end up in the jobs bank.

Ford currently has about 1,100 workers in the program who each collect salaries and benefits worth about $135,000 dollars a year.

First Published: Jan 24, 2006 17:19 IST