Ford faces major test

January 7, 2002 Posted: 1424 GMT

By Staff Writer Chris Isidore

DETROIT (CNN/Money) -- At the first Detroit auto show in 1907, Henry Ford revealed plans for his Model T, the car that virtually launched his company and the automotive revolution of the 20th century.

Ford's great-grandson, William Clay Ford, is set to reveal plans at the North American International Auto Show here of how he'll reshape the company at the start of this century, as the world's No. 2 automaker is beset by problems the company's founder never contemplated, such as industry overcapacity, guaranteed labor contracts and competition from low-priced imports.

Still, part of the plan, apparently involves sharp staff cuts. The Financial Times reported Monday that Ford could seek to eliminate 12,000 union jobs through early retirement incentives and voluntary departure packages. A Ford spokesman declined to comment on the plan.

The company also is expected to announce deep cuts in the salaried staff. The Financial Times estimated the cuts could be as many as 8,000, or 20 percent of nonunion staff, roughly the depth of salaried cuts already announced by General Motors Corp. and DaimlerChrysler (DCX: Research, Estimates). The Ford salaried staff already has been hit with the elimination of matching contributions to their 401K plans as well increases in health insurance premiums.

Ford (F: Research, Estimates) has warned it expects to lose 50 cents a share in the fourth quarter, it's third straight period in the red and giving it a loss of 48 cents a share for the year. Analysts surveyed by earnings tracker First Call are looking at earnings of about 50 cents in 2002, as industry-wide U.S. sales are expected to decline by more than a million vehicles.

Ford Motor Co. CEO William Clay Ford, shown here at the auto show in Detroit Sunday evening, is set to reveal turnaround plans to analysts Friday.

The current CEO's plans, to be disclosed Friday, are certain to be far less dramatic than those revealed by the company's founder 95 years ago. The freedom to close plants or radically reshape the company are extremely limited by the contract with the United Autoworkers union, which requires most of its members to stay on near-full salary through the end of the current contract in the fall of 2003.

Still, certain shifts of hourly workers already have been eliminated and, despite the contract, some cuts are expected to be announced.

Some analysts also have wondered whether the Mercury brand will be eliminated, again following DaimlerChrysler's dropping Plymouth and GM's (GM: Research, Estimates) move to discontinue Oldsmobile.

The middle brands, positioned between the core entry-level brands like Ford and the upper-end brands, have had difficulty competing. Ford has had great success in its top-end brands, both at home and overseas, but analysts say Mercury has not been receiving resources that now are even more scarce at Ford. Spokesmen for Mercury have continued to deny the brand is at risk.

Ford, who assumed the CEO position in October when Jac Nasser was forced out at the top of the company, acknowledged the difficult time his company faced at an auto show reception Sunday evening that included press and many Ford employees and their families.

"We've faced tough times before and we came out stronger than ever each time," he said. "We're going to do it again.

"I ask you to hang in there with us as we repolish the oval and get it shining brightly again," he said, referring to the company's famous logo. "Right now we're in the middle of a painful but necessary transformation of our company. We've made some progress all ready, but we're not finished."

Ford promised that there is a plan among the company's executive team, which includes Nick Scheele, the president and chief operating officer who earlier this summer was brought back from his turnaround efforts in the company's European operations.

At the same reception Scheele said stemming the operating losses and improving the financial position would be an important but relatively short-term portion the turnaround plan. He said the real challenge for the company is to improve the quality of its products.

"These [cost-cutting] actions will make the company stronger for everyone," he said. "But those actions are not will sustain Ford Motor Co. in the long run. Our real challenge is putting the product plans in place and executing them in a manner that will ensure the company's competitiveness for decades to come."

Scheele acknowledged that the company has lost its focus when it comes to product development. He said the company plans to unveil an average of 20 new models a year across its various brands in North America for the next several years.

"In the long run it is our product strategy that will determine how successful the next 100 years will be or even if there will be another 100 years," he said.

Separately, a Japanese newspaper reported that Ford Motor and Japan's Bridgestone Corp., which makes Firestone tires, have agreed to move toward reconciliation after breaking off ties last year following the recall of millions of Firestone tires.