Ford restructures, again - Opinion & Analysis: The Business - Ford Motor Co - Brief Article - Column

Automotive Industries,  Jan, 2002  by Maryann Keller

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Two years ago, Ford Motor Co. was the wealthiest automaker in the world. Today, it is struggling to restore profitability and protect its balance sheet. Automotive analysts and investors have greeted Ford's actions with reports that call the cost-saving moves inadequate and clamor for even more drastic cuts in salaried workforce and other expenses.

I find Ford's need to restructure yet again (even as Chrysler is doing the same thing) troubling, both for what it says about past management and for what it means to Ford as it tries to maintain its share in a more competitive world.

Ford was faster than GM in capitalizing on the growing popularity of light trucks, which produced record unit profits for the company. But Ford's share of the passenger car market continued to erode, especially in Europe. There, the company suffered from a long legacy of mismanagement that left it without an adequate product portfolio. Nevertheless, the rewards in the U.S. market were so large that the company's record profits generated record bonuses for the men fortunate to be in the right place at the right time. The payoff to Jacques Nasser is especially galling, though Ford's problems didn't begin with him. History now tells us that they were overpaid for not tackling the broader competitive issues facing the company, including making cost control part of its fabric and managing cash with an eye toward the future.

Now Ford finds itself needing to tear apart its organization and eliminate thousands of people who will take with them technical, market and organizational knowledge. Losing that will weaken the company for years to come. Wall Street cheers when auto companies announce layoffs -- 5,000 jobs cut are good; 7,000 or 10,000 would make the analysts' reports even more enthusiastic. After all, the savings of all those salaries and benefits translate into some big earnings-pershare contributions.

But do they really? History has provided ample proof that the previous restructurings undertaken by the U.S. Big 3, while temporarily saving money, had unforeseen long-term consequences that probably offset the savings, If there were no consequences to huge staff cuts, why were these people on the payroll? Companies tend to bulk up during good times, but it often isn't the newest arrivals who depart -- it's the employees who have been around for years. But automakers aren't service companies where staff easily ebbs and flows with the level of business.

Every downturn in the past 30 years has been accompanied by a major reduction in the Big 3's staff. Even in good times domestic auto companies have undertaken staffs cuts, as Nasser did in 1999. In the short term, the actions help the corporate bottom line. But they also strip the company of experienced people who possess important skills and experience. In the 1980s, GM decimated its engineering staffs, hurting the company's ability to develop and launch new models in the 1990s.

Each major cutback is followed by a reorganization of sorts that tries to fill in for the lost talent and manpower. But there is no way to move the people around to enable the company to remain as effective as it was before the cuts. Product plans get shelved. Engineering priorities shift and market shares tumble.

Toyota and Honda have never undergone a wrenching staff cut. Both companies are like giant databases with unlimited capacity. Each generation of employees builds upon the knowledge of their predecessors who taught them. The continuity at all levels in these companies is a significant strategic advantage that has enabled them to move forward in good times and bad, to adhere to four- or five-year product cycles, to expand globally and to steadily broaden their portfolios.

Ford must begin to operate with long-term goals in mind, rather than continue the "fad-of-the-year" thinking that was at least partly responsible for this mess.

MARYANN KELLER is a veteran auto industry analyst and author of the books "Rude Awakening The Rise, Fall And Struggle To Recover At General Motors" and "Collision: GM, Toyota and Volkswagen And The Race To Own The 21st Century."

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