Quitting Time At Ford

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The turmoil at Ford Motor (F) just keeps on rolling. On the eve of the company's announcement of a revised restructuring plan -- which analysts say will include a broader and more accelerated plan to cut jobs and factories -- the company struck a deal to offer buyouts companywide to union workers.



Ford agreed with the United Auto Workers to offer buyouts to all of its 75,500 hourly workers, ranging from $35,000 for eligible retirees to $100,000 for severance deals. In January, Ford targeted job cuts of 25,000 to 30,000 workers, but analysts think the company may expand its ambitions when it announces the revision of its Way Forward restructuring plan on Sept. 15.



The plan comes as the world's No. 2 automaker tries to get back on track. The company lost $1.4 billion in the first half of the year. Its North American business has lost $9 billion, including restructuring charges, since 2001. Ford's U.S. market share hovers around 17%, down five points since the end of 2001.



DOWNSIZING DRIVE.

Unable to hire such industry luminaries as DaimlerChrysler (DCX) Chairman Dieter Zetsche and Renault-Nissan (NSANY) CEO Carlos Ghosn, Ford Chairman William Clay Ford Jr. recently hired Alan Mulally from Boeing (BA) to lead Ford in its efforts to make a comeback.



He steps in as Ford is pushing a massive downsizing on the scale that General Motors (GM) announced last year. Ford has already said it will idle five assembly plants between now and 2008. Michael Robinet, vice-president of CSM Worldwide in Northville, Mich., says two more plants could go. "They will probably accelerate the closures and maybe add a few more to the list," he says.



One of Ford's biggest problems is that sales have fallen so fast that the company is using just about 75% of its production. The closing should get capacity from more than 4 million vehicles a year to close to 3 million cars and trucks.



Getting those big and necessary cuts will be costly. Morgan Stanley (MS) analyst Jonathan Steinmetz wrote in a research report this week that the buyouts will cost Ford roughly $3 billion in cash. That's a hefty chunk for a company that has already burned through $1.5 billion in cash this year just due to its declining business. But Steinmetz points out that Ford has $23.6 billion in cash, so the deal shouldn't be a problem.



But Ford could still have cash issues. Fitch & Co. analyst Mark Oline -- who has Ford's bonds rated deep into junk territory -- says that Ford will burn cash this year and next. The company has the dough to stay afloat. But if its revenue slide doesn't stop, the company will have to keep downsizing, and it will keep draining cash. Ford's revenue fell $7 billion, to $83 billion, in the first half of this year.



THE OFFER DETAILS.

For union workers, the offers are pretty generous. The packages being offered are similar to those GM gave its employees earlier this year. The offers:



-- Employees can take $100,000 in cash to walk away with no retirement or benefits.



-- Workers with 30 years of service, and hence retirement eligibility, can take an additional $35,000 in cash and retire.



-- Others who have at least 28 years at Ford but aren't eligible to retire can go on leave for two-thirds of their pay until they are eligible to retire.



-- Others can take an education package that reimburses them up to $15,000 a year for tuition for up to four years, along with a stipend of 50% of their pay for the same period.



A DIFFICULT CHOICE.

The deal should work for Ford. To get the needed production cuts -- which Steinmetz says could cut Ford's costs by $5.5 billion to $6 billion -- the company needs the workers to take the offers and go.



But some are on the fence. Bob Killeen, financial secretary for UAW Local 879, which represents workers at Ford's Twin Cities plant in Minnesota where the Ranger pickup is built, says he will have more than 29 years of service in at the end of the year. He hasn't decided whether he will take a buyout or hang on, and other workers are in a similar situation.



Killeen's plant is scheduled to close in April, 2008. He could take $35,000 when his 30th anniversary at Ford comes up next year. But UAW pensions pay around $30,000 a year, about half what workers make now. If he hangs on until 2008, he would make more than he gets in a buyout just in wages. "I don't know what I'm going to do yet," Killeen says.



Ford could close the plant earlier. That means employees lose the wages they hoped to get by passing up on the severance deal. That was the final conclusion that many GM workers reached when offered similar deals earlier this year. GM managed to get more than its targeted job cuts of 30,000 through a similar program.



EXECUTIVES TAKE THEIR LEAVE.

The deal was struck this week. Union local leaders have been in Detroit and are headed back to their plants on Sept. 15 to brief workers on the deal, says Bob Killeen, financial secretary for UAW Local 879, which represents workers at Ford's Twin Cities plant in Minnesota where the Ranger pickup is built.



At the same time, two top executives have decided to retire. Anne Stevens, executive vice-president and COO of Ford -- The Americas, and Dave Szczupak, group vice-president of manufacturing for Ford -- The Americas, are leaving to pursue other interests.



A Ford spokesman said the retirements have nothing to do with the coming of new CEO Alan Mulally, who joined the struggling automaker from Boeing a week ago. Mulally hasn't been in the top job long enough to start building a new management team.



MORE DEPARTURES POSSIBLE.

Still, the timing is very coincidental. Both Stevens and Szczupak were promoted last year. Since then, Stevens worked closely with Ford -- The Americas President Mark Fields on plans for the struggling North American business.



Those retirements may not be the last of the departures from Ford, which has had steady management turnover since Bill Ford took the CEO job from Jacques Nasser in October, 2001. As Stevens and Szczupak leave, Mulally will have to promote or hire other executives.



Plus, Robinet says he expects Ford to review the viability of brands like Mercury, Jaguar, and Land Rover. They'll have to decide whether to close Mercury and sell the European luxury brands. Ford is already shopping Aston Martin. Clearly, the restructuring is just the beginning of the changes that will come for Ford.