Saturday, December 03, 2005

Some Analysts Doubt Ford Cuts, Closures Will be Enough; Are Federal Bailout Calls Next?


Five Ford plants are expected to be closed, including the Atlanta facility that made the Taurus and that has in recent years been the company's highest rated for quality.

William Clay Ford, Jr., Ford's chief executive, is expected to announce the plan next month.

Ford has been a prominent media figure in recent weeks as a result of his starring in a series of television spots stressing the company's commitment to innovation. The photo accompanying this post is from the innovation spots.

But without major wage, healthcare benefit and pension concessions from the United Auto Workers and a resurgence in U.S. market share, the plant closures won't be enough to save America's most storied auto company, according to some analysts.

"Whether longer term that actually makes a difference, I have questions about that," Argus Research group analyst Kevin Tynan told Reuters. "If you line up Ford with Toyota , let's say, even if you put them at the same capacity in the U.S., it's still costing Ford more to build here because of the compensation package," Tynan said.

Ford, like GM, has seen its U.S. market share plummet in recent years as Japanese imports, especially Toyota, Honda and Nissan, have introduced numerous popular vehicles and grabbed sales from Detroit.

GM announced plans to close nine plants and eliminate 30,000 jobs earlier this year. Both of the U.S. companies have been steadily reducing their workforces and trimming production capacity as a result.

The trend has been accelerated in the past year by high gas prices that reduced sport-utility vehicle sales, a paucity of innovative products and inability to cut core costs like pensions and healthcare.

GM and Ford problems are also reflected in major U.S. suppliers, including Delphi, which is now working on a bankruptcy restructuring plan that includes eliminating thousands of jobs and cutting wages and benefits for those that remain on the payroll. Delphi was spun off from GM in 1999. Ford's Visteon has been going through similar struggles.

Detroit's problems are generating new demands among politicians for a federal bailout of the auto companies that would likely be more costly than the Chrysler loan guarantees of 1979. Michigan Gov. Jennifer Granholm has all but called for a federal bailout, as well as trade policy reforms aimed at foreign competitors, in a news release on her re-election campaign web site:

"Granholm said she was not calling for a government-sponsored bailout of GM or Ford. But she said Michigan alone had lost 200,000 manufacturing jobs over the last five years and that a bipartisan consensus was urgently needed to get Bush to help shore up America's industrial backbone.
"'The president needs to understand how critical it is, not just for Michigan, but for all these manufacturing states,' she said."


Translation: This is the setup for bailout proposals that will be forthcoming early next year after Granholm and like-minded politicos announce something along the lines of "just like he didn't understand Katrina, Bush doesn't understand how serious this crisis is, so we must act."

The Chrysler bailout consisted of $250 million in federal loan guarantees, which were subsequently repaid ahead of schedule by the company. Proposals for a new bailout would almost certainly go far beyond loan guarantees and could include federal assumption of large portions of Ford and GM's pension and healthcare costs.

Meanwhile, November sales reports show continued slides at GM and Ford, while Toyota and other Japanese imports reported significant sales increases, according to The CarConnection's Joseph Szczesny:

"Car and pickup truck sales staged a very modest comeback in November while sales of sport-utility vehicles continued to tumble, cutting overall industry sales by 6 percent.
"The annualized rate of 16 million units, however, was better than the 15.4 million rate posted in October and offered automakers hope that sales would finish the year with a bang.
"Meanwhile, Toyota continued to gain market share on its American rivals by posting a 5-percent sales increase.
"GM's total sales dropped 11 percent, including a 3-percent drop in cars and weak sales of sport-utility vehicles, which dropped 16 percent. Ford, Lincoln and Mercury brands fell 18 percent and Chrysler fell 7 percent. The decline in Chrysler's sales ended an 18-month run of sales increases by the group."