The Way Forward

Since last October, Delphi, the world’s second-largest auto parts manufacturer, has filed for bankruptcy and laid plans to dramatically downsize its U.S. operations. General Motors, Delphi’s erstwhile parent company and largest customer, weighed in shortly after with its plan to cut 30,000 jobs and stop production at a dozen North American plants by the end of 2008.

More recently, on a gray Monday in late January, Ford Motor Co. acknowledged that it lost $1.6 billion on its North American automotive operations last year. The same day, Ford announced a sweeping restructuring plan called “The Way Forward.”

The downsizing plan calls for the closure of multiple assembly and parts plants, with an attendant loss of 25,000–30,000 jobs. When the plants are idled, Ford will operate 11 assembly plants, down from 18. The automaker says the plant closings will cut 1.2 million cars and trucks—fully 26% of current manufacturing capacity—from its production by 2008.

Only time will tell if this latest downsizing will be the one that turns around the company’s struggling North American operations. But, if the initial reactions from Wall Street analysts and union representatives are any indication, Ford’s going to have a tough row to hoe in selling the plan to two of its most important groups of stakeholders.

Predictably, the plan doesn’t go far enough for Wall Street. “They can’t close plants fast enough to keep up with their market share losses,’’ said one analyst. It’s doubtful the plan will have the desired effect on the company’s stock price.
The automaker also faces a battle with the United Auto Workers union over plant closings. Under Ford’s labor contract with the UAW, plants cannot be permanently closed; the company has said plants will be “idled’’ while it works out an agreement for permanent closures with the UAW.

Top union officials blame Ford management for their current predicament, saying the plant closings are the result of the failure of Ford’s senior management to stem market share losses. And, they indicated that next summer’s negotiations for a new labor contract may be long and difficult—no surprise, since thousands of union jobs may be on the line.

It’s hard to believe that simply cutting more people and plants is going to make any significant impact on Ford’s problems. But any company as large as Ford must have its share of brilliant people. Somehow, managers need to revamp Ford’s organization to tap into all the brainpower at their disposal, from the line worker to the corporate
office.

In a company this size, that kind of culture change is going to be tough. But similar turnarounds have been accomplished before—for example, at a struggling Japanese automaker in the 1950s and 60s. Having learned to tap into the brainpower of its employees (and developed a few other manufacturing innovations), Toyota is now set to become the world’s largest automaker in the next year or two.