Ford's fitness plan includes job cuts, mysteries

Is the default a real risk, after Moody's Investment Services has reduced Ford's rating to a slightly higher level than junk food last week?

And what about Ford's ongoing struggle in China, the largest auto market in the world? Can he gain ground?

"Ford's problems are no longer financial, they are strategic," said Marick Masters, a business professor at Wayne State University.

"The company has to adapt quickly to an evolving industry and no one knows where it will be in 10 to 15 years and who will be the main players. One wonders whether this is going in the right direction or not. "

Nobody knows what to expect from automaker Dearborn – if not its promise of more trucks and SUVs and the likelihood of significant job cuts during its restructuring.

Jon Gabrielsen, a market economist who advises automakers and auto suppliers, said Ford simply can not achieve its goals without significantly reducing paid jobs.

In recent weeks, Adam Jonas, an analyst at Morgan Stanley, has forecast a reduction of 12% Ford staff worldwide.

"Ford's operations need to be restructured. We do not see restructuring at Ford as a "good thing to have" … but as a crucial step to put the global company on an equilibrium footing, "Jonah wrote on August 20.

Bob Shanks, Chief Financial Officer at Ford, declined in an interview Wednesday to comment on the layoff forecasts. He acknowledged that the term restructuring generally suggests "a reduction in manpower and closures".

"We understand the concerns they have and express, we are not deaf or blind," he told the free press. "It's been a successful business for quite a long time."

He continued, "A year ago, we started a process that will be a fundamental overhaul of our traditional automotive sector and it is a huge and huge transformation."

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"Is not it what it must be?"

"We are planning a major overhaul of our business, especially foreign markets. This performance is not good. After years of hard work, restructuring, new products and changes, that's not what it needs to be. business is very attractive and profitable, but too much is not. The result is unacceptable. "

He acknowledged the "frustration" and promised to announce things "en route".

"We have done enough work to let us know that the restructuring will bring about what we call restructuring," Shanks said. "We have obviously not been available in terms of specific actions, but we have a very clear idea of ​​where we are going."

Bob Shanks, Executive Vice President and CFO of Ford Motor Co. (Photo: Ford, Wieck)

Market analysts are openly upset.

"It's very vague," said Ivan Drury, Senior Analyst at Edmunds. "I mean, last Friday, without notice, they still changed their plans and just killed the Ford Focus Active. Even though it's made in China, people want to buy the same car again and again. Now they can not.

He added, "What is the real road for Ford? It's hard to see. There are a lot of trees and weeds and they have to take a machete and really clear that path for consumers and investors.

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Jonas was hard on Hackett publicly, urging him for details, openly criticizing him for canceling an investor briefing and asking him directly in August when he would be there to explain the details.

Hackett, whom Ford refused to make available for this article, categorically told Jonas that he did not intend to leave.

No one can be sure that Ford is strong or weak at this stage, "said Stephanie Brinley, an analyst at IHS Markit, based in London.

"All the changes with the restructuring are not yet clear," she said. "Some of the changes they are waiting to implement, others have already done. Volkswagen and General Motors are on the road and, to a lesser extent, Toyota. In some ways, Ford is just cleaning up.

"It does not appear that Jim Hackett has been welcomed by the community as a whole as quickly as others," Brinley said. "The jury is still missing."

Bet on this management?

Jonas pointed out that Ford's $ 11 billion cost forecast is "significantly larger" than the previous $ 8.5 billion expected by analysts, and the lack of investor updates "has contributed to investor anxiety.

"Investors must weigh the risk of betting on the management of an unknown plan that may take three to five years … opening up to a series of potentially negative economic and credit scenarios that could hinder execution," wrote Jonah.

"At this point, we have assumed an overall workforce reduction of about 12%. Such a scale of reduction is not unprecedented in the automotive sector and coincides with the 2017 market reports. "

Ford employs approximately 202,000 people worldwide. Analysts estimate the separation costs, also called redemptions, at about $ 120,000 per employee for Ford. Volkswagen announced its restructuring plan two years ago and has targeted 30,000 job cuts over five years at around $ 135,000 per employee, Jonas said.

"Decisive strategic actions and a halt to negative revisions can improve investor confidence in management," Jonas wrote in his forecast.

While Fiat Chrysler introduced a five-year plan, Ford was mom.

General Motors has already pulled out of Europe, welcoming CEO Mary Barra.

About 300 of its key leaders met last week in Dearborn for a global leadership meeting. The company refused a request for free participation because the meeting contained confidential information. The company's leaders stress their ability to avoid the bankruptcy that has come to GM and Chrysler. cash reserve.

True, Ford is making money, with an adjusted pre-tax profit of $ 8.4 billion in 2017. But the second quarter earnings of 2018 were down 50% from the previous year and the price shares fell for four years.

The concern is abundant.

"Everyone was shocked when Ford said that he was going to spend $ 11 billion to restructure," said John McElroy, a long-time observer of the auto industry and host of "Autoline This Week ".

"I think it surprised Wall Street," he said. "Ford had already announced that it was going to restructure itself to improve the fitness of the company, but I do not think it would cost so much to do." . These figures come from having to close factories and get rid of people. This will be done through redemptions. "

Trace water on a global scale

Ford's problems seem to be developing in Europe, South America and Asia.

"Look, Ford is walking on water right now," McElroy said.

Shanks said Ford "at the right time, will provide a global narrative" and will propose "evidence points" to explain actions to improve society. "It's not all that is dark.We are making a lot of progress in many areas of business."

In fact, the company's August 2018 sales increased 4% over the previous year and the F-Series line of profitable trucks is selling at a record pace for the year.

Industry academics and analysts have said Ford is known for its poor cyclical strategy and eventual recovery, but it's painful to watch.

"Ford goes through these transitions over time. They're having problems and coming out of it, more than other automakers, "said Robert Wiseman, senior associate dean at Michigan State University's Eli Broad College of Business. "Will analysts be patient? I am not sure."

When asked if Ford could reduce dividend payments to shareholders, this mechanism offers a good return despite a chronically low share price compared to that of General Motors.

"That's one of the reasons the title was worth the investment," said Wiseman. "I still own General Motors and Ford. GM did well and Ford takes a shot. I hope that the restructuring will save money in the long run.

The shift from producing sedans to trucks is going to cost money, analysts said.

"The product is the key," said Dave Sullivan, product analysis manager at AutoPacific Inc.

"Ford can not cut his products in the hope that things will turn out. They must either have a profitable range or retire. This is especially true in South America. GM did not find the magic formula with Opel and made a very bold move. The glory days of diesel in Europe are gone and Ford is now looking to be late on the electrification front in Europe. Ford has been rid of Volvo, Jaguar, Land Rover, Mazda and Aston Martin. Does Ford want to reflect their range after Jeep and Ram? Europe is really a difficult place … with very attractive products and exceptional value. "

While the F-Series truck franchise is a cash cow in North America, Ford does not have any comparable products abroad.

"It's hard to imagine that Ford is swallowing a pill like withdrawing from South America or Europe but, at some point, the question will arise," said Mr. Sullivan .

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International media coverage of Ford's acquisition of Michigan Central Station has been positive, highlighting the site as a recruitment tool for the industry's top talent. But observers worry about the cash.

After nearly a year of waiting for Ford, an analyst said, "Wall Street's patience is hanging on a thread."

Ford puts all his hopes and dreams into the multi-billion dollar profits of his F-series pickups.

"But North America can not hold water forever," Sullivan said. "The next economic downturn, the fire of the suppliers, the global incident or the collapse of the trade could cause something tragic because of the importance of the series F. They can not sell those of Europe, South America or China. So, what do you have who earns money in these markets? You can not just go to the markets.

Ford lost $ 73 million in Europe between April and June 2018.

And the sunny forecasts for North America should ease.

"The competitors are going to take it," Drury said. "FCA had production problems with Ram, getting all the types of engines available to consumers. But we saw on our website that F-150 consumers were watching the new Ram 1500 2019. We are interested in consumers. In the big truck segment, loyalty is king. And the Chevrolet Silverado is coming too. "

The 115-year-old company, which focuses on electrification and connectivity, is facing uncertain results, said Kristin Dziczek, director of the Industry, Labor & Economics group at Ann Arbor's Center for Automotive Research. . She feared that the dismissals were too serious.

"Ford has a lot of bets that they do," said Dziczek. "Everyone knows that an economic downturn is coming. Many companies are preparing. I do not know how you do everybody and still you do the work.