Ford considers thousands of salaried buyouts

Ian Thibodeau
The Detroit News

Cutting staff may not play well on Wall Street without a clear blueprint for the future, analysts cautioned Tuesday, as Ford Motor Co. officials consider thousands of salaried buyouts amid plateauing auto sales, lagging profits, a lackluster stock price and frustrated directors and shareholders.

The Blue Oval is preparing to offer targeted buyouts to salaried employees within the next few weeks, according to sources familiar with the situation who asked for anonymity because the plans have not been made public. The buyouts are tied to previously announced cost-cutting efforts that Ford hopes will save $3 billion this year to offset capital spent on investments in technology.

Multiple ranking sources said no final decision has been made about the size of staff reductions. The Wall Street Journal reported Monday night that Ford could gut 10 percent of its global workforce, which would translate to roughly 20,000 positions.

But that number is too high, four ranking sources told The Detroit News, for buyouts originally targeted for early June. A Tuesday report from Reuters said the cuts would target 10 percent of salaried workers in North America and Asia through early retirement incentives.

The planned job cuts come at a delicate time for Ford. Even as President Donald Trump leans on Detroit’s automakers to support his campaign promises by adding U.S. manufacturing jobs, investors are pressuring Ford to deliver growth and larger returns.

And the automaker is launching a sweeping renovation of its Dearborn campuses, in part to make the company more attractive to new kinds of talent. The proposed cutbacks are likely to fuel anxiety in the Blue Oval’s hometown just as its planned investments are starting to be realized.

“The auto industry is still the backbone of the American economy,” U.S. Rep. Debbie Dingell, the Dearborn Democrat, said in a statement. “And we need to ensure that we can protect and grow the jobs in this industry, while at the same time ensuring companies can invest in growth and take advantage of emerging opportunities to remain competitive. The bottom line is: this is about jobs.”

Ford has about 101,000 workers in North America; in the U.S., there are about 30,000 salaried employees along with 57,000 hourly workers represented by the UAW. The company has about 23,000 workers in the Asia Pacific region. Ford’s U.S. hourly workers are not expected to be part of the reduction, according to one source.

Analysts and sources close to the situation say eliminating salaried positions would make fiscal sense for the automaker because it relies heavily on profits from truck and SUV sales to make up for nosediving car sales, a plateauing industry and expensive technology investments in electrification, autonomy and mobility services.

By targeting white-collar workers instead of assembly-line employees, the move could also shield the automaker from scrutiny by Trump. During last year’s campaign, the Republican nominee used Twitter to criticize Ford for its Mexico production operations, calling on Ford and other automakers to “build new plants in Michigan and other states.”

Talk of the cuts comes as Ford CEO Mark Fields pursues a strategy that invests heavily in the forward-looking areas of electrification, autonomy and mobility while trying to fortify the company’s “profit pillars” in SUVs and trucks, and transforming its luxury and small-car business.

That long-view approach has the board and shareholders restless. Last Thursday, they grilled Fields and Ford during the annual shareholders meeting on why — despite billions in investment in the company’s U.S. facilities and new technology — the company hasn’t been able to generate excitement on Wall Street. The company also has projected profits will be down roughly $1.4 billion this year.

Since Fields replaced Alan Mulally as CEO in July 2014, Ford stock prices have dropped 40 percent. Ford’s first-quarter 2017 profits fell by 35 percent due to rising costs, pricey recalls and a drop in fleet sales. The company expects to make $9 billion this year, down $1.4 billion from 2016, when the industry saw record vehicle sales.

That’s leading the company to take what one ranking company source called a “hard look” at global costs. In its official statement, Ford reiterated the company’s focus on its strategic priorities.

“Reducing costs and becoming as lean and efficient as possible also remain part of that work,” the emailed statement said. “We have not announced any new people efficiency actions, nor do we comment on speculation.”

Automakers and parts makers in the U.S. have added some 274,000 jobs in the past seven years, according to data from the Bureau of Labor Statistics. Automakers and parts makers employed nearly 945,600 workers in April, up from 671,500 in April 2010, BLS said.

Yet, Ford and other U.S. automakers are desperate to attract the kind of attention in the stock market seen by electric vehicle-maker Tesla Inc., which jumped Detroit’s largest two automakers in valuation earlier this year despite losing money on every vehicle it makes.

Ford Chief Financial Officer Bob Shanks said in September during Ford’s Investor Day that the company expects to cut “about $3 billion annually in 2016, 2017 and 2018” to support Ford’s investments and expansions into capital-heavy investments in the areas of electrification, autonomy and mobility, which Ford calls “emerging opportunities.” General Motors Co. in January said it is boosting its cost-reduction target by $1 billion to $6.5 billion saved through 2018.

“It’s possible for cuts to be helpful and to accomplish more savings, but the opposite is also possible,” said Karl Brauer, executive publisher of Autotrader. “Obviously, there’s plenty of incentive for them to be as efficient as possible,” but cutting positions to support a profit doesn’t typically reflect well in the stock market.

Ford closed up 0.09 percent at $10.95 per share Tuesday. And though Trump has repeatedly called for automakers to build new manufacturing facilities in the U.S., Ford’s proposed job actions might be the start of a bigger trend.

Eliminating salaried positions instead of hourly jobs would be unique for an automaker cutting costs, and it would help the company save money without sacrificing production. But it might not mitigate problems caused by plateauing sales.

“There still (could be) an overcapacity of production,” Brauer said. “There’s nothing automatically better or more effective by cutting the salaried employees.”

Ford would be wise to take the same radical, preemptive measures it took to survive the Great Recession to brave an auto industry in flux, Morgan Stanley analyst Adam Jonas wrote in a note Tuesday.

He offered suggestions to help the company brave a changing industry, which included continued investment in fully electric vehicles, spinning off parts of the company into independent units like Ford did with its mobility team, and bolstering the balance sheet.

Jonas also suggested Ford go the route of Fiat Chrysler Automobiles NV and kill the under-performing small-car segments of the company — a prospect senior management has been exploring even as it meets fierce internal resistance.

“As the progenitor of the world’s first mass market car a century ago, Ford has historically viewed small cars as critical to the company’s identity. We believe this could be changing,” Jonas wrote. “We would look for partnerships or strategic moves to address such areas to minimize losses and to focus management attention on the bigger picture.”

Jonas’s final tip harkened back to former CEO Mulally’s “elegant and powerful blueprint” laid out in the One Ford plan. He wrote that Ford could save its skin now by communicating more clearly across the entire company what Fields’ goals are.

Brauer suspects “Ford is maybe the highest-profile company wrestling with cost and profits and unhappy investors. It’s hard for me to believe there’s no other automaker considering these types of moves.”

Twitter: @Ian_Thibodeau

Detroit News Staff Writer Melissa Burden contributed.