Ford looking at employee buyouts
Posted on Tuesday, August 22, 2006
Ford Motor Co. is preparing to extend buyout offers to all its factory workers in North America, two people with knowledge of the plan said.
The step would reverse Ford’s strategy of “targeted” offers at specific plants and echo General Motors Corp. ’s companywide buyouts and early retirements, which helped GM shed a third of its United Auto Workers union employees this year. Ford had 82, 000 UAW-represented workers at the end of 2005.
Last week, Ford announced it was slashing production after battling a decade-long drop in U. S. market share.
“Whatever GM gets from the UAW, Ford gets it three to six months later,” said David Giroux, an analyst at Baltimore- based T. Rowe Price Group Inc., which owns 9. 8 million Ford shares. “That makes it very logical that Ford would start offering these buyouts now.” The buyouts are part of the latest restructuring at Ford after a $ 1. 44 billion first-half net loss. Dearborn, Mich.- based Ford, the second-largest U. S. automaker, said in July it would accelerate job cuts and said last week it was making the biggest production cuts since the 1980 s in the second half of this year. Chris Ceraso, a Credit Suisse analyst in New York, downgraded his Ford rating to “underperform” from “neutral” in a note Monday on Ford titled, “It’s Worse Than You Think.” “Our sense is the market is not yet acknowledging how severely this production cut will hit Ford’s earnings and cash flow,” Ceraso said.
The company will announce the buyouts and early retirements in September, said the two people, who asked not to be identified because the program isn’t public. The moves would expand the “Way Forward” plan announced in January to shed as many as 30, 000 jobs and close 14 factories in North America by 2012.
“There’s a lot of speculation about what we will do,” said Oscar Suris, a Ford spokesman. “We’re not going to comment on the speculation. We’d rather talk about our specific decisions, and those we’ll discuss next month.” Paul Krell, a spokesman for the UAW, didn’t have an immediate comment.
GM this year offered buyouts worth as much as $ 140, 000 to all UAW-represented employees. About 34, 000 people accepted, or about one in three.
Ford may have to offer more money than GM to get the same buyout-acceptance rate among union members, said Sean McAlinden, a labor analyst at the Center for Automotive Research in Ann Arbor, Mich. Ford’s workforce is younger, McAlinden said, because the carmaker kept hiring into the 1990 s after GM stopped.
“The only way to make sure people leave is to massively increase the buyout offers,” McAlinden said. “My gut instinct is that they have to go way past the GM offer.” The automaker’s shares have declined 51 percent since William Clay Ford Jr., great-grandson of company founder Henry Ford, became chief executive officer in October 2001. Ford had 18. 1 percent of 2006 U. S. auto sales in the seven months through July, down from 25. 7 percent in 1995, the last year it gained market share. GM leads in U. S. sales.
Ford’s shares could fall as low as $ 6 in coming weeks and aren’t likely to rebound above the current level unless the company demonstrates progress in restoring profits, Ceraso said.
“Attention has been focused on GM for much of the year, but Ford’s circumstances seem more precarious,” said Dan Genter, president of Los Angeles-based RNC Genter Capital Management, which held Ford bonds until this year among more than $ 2 billion in assets.
Bill Ford is preparing to eliminate 6, 000 salaried jobs in North America through buyouts or, if necessary, firings, a person with knowledge of the plan said last week. The reductions amount to more than 16 percent of Ford’s white-collar workforce.
Until now, Ford has limited buyouts to workers at plants it’s closing and factories taken back under a 2005 bailout of supplier Visteon Corp., its former unit. The company has said it didn’t need buyouts on the scale of GM’s.
“We’ve been doing buyouts all along,” Bill Ford told analysts and reporters on a July 20 conference call. “We just haven’t been making a lot of noise about it. We’ve taken a slightly different approach, one I think works for us.” Ford recorded first-half expenses of $ 2. 36 billion for costs related to job-cut programs.
Hourly employees at selected factories now are eligible for one of five buyout plans, two of which Ford calls nontraditional. One gives workers $ 15, 000 annually for four years of college, full medical benefits and half their pay while attending school. The other, aimed at younger employees, is a $ 100, 000 payout without health benefits.
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