Tough Times At Ford

Detroit Free Press (MI)

Ever since its hot-selling Explorer was linked to hundreds of rollover deaths and injuries in August 2000, Ford Motor Co. has been in a tailspin.

Today the really bad news comes -- a cost-cutting plan that will close plants and eliminate 20,000 jobs in an effort to cut costs by $4 billion a year and return Ford to profitability.

It is a dreadful end to more than a year's worth of problems that have hurt Ford's image, cost it market share and pushed losses in 2001 to an expected $2 billion.

"This is absolutely necessary," David Cole, president of the Center for Automotive Research in Ann Arbor, said of Ford's restructuring. "They have to get to it fast and hard, and it's really a matter of their long-term survival."

Gerald Meyers, professor of organizational behavior at the University of Michigan's Business School, says Ford's troubles started when Bridgestone/Firestone Inc. announced it was recalling 6.5 million Firestone tires on Aug. 9, 2000. The tires were blamed for hundreds of accidents, many involving the Explorer.

"Firestone was the beginning. That's when the warts turned out to be cancerous," says Meyers, a former chairman and chief executive officer of American Motors Corp.

Through much of the 1990s, Ford was one of the industry's high fliers, making popular and profitable trucks and sport-utility vehicles, reaping billion-dollar profits and paying managers five-figure bonuses.

A year and a half ago, industry experts even speculated that Ford would surpass General Motors Corp. and claim the largest share of the U.S. auto market.

But all that started to unravel after the Firestone recall was announced and members of Congress summoned Ford and Firestone executives to Capitol Hill and demanded to know who was to blame for the worst safety scandal in decades. At least 271 deaths and 800 injuries are now blamed on the tires; many of the accidents involved Explorers.

Since then:

* A series of recalls with the newly redesigned 2002 Explorer, the Escape and the Focus, and a cooling-fan glitch with the new $40,000 Thunderbird, have added to consumers' concerns about Ford quality. The Ford brand, a household name for a century, has been sullied by the spotlight on shortcomings with quality and safety.

* Ford came in last among the world's seven largest automakers in initial quality, according to an annual J.D. Power and Associates study released in May.

* Ford and Firestone's relationship of nearly a century dissolved in a bitter, public fight about the safety of another 13 million Firestone tires on Ford vehicles, which the automaker announced in May that it would replace at a cost of $3 billion.

* The costs of the replacement program, along with millions spent to settle lawsuits with victims of Explorer accidents, helped push Ford's losses to an estimated $2 billion in 2001, the company's worst year since 1992.

* Competitors gained ground against Ford. General Motors, for example, sold a record 2.6 million light trucks last year, compared with Ford's sales of 2.5 million light trucks. It was the first time since 1994 that GM sold more light trucks than Ford. Ford's overall share of the domestic market declined too -- from 23 percent in 2000 to 21.9 percent in 2001. In all, Ford said its U.S. vehicles sales dropped 6 percent in 2001 from 2000.

* The Sept. 11 terrorist attacks and the worsening economy drove down sales and profits. The company responded by offering buyers zero-percent financing to lure them back into the showrooms, a costly move, while eliminating its contributions to salaried employees' 401(k) retirement plans in December.

The company has also been roiled from within by management changes pushed by then chief executive Jacques Nasser designed to increase diversity, weed-out non-performing white-collar workers, and aggressively cut costs.

Some employees sued, alleging the company's employee evaluation system discriminated against older workers and that Ford was using specific efforts to eliminate middle-age white men to make way for more women and minorities in senior leadership.

The company was also hurt from within by the exodus of many longtime engineers and manufacturing experts, who were persuaded to leave through early retirement inducements, Cole said.

Ford's dealers were also frustrated with the company, complaining it was trying to dictate policy to them.

Meyers said Ford found itself in such a fix partly because of bad luck, partly because Nasser was moving in so many new directions at once -- from aggressively promoting diversity to trying a new management-training program to reshuffling the executive team.

Ford is now trying to right several of its problems.

It has:

* Taken steps to rebuild its relationship with Firestone.

* Agreed to pay $10.5 million to settle two class actions accusing the automaker of discrimination against older white men in the name of diversity, and lawyers are trying to negotiate several other discrimination suits.

* Revised, under criticism from workers, their lawyers and the media, the employee appraisal system that prompted the lawsuits.

Meyers said Ford is also working on the most basic issues: trying to reinvigorate its dealer network and realigning production to realistic levels. Last year, it used early retirement offers in an effort to eliminate 4,000 to 5,000 white-collar jobs, or 10 percent of its salaried workforce, but will not say how many employees participated.

"Those are the fundamentals," Meyers said. "Behind that is to bring out the products customers want, as soon as they can."

Meyers said Ford is trying to reverse its fortunes and "I applaud them for it. It's too bad it got the way it did. Ford is not going to die; it's hit a rough spot."

Dennis Gioia, professor of organizational behavior at the Smeal College of Business
Administration at Penn State, said he is confident Ford will be on the rebound by summer, when he said sales could be on the rise.

"I'm fairly confident in the industry and in Ford. They've got a good management team in place," Gioia said. "And they should be able to weather this thing."

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REPORTERS & EDITORS: For more information, please contact Wyatt DuBois in the Smeal College of Business Media Relations Office at 814-863-3798 or wed112@psu.edu .

Penn State's Smeal College of Business offers highly ranked undergraduate, MBA, executive MBA, Ph.D., and executive education opportunities to more than 5,500 students at all levels. Featuring academic departments of accounting, finance, marketing, insurance and real estate, management, and supply chain and information systems, the college is also home to major research centers such as the Center for Supply Chain Research, the Institute for the Study of Business Markets, the eBusiness Research Center, the Farrell Center for Corporate Innovation and Entrepreneurship, the Center for Global Business Studies, and the Center for the Management of Technological and Organizational Change.

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