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16_Latest News - February 2010

16_February 22, 2010
Ford's Jobless Recovery Means No Hiring in Retoolings
Business Week by Keith Haughton


Ford Motor Co.’s $1.6 billion U.S. investment plan will retool plants to build fuel-efficient autos to compete with Toyota Motor Corp. models. Hiring workers paid on par with Toyota’s will have to wait.

After cutting 47 percent of its North American workforce since 2006, Ford isn’t ready to resume adding employees even as it upgrades factories and grabs a larger share of U.S. sales, Chief Financial Officer Lewis Booth said in an interview. One analyst estimates Ford may not hire for two years.

Ford’s jobless recovery shows the constraints on the only U.S. automaker to avoid bankruptcy in 2009. With fewer employees taking buyouts and auto demand about a third less than in 2007, Ford doesn’t have openings for a new class of lower-paid union workers who would help cut labor costs.

“It’s probably just a little premature to talk about hiring,” Booth said. “The first thing to do is to take our existing employees and make sure they’re fully occupied. That’s very important for us and very important for them.”

Toyota, the world’s largest automaker, was the benchmark for labor costs when General Motors Co., Chrysler Group LLC and Dearborn, Michigan-based Ford reached their current accords in 2007. The U.S. companies won the right to give fewer benefits to new hires and pay them about $14 an hour, half what current employees make.

“What we’re seeing is a relatively slower recovery than what we’ve seen in the past,” Ford Chief Executive Officer Alan Mulally told reporters in Washington today. Hiring at Ford “really depends on what the swing of the recovery is because all of us don’t know right now.”

Compensation for U.S. workers including wages and benefits averages about $55 an hour at Ford, compared with $50 at Toyota, according to Booth.

First in Line

Because laid-off union employees are first in line for any vacancies before new, low-wage hires can be made, Ford can’t yet take advantage of hiring at lower rates. Ford said it has about 600 hourly employees still on indefinite layoff from a U.S. union workforce of about 41,000. On Feb. 16, Ford said it will cut a shift of 900 workers from its Michigan Mustang factory in July.

Ford probably won’t begin hiring for two years, which means it wouldn’t match Toyota’s labor rates until 2014 or 2015, said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Michigan.

“The market sucks and it needs to recover by 30 percent to 40 percent before Ford can hire,” McAlinden said in an e-mail. “They have too many hourly workers now.”

Ford’s average hourly labor cost would fall to $50 once new hires make up 20 percent of the workforce, Booth said on a Jan. 28 conference call. “But we haven’t got near-term hiring plans that will get us up to that,” he said.

Cost Disadvantage

By 2012, Ford will be at a labor-cost disadvantage to Detroit-based GM and Chrysler because its UAW members voted in November to reject concessions freezing new hires’ wages until 2015, McAlinden said.

GM and Chrysler, based in Auburn Hills, Michigan, won those givebacks as the automakers slid toward bankruptcy last year, and will reach U.S. labor-cost parity with Toyota and Honda Motor Co. by 2012, he said.

“Investors should be careful not to count on labor cost savings in North America from Ford,” said Brian Johnson, a Barclays Capital analyst in Chicago. “To the extent that they should look for a rebound in earnings, it’s going to come from a growing market and a fine new product line.”

Johnson has a neutral rating on the shares, which surged more than fourfold last year. Ford fell 8 cents to $11.21 at 4:15 p.m. in New York Stock Exchange composite trading, giving it a 12 percent gain this year.

Shrinking Expenses

The lack of a tailwind from low-wage hires underscores the urgency for Mulally to keep shrinking costs and sell more- profitable autos after reporting net income of $2.7 billion in 2009 to end Ford’s streak of three annual losses.

Ford is investing $1.15 billion to retool factories in Michigan, Kentucky and Illinois to make more fuel-efficient autos this year, along with spending $450 million to build hybrid models in Michigan starting in 2012. Capital spending will rise by $1 billion this year, Booth said in the interview.

Factory upgrades, a 25 percent jump in U.S. sales in January and Ford’s first annual U.S. market-share gain since 1995 haven’t brought an end to the company’s retrenchment, with pullbacks such as the shift reduction at the Mustang plant. Ford said employees are being offered transfers to factories in Wayne, Michigan, and Chicago.

“We’re going to redeploy almost all the workers,” Executive Chairman Bill Ford told reporters on Feb. 16.

Buyout Offers

Ford’s relative prosperity compared with GM and Chrysler has shrunk the acceptance rates for buyouts, McAlinden said.

About 300 workers, or fewer than 1 percent of Ford’s UAW employees, accepted a buyout last month. About 6,800 hourly workers accepted buyouts in 2008, roughly 13 percent of a U.S. workforce that numbered 54,000 at the start of that year.

Workers are reluctant to leave as Ford’s prospects improve, according to Mark Truby, a spokesman. Auto researcher has predicted that Ford may vault past Toyota and reclaim the No. 2 spot in U.S. sales this year as the Japanese company’s recalls chase off some buyers.

Booth said Ford won’t be in a position to hire until the U.S. auto market rebounds from 2009’s 10.4 million vehicle sales, the lowest since 1982. Ford predicts U.S. car and light- truck sales will range from 11.3 million to 12.3 million this year. The annual average from 2000 to 2007 was 16.8 million.

“The most important thing is to see the economy grow,” Booth said. “It’s important to see that happen and that we see it is sustainable. That will get our employees back to work.”




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