Ford - The 'Way Forward' Restructuring Program

            
 
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Case Details:

Case Code : BSTR204
Case Length : 15 Pages
Pages Period : 1996-2006
Organization : Ford
Pub Date : 2006
Teaching Note :Not Available
Countries : US
Industry : Auto and Ancillaries

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"The challenge going forward is to give our customers, employees, retirees, dealers, suppliers and investors a reason to believe in Ford. That is going to be our focus. Our Way Forward is not a retreat into smaller markets, but a retaking of the American marketplace. It's time to play offense. It' time to fight back." 1

- Mark Fields, Executive Vice-President and President of The America at Ford Motor Company, on the Way Forward Restructuring Plan, in 2006.

"Unfortunately, the Way Forward reads more like Yogi Berra's deja vu all over again. The announcement contains little new or unexpected. It is merely a slick restatement of Bill Ford's aspirations to do better." 2

- Professor Peter Morici, Robert H. Smith School of Business, University of Maryland, on Ford's Way Forward Plan, in 2006.

Introduction

On January 23, 2006, Ford Motor Company (Ford), the second largest automobile manufacturer in the US, announced the much awaited restructuring plan for its North American operations. The prime objective of the restructuring plan, dubbed the 'Way Forward,' was to bring the company's North American operations which had incurred a loss of US$ 2.5 billion on total sales of US$ 80.6 billion in 2005, back to profitability by 2008.

Ford's fortunes had been severely affected by competition from foreign car manufacturers like Toyota,3 the increase in gasoline prices, mounting pension bills and healthcare costs, and a quicker than anticipated decline in the demand for SUVs after 2000. The company's market share in the US decreased from 25% in the late 1990s to 17.4% in 2005, its lowest since the late 1920s.

Under the restructuring plan, the troubled car manufacturer aimed at reducing costs by US$ 6 billion by 2012, which would entail cutting 25% of its work force (about 30,000 employees) and closing down 14 factories and assembly centers in North America. The plan also focused on strengthening its product line.

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According to Ford, "The Way Forward plan focuses every part of the business on the customer - to build stronger Ford, Lincoln and Mercury brands, a strengthened product lineup and far greater quality, competitive costs and improved productivity."4

While Ford's management was optimistic about the plan's potential to turn the company's operations around, employees at Ford expressed resentment over the company's decision to close plants. Ron Gettelfinger, President of the Worker's Union UAW5 termed the restructuring plan 'extremely disappointing.' However, some industry analysts described the plan as one that would prepare Ford to face stiff competition in the future.

A few analysts opined that Ford would not be able to up its market share to more than 20% and expressed doubts as to whether the job cuts and plant closing would help the company to eliminate its losses completely.

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1] "Ford Fights Back," www.ford.com, January 23, 2006.

2] "Dr. Peter Morici: Ford Motor Company's Way Forward Looks Like the Road to Chapter 11," www.finfacts.com, January 23, 2006.

3] Founded in Aichi, Tokyo, in 1933, Toyota is one of the world's leading automobile manufacturers. It sells its automobiles under the brand names Toyota, Hino, Lexus and Scion. For the year ended March 31, 2005, Toyota's net revenues were 18,551.5 billion yen and its net income was 1,171.2 billion yen.

4] "Ford Fights Back," www.ford.com, January 23, 2006.

5] Founded in 1935, UAW (The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America) is one of the largest labor unions in North America with approximately 620,000 active members and more than 500,000 retired members in the US, Canada and Puerto Rico (www.uaw.org).

 

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