Chapter 5 – The Turnaround At Ford
For the past several years, Ford has been going through difficult times. The company’s share of the automobile market continues to shrink, and its cost structure has contributed to financial losses. In 2006, Ford lost $12.6 billion. In 2007, Ford did better, posting losses of only $2.7 billion. At the same time, however, Ford’s market share continues to dwindle. In 2007, its share was 14.8%–down from 26% in the 1990s. In an effort to match its production with the demand for its products, as well as address concerns with its high labor costs, Ford has decided that smaller is better–and necessary–to achieve long-term success in the automobile industry.
One of the primary ways for Ford to achieve this goal is to take further steps to reduce the size of its workforce. As of 2008, Ford employed about 54,000 U.S. union workers. It had about 23,900 salaried workers in North America and about 12,000 U.S. workers eligible for retirement, or about 22% of its hourly workforce. Ford has announced a new round of buyouts and early retirement packages to all of its 54,000 U.S. hourly workers in an effort to cut costs and replace those leaving with lower-paid workers. Ford is offering eight different packages for employees. Some of the features of these plans are:
- Workers who are eligible for retirement will get a $50,000 offer, higher than the $35,000 in the previous round of buyouts.
- Skilled-trade workers, such as maintenance workers, will get an additional $20,000, bringing the total potential payout for such a worker to $70,000. Other packages will follow the basic pattern of buyouts Ford offered in late 2006.
- Younger workers could leave for a $100,000 lump-sum payment and receive health care benefits, for a limited time.
- Older workers could get $140,000 and receive pension benefits if they retire immediately, but they would forfeit future health care benefits.
The automaker’s goal in offering the companywide buyouts is to cut as many as 11,000 hourly jobs and as many as 2,000 salaried positions. One of Ford’s goals with these buyouts is to replace many workers with new employees who will earn a lower wage under the terms of its recently negotiated labor agreement. New hires will earn a little more than $14 per hour, about half of what current union workers earn. The number of these so-called second-tier wage workers is capped at 20% of Ford’s workforce under terms of a new pact with the UAW (formerly the United Auto Workers union). Ford President and Chief Executive Alan Mulally said the automaker will also trim salaried staff, mostly through attrition but possibly also through layoffs, as it tries to adjust to the slumping U.S. market.
Answer the following questions by applying the concepts learned in Chapter 5. Also, conduct literature reviews on the subject of discussion and use to support your case study answers:
1. What factors have contributed to the large-scale labor surplus at Ford?
2. Ford has decided to pursue employee buyouts and attrition in an attempt to shrink its workforce to match its productivity demands. Why do you think Ford is using these two tactics? Do you think these are the best options for Ford to achieve its goals?
3. What are the downsides of these two approaches? Are there any other approaches you might recommend to address its labor surplus?