Ford's second big cutback of the decade is a shocker

Even in a General Motors valley, people hate to see what's happening to Ford Motor Co. -- a company that revolutionized the way automobiles were made more than 75 years ago and caused tremors on Wall Street when Ford went public 50 years ago. Its stock sold for $64.50 in 1956; this week it was selling for about an eighth of that, and gained less than 50 cents on news that more than 30,000 jobs would be eliminated and 14 plants closed.
It is clear that there is a revolution going on in the automobile business that has the potential to shake the U.S. economy to its core. Ford's announcement that it was eliminating nearly 30,000 blue collar and 4,000 white-collar jobs and 12 percent of its officers by 2012 follows by just five years the company's elimination of 35,000 jobs and five plants.
General Motors earlier announced it would close 12 plants and lay off 30,000, but ominous rumbles about Chapter 11 bankruptcy persist. Delphi, a company formed out of former General Motors parts divisions, is in bankruptcy. Chrysler, which was bought by German automaker Daimler, announced Tuesday that it will eliminate 6,000 white-collar jobs.
By one count, what used to be known as the Big Three have cut 140,000 jobs -- one-third of their North American work force -- since 2000. Arguably, the United State no longer has a Big Three. There are now six major manufacturers in America -- the original Big Three of GM, Ford and Chrysler having been joined by three major foreign imports, Toyota, Honda and Nissan.
Foreign carmakers now operate 28 plants employing about 60,000 in North America, but most of those are nonunion jobs at sites far from Detroit.
Shifting fortunes
Ford's reorganization follows a decade-long slide in the U.S. market share, largely attributable to increasing competition from foreign rivals. For the first time in 19 years, Ford lost its crown as America's best-selling brand to GM's Chevrolet. Meanwhile, GM is battling with Toyota to maintain its title as the world's largest automaker.
Obviously, the domestic U.S. auto industry is facing economic pressures that must be addressed, and that go beyond the hourly rate of pay in U.S. plants. Pension costs and health care costs add thousands of dollars to the price of U.S. autos. The heaviest corporate losses of both Ford and General Motors are being carried by their U.S. auto operations. Their worldwide automotive businesses are making money.
Health care costs are clearly one factor that differs between U.S. operations and European or Asian operations. Companies in the United States that provide health insurance for their employees are not only shouldering the healthcare of their workers, but are indirectly carrying the burden of uninsured patients whose hospital costs are eventually shifted in part to paying or insured patients.
Of course, that's only a factor, if a large one.
The domestic auto industry has made strides in quality and reliability since the disasters of the 1970s and 1980s, but has not been able to regain the confidence of customers it lost then. And it has been slow to react to what should have been obvious, the rising cost of fuel and the inevitable demand for more efficient vehicles, including hybrids.
Given the slump in sport-utility sales, U.S. carmakers will have to accelerate their efforts to produce fuel efficient vehicles and refine their product mix. Cutting costs on vehicles with shrinking market appeal may get them over the hump, but won't improve long-range prospects.