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Archive for Friday, December 1, 2006

Massive challenge

There is no secret about the enormity of the job facing Lawrence’s Alan Mulally at the Ford Motor Co.

December 1, 2006

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Lawrence's Alan Mulally established an international reputation for success as a top man for the massive Boeing Aircraft company. It appears it will take all the skill and expertise he can muster to work similar miracles with the ailing Ford Motor Co. for which he recently became president and chief executive.

Whoever dreamed, even in fairly recent times, that American industrial mainstays such as Ford, General Motors and Chrysler would someday fall into financial peril. But it has happened and all must do countless things, many of them painful, to try to get their ships back on course.

From Detroit comes news that almost half of Ford's hourly production workers - 38,000 so far this year - have accepted buyouts or early retirement offers. The nation's second biggest automaker keeps reeling and the competition from Asian producers has been devastating.

Ford also has announced it expects to post cumulative cash outflows of $17 billion and more during the 2007-2009 period. There is a lowered demand for Ford products and that means Mulally will have to take drastic steps to accomplish what he and those who hired him expect.

Ford lost $7 billion in the first nine months of this year and the company has announced it plans to need about $18 billion in financing due to negative operating cash flow and to pay for its restructuring. Ford's share of the market has declined from about 26 percent in the early 1990s to 17.6 percent at the end of this October. The company expects to cut its annual operating costs by $5 billion through 2008 with a combination of reductions of hourly workers and also by offering buyout packages to 10,000 white-collar workers. The cost to Ford for their generous employee health care plans has been an extremely heavy burden for the company.

Consider that there was a time when people started and ended their working careers at firms such as Ford and GM and ended up well off in retirement. Those days probably are gone forever as the work forces struggle.

In a note to Ford investors, Bank of America analyst Ronald Tadross said the numbers are $6 billion worse than his firm's estimate and do not indicate how the company plans aggressive action such as cutting multiple product brands, reducing its fleet mix or upgrading plant flexibility.

There have been thousands of layoffs and restructured retirement plans. The company says it does not expect to return to profitability until 2009 and that things could get worse in the fourth quarter as market share continues to drop and Ford plans further plant closures and job cuts to align its manufacturing process with lower demand.

Mulally, of course, knew at least most of this before he took his new job and he is widely known as someone who embraces major challenges and finds ways to meet them. If he can succeed again in his field of management, he could wind up being regarded as the Economic Miracle Man of the Century.

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