Ford Motor Co. unveiled one of the most drastic cuts yet in the auto industry yesterday, slashing vehicle output more than 20 per cent in the fourth quarter as the company battles to come to grips with high gas prices and a decade-long addiction to sport utility vehicles.
Ford will slash production by a staggering 168,000 vehicles in the fourth quarter from year-earlier levels, in a move that will cause the loss of 350 jobs at two engine plants in Windsor, Ont., and plant shutdowns throughout North America.
"We are basing our business plans on the customer and we are determined to match production and inventories with consumer demand," Mark Fields, Ford's president of the Americas, said in a statement that underscored the difficulties facing the second-largest U.S. auto maker.
The production cuts follow a 50-per-cent trim in the company's dividend earlier this summer and a restructuring announcement in January that was criticized as being insufficient and moving too slowly.
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The January job cut and plant-closing plan -- called Way Forward -- included the permanent shutdowns of seven assembly plants in North America and the elimination of 30,000 jobs.
Analysts criticized the plan as vague and insufficient.
"I think this is really ominous," one industry source said. "I don't know how Ford will get out of this tailspin."
Yesterday's move comes after the company reported a $254-million (U.S.) loss in the second quarter and a 34-per-cent plunge in vehicle sales in July. That slump meant that Toyota Motor Corp. jumped ahead of Ford into the second spot in the sales race, a significant sign of how far Ford has fallen since 1995, when it held 25 per cent of the U.S. vehicle market and was thought to be within striking distance of market leader General Motors Corp.
But that was in the days when SUVs rolled off dealers' lots and Americans could buy a gallon of gas for less than what they paid for a bottle of water. Yesterday, the price of regular gas fell slightly to $2.89 a gallon in the Detroit area and Ford said sales of pickup trucks and truck-based SUVs were slumping because of high gas prices.
"The consumer is starting to think that we're in an era of [permanent] $3 fuel prices," said Michael Robinet, vice-president of forecast services for automotive consulting firm CSM Worldwide Inc. in Northville, Mich.
Ford's stock fell 17 cents to $8 on the New York Stock Exchange.
In addition to the job cuts in Windsor, the reduction in vehicle production will spill over to parts makers in Canada, many of which are already reeling from the restructuring at Ford as well as from cutbacks announced by GM.
Dana Corp., which is operating under Chapter 11 of the U.S. bankruptcy code, ships chassis components to various Ford factories in North America from a plant in St. Mary's, Ont. Union officials expect layoffs among the 350 to 400 employees there.
Magna International Inc. of Aurora, Ont., supplies between $250 and $400 worth of parts on every Ford F-series pickup truck and has about $1,200 worth of content on the Ford Explorer mid-sized SUV, including the frames.
Ford will slash output of its profitable F-series trucks by more than 90,000, said one industry source, pointing to a 101-day supply of the vehicle on dealers' lots. A range of 60 to 70 days' supply is the usual acceptable level.
Another company that will be affected is Linamar Corp. of Guelph, Ont., which ships cylinder heads to Ford engine plants that supply the assembly facilities where vehicle production is being trimmed.
On the Toronto Stock Exchange yesterday, shares of Magna fell 1.66 per cent to $79.95(Canadian) and Linamar shares fell .22 per cent to $13.92. Shares of other North American parts makers were battered on other exchanges.
Two major credit rating agencies, which have already pushed Ford's debt into junk status, said they are considering further downgrades.
"These cuts, along with the very likely significant cost reductions to be announced in September, reveal the magnitude of turnaround efforts needed to deal with Ford's deteriorating product mix, lower market share and excess production capacity in North America," Standard & Poor's Corp. said.
Canadian Auto Workers union president Buzz Hargrove reiterated a call for restrictions on imports of vehicles made outside North America as a way of forcing other countries to open their markets to vehicles made here.
"As long as we keep losing market share to those who are outside the country we're gonna keep reducing jobs," Mr. Hargrove said. "Everybody else in the world builds and sells in their home market and then ships to North America and they won't accept us shipping back there."
He wants the federal government to address the issue and said auto workers may march on Parliament Hill.
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