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Last Updated: Friday, 15 September 2006, 19:38 GMT 20:38 UK
Rocky road ahead for Ford
Guto Harri
By Guto Harri
BBC North America business correspondent

State of Ford's founder Henry Ford in Detroit
What would Ford's founder think of the current situation?

When you're the oldest, and one of the biggest, it must be humiliating to feel so vulnerable.

Ford has been around for more than a century, and for most of that period, it could do little wrong.

This year, however, some analysts believe its losses could reach $9bn (4.8bn), and the company itself doesn't expect to be profitable again till the end of this decade.

Henry Ford, the man who made the company, would be embarrassed; but it was he who famously told Americans they could have his Model-T Ford "in any colour as long as it's black".

It wasn't really a problem then, but his company recently has become a little complacent about its customers.

It has wrongly assumed they were still happy with the bulky, thirsty models rolling off the assembly lines, when competitors were wooing them with more imaginative, practical and more fuel efficient models.

"They should really be designing cutting edge products, cutting edge cars for middle America, the blue collar people out there," says George Magliano, director of Global Insight.

"That was the cornerstone of their business years ago."

'Steroids'

Unless Ford starts produce more attractive cars, the savings predicted by the latest round of cost cutting will not save the company.

Ford sign at one of its Detroit plants
Ford is hoping for a brighter future

Even if they work, they'll be painful.

While Ford is calling its restructuring "The Way Forward", David Cole, chairman of the Centre for Automotive Research in Michigan, describes it as "The Way Forward on steroids".

He believes that Ford has been forced to make drastic changes "because all the escape routes are sealed off".

The one advantage of being in such a tight corner is that Ford's main US union, the United Auto Workers (UAW), seems to have appreciated what was at stake.

No trade union really wants to encourage its members to take early redundancy or retirement, but Bob King, vice-president of the UAW, has recognised in an e-mail to workers that he's been "deeply concerned" about Ford's loss of market share.

That decline, of course, hasn't necessarily been halted.

Kevin Tynan, an analyst at Argus Research, fears their share of the market will slip further.

"You can throw eyebrow-raising numbers out there but I think the fact is that they are not done losing market share, and ultimately that's going to be painful," he says.

Higher costs

There are financial challenges for Ford too.

Shedding staff saves money over time, but costs a fortune in the short term.

Local politicians will be worried about the impact of heavy job losses in the run-up to mid-term Congressional elections.

Yet US politicians are partly responsible for the difficulties encounter by Ford, Chrysler and General Motors.

For years, managements at "The Big Three" have warned that the high costs of their healthcare, wage and pension packages have saddled their US operations with costs Asian and European carmakers didn't have to bear.

These so-called "legacy costs" have recently added up to $3,000 to the cost of every vehicle.

There are pensions and benefits to be paid in most advanced industrialized countries, but the USA puts the added burden on companies to fund the healthcare of their staff.

Interestingly, Ford's plants in Canada, where there's a national health service, are due to expand production, just as US plants contract or close.


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