Last month we heard news about Manukau-based Ion Automotive, one of Ford's Suppliers, closing shop and throwing about 500 workers out of work. It seems that it's not end of the story but a harbinger of things to come as Ford unveils restructuring plans that will see 14 factories shuttered, up to 30,000 jobs axed and suppliers cut to 800 companies from 2,500.

According to National Business Review, despite having beaten analyst expectations with a fourth quarter earnings report of $US124 million, or 8 US cents a share, from a year-ago profit of $US104 million, or 6 US cents a share, Ford is pressing ahead with a radical reorganisation designed to eliminate spare capacity, reduce costs and improve efficiency.

Despite a reasonable quarterly result, the company's profit for all of 2005 dropped to $US2 billion from $US3.5 billion, reflecting a $US1.6 billion pre-tax loss in the North American auto operations.

Ford, the second largest auto maker in North America and the third largest in the world, has about 87,000 hourly workers and 35,000 salaried workers in North America.

While its share of the US auto market has fallen from around 25 per cent a decade ago to around 17 per cent today, it has tended overall to retain capacity.

The company also hopes to realise substantial gains by chopping its supplier numbers back by two-thirds.

The company buys about $US70 billion worth of parts annually and the ripple effect of passing business on to only a relative handful of preferred suppliers will be enormous, as many smaller suppliers -- like Ion Automotive -- will likely face major losses.

Overall, the company hope to cut net material costs by at least $US6 billion by 2010.

The supplier cuts follow a similar move by General Motors, which recently trimmed about 500 suppliers off its nearly 4,000 sources worldwide.

Ford also said it would cease providing annual earnings guidance because of the volatility of factors affecting operatons.

Last year, it stopped providing quarterly earnings guidance on the same grounds.



Chairman Ford explains

Chairman Bill Ford said the moves were "painful medicine" but essential to the company's long term growth.

"Much of what's written about today's discussion will focus on the cuts to plants and personnel, and that?s understandable," he said in a statement. "These cuts are a painful last resort and I'm deeply mindful of their impact. They're going to affect many lives, many families and communities ? and we're going to do everything we reasonably can to ease the burdens.

"The people in some of our plants aren't the only ones asked to sacrifice. As you know, we are reducing our salary-related costs by 10 per cent. And we are reducing our officer ranks 12 per cent by the end of the first quarter.

"By taking the actions we are today, in the long run, we will create far more stable and secure jobs. We all have to change. And we all have to sacrifice. But I believe this is the path to winning." he said.

Mr Ford noted that over-reliance on the SUV market had contributed to the company's problems and said that was an example of out-moded thinking.

"Our over-reliance on SUVs was business as usual. We were obviously pleased with their profitability and hoped that demand would continue to rise, even though we knew that day would come when customers would begin to embrace other segments, like cars and the fast-growing crossover market.

"Our product plans for too long have been defined by our capacity. We developed vehicles to fill plants, sometimes at the expense of creativity. That's why we must reduce capacity in North America .

"From now on, our products will be designed and built to satisfy the customer ? not just to fill a factory," he said.

Among the most important changes in the works is a new emphasis on hybrid vehicles, designed to counter higher fuel costs.

"By 2010, more than half our Ford, Lincoln and Mercury products will have hybrid capability. We?ll have the capacity to produce up to a quarter of a million hybrids a year, and scale up as the market demands. Right now, we are also offering four new flex fuel vehicles for 2006 that run on a mixture of gasoline and ethanol," he said.

Mr Ford also cited seemingly intractable health and legacy retirement fund costs as a burden that it could not face alone.

"As you know, our health care and legacy costs are enormous.

"We've been working in partnership with the UAW to address the ever-escalating costs of our health care benefits, including a recently approved agreement to reduce costs in a reasonable way. Still, more progress is needed.

"But we can't solve this problem alone, not when health care costs nationally are rising eight percent a year and the system is full of disincentives to control costs. This problem will only be solved with business and government working closely together. For US-based companies to remain competitive worldwide, we must find new solutions to this problem," he said.