Ford's record earnings are the reward for years of streamlining
Last year, the Ford Motor Company sold more cars and trucks than archrival Chevrolet - the first non-strike year that has happened since 1957 - and made more money than General Motors and Chrysler combined. For the year, the automaker's earnings jumped 41 percent, to $4.6 billion, the highest annual earnings for any company in the history of the auto industry. It was the second straight year Ford outearned the General Motors Corporation, and it will mean record profit-sharing checks of approximately $3,700 for each Ford worker next month. GM workers will miss profit sharing for the second year in a row, because earnings from its US automotive operations did not meet a pre-set ``trigger point.''
Sales incentive programs late last year kept Ford's earnings for the fourth quarter below analysts' expectations, and the stock fell $2.25 a share after the earnings announcement on Thursday. Still, the quarterly earnings also represented a record, the company said.
Meanwhile, Ford is busy boosting its market share in the United States. In the 1987 model year, it got 22.1 percent of the car market, up 2.3 percent from 1986.
Normally a carmaker hopes to increase its share by one- or two-tenths of a point. Ford's truck share was 28.5 percent, up three-tenths of a point. In 1987 it had the world's best-selling cars with the Escort and Taurus, while the Ford F-series truck was the best-selling vehicle, car or truck.
Ford's profits in recent years have fattened its bank account, which has been used to help it buy up companies, including a majority share of Hertz; Aston Martin Lagonda and AC Cars, of Britain; and financial-service institutions, such as California's First Nationwide Bank, the seventh-largest savings-and-loan in the US.
So is Ford becoming a self-indulgent auto giant, too groggy over its achievements of the last few years to realize the dangers ahead - rising competition and an oversupply of cars? So far, this doesn't appear to be the case.
``I think Ford recognized that it is unlikely it would ever get back to its former levels of domestic production and market penetration,'' says John Schnapp, an analyst with Temple, Barker, & Sloane Inc., a Lexington, Mass., consulting firm. Consequently, it shrank its production capacity as well as its overall corporate head count.
It also made a massive effort with its suppliers to increase their efficiency and quality. Thus, Ford enjoys a better quality image than its domestic competition, despite some aggravating problems in the past which led to widespread publicity and recalls.
Ford learned its lesson in the recession of the early 1980s, when it lost about $3 billion and, to stay alive, had to drastically cut costs. So far the company has reduced its North American overhead by $5 billion and hopes to lop off another $5 billion over the next five years. It has closed plants, laid off workers, streamlined the organization, and tried to boost the efficiency and morale of its remaining work force.
``By the early 1990s, our goal is to be the lowest-cost, highest-quality producer in the world,'' asserts Louis E. Lataif, who on March 1 moves from head of North American sales operations to president of Ford of Europe, putting him on track for one of Ford's top management positions in the '90s.
Last year, Ford reorganized its corporate management structure in Detroit and will use its worldwide organization to develop new products for the road, no matter where they are to be sold. That way Ford hopes to avoid duplication and save a pile of money.
Ford chairman Donald E. Petersen believes Ford executives should do more than just drive the cars they're building and selling; they should discover how they work on the road, learn their handling dynamics and their limitations, and help figure out how to do it better the next time.
Despite Ford's recent successes, it still faces the intensifying challenge of increased competition, especially from overseas, as well as rising costs. In response to the cost concern, Ford is unlikely to add to its production capacity, despite the demand for its products.
``We still are not cost-competitive with the Japanese and Koreans,'' sighs Lataif. The Japanese have raised their prices about 25 percent, yet the yen has gone up by some 60 percent in value against the dollar. To recover their profit margins, hurt by the yen, the Japanese say they will continue to improve their own efficiencies.
``You can imagine the cost pressure that puts on us,'' Lataif adds. Also, the Japanese can conceive, design, produce, and market a car far quicker than either GM, Chrysler, or Ford.
Even so, ``we'll have two new or reskinned cars each year into the 1990s,'' pledges Thomas E. Wagner, head of the Lincoln-Mercury division, who expects to sell about 475,000 Mercury cars alone in 1988, plus 175,000 Lincolns, most of them Town Cars.
Ford also doesn't have a successful front-wheel-drive or all-wheel-drive passenger minivan. ``I think that the pain is particularly acute because essentially the Chrysler minivans were conceived at Ford. When Harold Sperlich, the soon-to-retire president of Chrysler Motors, left Ford for Chrysler even before chairman Lee Iacocca came on board, he essentially took all the documentation under his arm,'' notes Schnapp. Ford still needs an attractive, primarily passenger-type minivan that can match the competition.
To help it get the products it wants and save money, Ford has a widening relationship with other carmakers around the world, including the Japanese, Taiwanese, and Koreans. It has long had a 25 percent stake in Japan's Mazda Motor Corporation, which is building the Mazda-derived Ford Probe coupe in Flat Rock, Mich., due for introduction in the spring.
Ford is also building the Mazda-based Mercury Tracer in a new Ford plant in Hermosillo, Mexico. Its ties with Mazda, however, face an uncertain future in the wake of a major top-management shake-up in Japan.
Ford has also signed a letter of intent with Nissan which could lead to the joint manufacture of vehicles in Europe. Nissan's California-based design studio, Nissan Design International, is working on a new van-type vehicle for both Nissan and Ford, but no decision has been made on whether the project will fly.