Ford Deepens Motown's Slowdown, Belying Trump Growth Claims
(Bloomberg) -- The dark narrative of decline developing in Detroit stands in stark contrast to President Donald Trump’s boasts of a booming U.S. auto industry that’s building plants and adding jobs.
The latest evidence the party’s over in Motown: Ford Motor Co., confronting a drop in profits, vehicle sales and stock price, plans to trim about 10 percent of salaried staff within its North American and Asia Pacific operations. This comes on the heels of Ford laying off 130 factory workers in Ohio for the summer due to slowing sales of the big trucks they build. Earlier this year, General Motors Co. cut 3,300 employees at three car plants in Ohio and Michigan that make struggling models like the Chevrolet Camaro and Cadillac CT6.
As the U.S. auto market loses steam after seven years of growth, a familiar pattern of cutbacks is emerging. That’s not how the president portrays the industry’s state of affairs. A television commercial marking Trump’s first 100 days showed line workers assembling vehicles as the backdrop to a boast about job creation. “They’re all talking about building in the United States because of me,” Trump said in an interview with Bloomberg this month.
Trump’s itchy Twitter finger has so far been silent on Ford’s plan to cut 1,400 jobs by the end of September. That’s a rare positive these days for Ford Chief Executive Officer Mark Fields, who was grilled by the company’s board last week and assailed by investors eager for a turnaround. Ford’s stock fell as much as 1.7 percent Wednesday and is down 37 percent since Fields became CEO in July 2014.
“Trump has got his hands full right now, so I don’t know if he’s going to bother to send out a tweet about this,” said David Whiston, an analyst with Morningstar in Chicago. “Someone like that is never pleased. But I mean, who is running the company, Mark Fields or Donald Trump?”
The move to trim salaried staff is part of Ford’s plan to reduce costs by $3 billion this year. The cuts will be selective so Ford can retain the tech-savvy employees it’s recruited to develop driverless and electric cars. Departments that will be spared include product development, information technology and global data and analytics, the Dearborn, Michigan-based company told employees Wednesday.
“This has to be done surgically rather than randomly or otherwise you lose the talent you need the most,” said Maryann Keller, an industry consultant in Stamford, Connecticut. “This will be offered to the traditional automotive staff.”
Ford shares have declined 10 percent this year, while GM’s have dropped 5.4 percent, dropping the market capitalization of each company below Tesla Inc.
“I don’t think there’s one or two levers Mark can pull that will magically boost the stock,” Whiston said. “He doesn’t have a lot of options because sentiment against auto stocks is so negative right now because we’re at the top of the cycle.”
Retrenching in the U.S. risks reopening Ford to criticism from Trump eventually. Fields and Executive Chairman Bill Ford have curried favor with the President this year, giving him advance notice of hiring and investment at American plants and canceling a small-car factory in Mexico.
“They’ve already done a lot for the president,” Whiston said. “Even though Ford really did not stop building the Mexico plant in response to Trump, it still made him look good.”
Ford scrapped plans for the $1.6 billion small-car Mexico facility amid declining demand for sedans and will build the Focus compact in an existing plant south of the border.
Automakers have widespread shutdowns planned for the summer to adjust to the U.S. car market’s recent slowdown, conflicting with Trump’s more upbeat depiction of the state of the industry.
Fields, 56, discussed the cost cuts that Ford plans for this year in a call with analysts last month when the company posted a 42 percent plunge in first quarter adjusted earnings. He has said pretax earnings will fall to $9 billion this year, from $10.4 billion in 2016, and will rebound next year.
“We are continuing our intense focus on cost and the reason for that is not only mindful of the current environment that we’re in, but also I think preparing us even more for a downturn scenario,” Fields said on April 27.
In the U.S., Ford has about 30,000 salaried workers. The company employed a total of about 201,000 workers as of the end of last year, including about 101,000 in North America, according to a regulatory filing.
“It’s sad to see jobs disappear when the company is still doing well. But you should do it when you identify the need,” Whiston said. “If you wait until the recession happens, you’re just delaying the inevitable.”