Scheele fires 1st shot in cost war

DETROIT - Over the next year, Nick Scheele will take aim at three big targets as he tries to wring out costs and create a new Ford brand organization in North America: material costs, marketing costs and product development costs.

Scheele, the group vice president for North America who is leading Ford Motor Co.'s turnaround strategy, fired the first shot Friday, Aug. 17, when the company announced the early retirement by year end of up to 5,000 salaried workers, about 10 percent of its white-collar work force in North America.

Ford is reeling from the cost of fixing defective vehicles, a shrinking market share and a faltering product mix.

Ford will take a one-time after-tax charge of about $700 million in the fourth quarter to cover the cost of the work force reduction.

'Nothing is off limits. We are going to make our structure much more competitive,' Martin Inglis, Ford's CFO, said Friday. The job cuts are 'an element of a broader, more comprehensive restructuring of our North American operations.'

Ford will seek additional material cost reductions from suppliers, Inglis said.

The company intends to protect its 'core product programs,' he said. But Inglis did not rule out other product actions.

Bunker mentality

Scheele takes over at a time when a bunker mentality is hitting Ford. Here is what is propelling the overhaul of Ford's North American operations:

* Ford Motor Co.'s share of the U.S. market fell to 23.2 percent in the first half of 2001, compared with 25.0 percent a year ago.

* Ford is spending more to sell its cars and trucks. Marketing costs are expected to rise to 14.5 percent of gross revenue in the second half of the year, Inglis said. In 2000, marketing costs accounted for 11.1 percent of gross revenue.

* Vehicle defects from decades past continue to hurt Ford's bottom line. Inglis cited two big ones. The repair and replacement of head gaskets on more than 700,000 vehicles equipped with a 3.8-liter V-6 used in the mid-1990s is costing more than expected, Inglis said. Ford also faces the proposed settlement of a class-action suit in California related to faulty ignition switches used between 1983 and 1995.

* Ford's product lineup is more vulnerable today. The once-unassailable Ford Explorer has been weakened by the Firestone tire recall and new, snazzier sport-utilities from General Motors. And the consumer's appetite for large Lincoln Navigators and Ford Expeditions, once profit powerhouses, is waning.

Ford's North American automotive operations lost $1.14 billion in the second quarter, a loss blamed on the recall of 13 million Firestone tires, lower sales and higher marketing costs.

3 key players

In North America, Scheele will rely on a trio of executives to help identify and fix problems:

1. Jim Padilla, Ford's manufacturing and quality boss, worked alongside Scheele in the 1990s at Jaguar when the duo turned around that critically ill company.

2. Scheele sought out Shamel Rushwin for his expertise in advanced manufacturing and created a new post for Rushwin in his cabinet: vice president of North America business operations.

3. Kathleen Ligocki, vice president of Canada, Mexico and North America strategy, is returning to the United States to help figure out what Ford needs to do to regain its footing.

In Europe, Scheele revived Ford's fortunes by recasting the product lineup and remaking the manufacturing base.

His working style is to listen, pinpoint the problem and come up with a remedy. Scheele built his reputation on delivering results, freely delegating authority to get the job done.

For example, in Europe, Ford plans to cut costs while dramatically increasing its product output. Ford's European factories will produce 45 new models in the next five years, including engine variations.

In 2001, Ford saved about $100 million by reducing production capacity in North America by 280,000 units through shift reductions and elimination of overtime, Inglis said.

Ford has no 'near-term specific plans' regarding shift cuts or plant closures, Inglis said. 'As we pull everything together, nothing is off limits.'

Ford's contract with the United Auto Workers, which expires in 2003, prohibits plant closings except in extreme circumstances.

In addition to the $700 million after-tax charge in the fourth quarter, Ford also will report an after-tax charge of approximately $200 million in the third quarter relating to investment write-downs in unspecified e-commerce and auto-related ventures such as the Auto Collections.

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