Ford’s downsizing

Winterspeak of Assymetrical Information is skeptical about Ford’s offering of financial incentives to present employees to have them relinquish their jobs:

Who should not take the offer and hang on to their current job? Why, those whose opportunity costs are high, namely those who could not find another employer based on the skill set they have now and the skill set they can reasonably develop over time, at their current wage. We used to call this group “the overpaid”.

I think that Ford’s strategy is a little cannier than Winterspeak is giving it credit for.

I deal with Ford folks on nearly a daily basis on behalf of one of my clients and have done for 20 years. Over that period Ford has already downsized something like 20%. As I count it they’re planning to downsize an additional 25-30%.

There are two problems with Winterspeak’s model of Ford behavior. The first is that current employees who “are confident that they can get a new, well paid job somewhere else” left years ago. The second and more serious problem is that at companies like Ford productivity is not determined by the individual employee but by the job. The constraints of the organization, the corporate culture, and the structure of individual jobs place an upper limit on just how productive a worker holding one of those jobs can be. Under those circumstances people really are just interchangeable parts in the big Ford machine. If you want to reduce the part count, it really doesn’t matter much which parts are the ones that go.

Will Ford be able to “shrink to grow”? Frankly, I doubt it. To do that they’d need to change their way of doing things. They’d need to favor efficiency and creativity over procedure. Quite to the contrary I think that they’re just trying to weather the storm, hoping that there will be fair skies ahead.

I don’t believe those fair skies will ever come. Soon China will be entering the world automobile and the rules of the game will change not just for Ford, Daimler-Chrysler, and GM but for Toyota and Hyundai, too.

3 comments… add one
  • One factor you neglect to mention are the unions. Union rules and regulations are one reason why there is an “upper limit” on productivity. In part, unions killed the steel industry in America. My father in law was a lifetime employee of LTV steel and he lost his 30 year pension when the company went under. Another company bought the plant and reopened it with 1/3 of the workforce. My FIL was rehired and instead of sitting around collecting a paycheck while waiting for something to break, he has a variety of tasks that keep him busy. Under LTV, union rules prevented the company from giving him tasks outside defined responsibilities, which essentially set a ceiling on his productivity.

    This isn’t to say that unions are the primary problem – only one factor among many. In the case of Ford, the company has been unable or unwilling to build profitable and competitive vehicles outside the truck and SUV market. When those particular areas go into decline, so does the entire company.

  • Sure union contracts are a boat anchor around the neck of the automobile companies but I think more blame belongs to management for those than union members. The union folks are just doing what anybody would: trying to get the best deal they can. I blame management for entering into short-sighted contracts to begin with.

  • Fletcher Christian Link

    One could also blame management for choosing the wrong product mix. If the sales of pickup trucks and SUVs are declining in favour of compacts (which I believe to be so but am not sure, and am very happy about if true) and the opposition is making compacts at a good price and Ford isn’t, then Ford’s sales will decline.

    If the compacts they do make are too expensive and/or unreliable, ditto.

    Britain went through this twenty years ago. The major car company, British Leyland, was making expensive heaps of junk; both problems being due to union Luddism which led to appalling productivity and quality control. It was well known that if you bought a car made on Friday, then you would be buying a lemon. Of course, management should have sorted this out, but at the time the company was nationalised; which is to say that it was a government department, and we all know how efficient they are.

    The problem no longer exists, because the company no longer exists. Just to prove that it wasn’t really the workers’ incompetence when properly led, the Nissan plant in North-East England is now exporting cars to Japan.

    No point in fighting market forces – you will lose.

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