Ford Motor Co., trying to stem North American losses, said 38,000 factory workers agreed to take buyout and early-retirement offers to leave the company, pushing the automaker past its job-cut target.
The company said today that 30,000 accepted the latest round of offers, after 8,000 took earlier incentives made at individual plants. The total departures top Ford’s goal of trimming 30,000 blue-collar jobs in North America by 2008. It’s paying as much as $140,000 to get United Auto Workers members to quit or retire.
Ford, the second-largest U.S. automaker, announced buyout results as it also estimated it will use up $17 billion in cash over the next three years, including $7 billion for the restructuring that includes the job cuts. Ford and bigger rival General Motors Corp. are scaling back in North America as they lose market share to Asian automakers led by Toyota Motor Corp.
“This is just a bitter pill they’re going to have to take,” said Mirko Mikelic, part of a team that manages $21 billion in fixed-income assets including Ford bonds at Fifth Third Asset Management in Grand Rapids, Michigan. “The market knew this was coming down the pike. It’s not a complete surprise that they’re going to have to write a big check.” The Dearborn, Michigan-based automaker said half of its cash drain will occur next year as it spends money to close plants and trim jobs. The Ford Motor Credit financial unit also will suspend dividend payments to Ford Motor next year. Today’s announcements come two days after Ford said it plans to borrow $18 billion and will back its loans with collateral for the first time.
The 38,000 Ford workers who have accepted offers this year represent 46 percent of its 83,000 UAW-represented employees at the start of 2006. Martin Mulloy, Ford’s labor-relations vice president, said on a conference call that the automaker probably will have to hire temporary workers because of the reduction. He declined to give a figure.
Joe Laymon, Ford’s group vice president of human resources, declined to estimate the savings from the buyouts. He said on a conference call that the company would have a figure in next year’s second or third quarter.
Earnings next year will be damped by smaller profit at Ford Motor Credit before the unit’s results improve in 2008 and 2009, Ford said in a U.S. Securities and Exchange Commission filing.
Ford Motor Credit paid the parent company $950 million in dividends this year through September, spokeswoman Becky Sanch said in an interview. The unit paid dividends of $2.3 billion last year, $4.2 billion in 2004 and $3.6 billion in 2003.
Ford’s buyouts followed similar offers at GM and auto-parts maker Delphi Corp. At GM, about 34,000 union workers accepted, or one in three of those eligible. At Delphi, a former GM unit, 20,100 of 33,000 UAW workers took buyout offers.
UAW spokesman Roger Kerson said he couldn’t immediately comment on Ford’s buyout results.
Ford said the departures will start in January and be finished by Sept. 1. On the conference call, Mulloy said Ford expects a decline in its number of workers in the Jobs Bank, which pays laid-off UAW members for whom the company doesn’t have work.
Ford has about 1,100 workers in the program now, he said.
Ford’s greater-than-expected total “should facilitate a faster reduction of overhead costs including facility closings,” Standard & Poor’s analyst Efraim Levy said in a research note. He rates Ford shares a “hold.” North American Losses The company’s North American auto unit has lost money in eight of the past nine quarters, and the automaker’s share of U.S. car and light-truck sales is headed for its 11th straight annual decline. Ford now says the North American unit will become profitable in 2009, one year later than a target set in January.
The performance of the North American unit caused Ford to post $6.99 billion in losses in this year’s first nine months.
“The acceptances received through this voluntary effort will help Ford to become more competitive,” Chief Executive Officer Alan Mulally said in a statement. The former Boeing Co. executive was hired in September and replaced William Clay Ford Jr., who remained as the company’s chairman.
Ford’s buyouts this year include 6,000 workers at former Visteon factories. The automaker took back 23 offices and plants from Visteon, its former auto-parts unit, in October 2005. Ford is seeking to sell most of the plants by 2008 and plans to close them if no sale occurs by then.
Ford offered eight different buyout and retirement plans to UAW employees. The $140,000 offer was aimed at those 55 and older with at least 10 years of experience who agreed to forgo health- care benefits.
Other offers included $15,000 annually for four years of college tuition and 50 percent of wages while in school, according to the union. Ford also offered $100,000 accounts for education of children or spouses after an employee ended employment.
Funds would be taxed as they were withdrawn and money would have to be used within 10 years.
The offers to pay for college or other education were intended to entice younger employees to leave. Ford said such “non-traditional” offers accounted for slightly more than half of the buyouts, without providing a specific figure.
The average age of Ford’s hourly workers is about 42 or 43, Mulloy said.
The automaker and the union agreed on the buyout terms in September. Ford began making the offers Oct. 16 and workers had until Nov. 27 to accept.
Ford had originally intended to trim the 30,000 factory jobs by 2012. A steeper-than-expected decline in sales of pickup trucks and sport-utility vehicles year forced the company to accelerate its plans by four years.
Besides the 30,000 factory job cuts, Ford is eliminating 10,000 salaried positions by the end of 2007’s first quarter.
The company plans to reduce its salaried workforce to 28,500 by 2008 from 38,500 at the end of September. Hourly employees, excluding those at plants taken back from Visteon, will be cut to 55,000 to 60,000, from 79,300 at the end of September.
Ford’s 7.45 percent notes due in 2031 rose 0.7 cent to 79.2 cents on the dollar, according to Trace, the NASD’s bond-price reporting system. The yield fell to 9.679 percent.
The automaker said on Nov. 27 that it’s seeking as much as $18 billion in new financing to pay for its restructuring. The borrowings include a five-year, $8 billion credit line and a seven-year, $7 billion term loan.
Ford may pay interest at 3 percentage points over the London interbank offered rate on the $7 billion term loan, said three investors who were asked to participate in the transaction. Three-month Libor, a benchmark for bank loans, is 5.37 percent.
Collateral includes U.S. plants, property and equipment and 100 percent of stock Ford holds in U.S. units, including Ford Credit, according to the filing. Collateral also includes stakes of 66 percent to 100 percent of foreign subsidiaries.
Ford is meeting with lenders today, according to the filing. Lenders are to make final commitments on the loans on Dec. 7, and Ford is to receive the money on Dec. 15.
Standard & Poor’s assigned a B rating and a 2 recovery rating to the $8 billion credit line and $7 billion term loan. The loan rating is the same as Ford’s corporate credit rating, which is five levels below investment grade. The 2 recovery rating means lenders can expect to get back 80 percent to 100 percent of principal if there’s a default on payment.
“It’s not a surprise that they’re facing massive cash costs for restructuring,” said Morningstar Inc. analyst John Novak. “The extra liquidity should help, but executing the restructuring won’t be easy in an increasingly competitive environment.
The competitors aren’t standing still.”
