As Ford Motor Co. moves to implement its biggest job-cut and plant-closure program in its 103-year history, uncertainties about the turnaround plan risk complicating its execution, analysts said on Monday.
Analysts question whether Ford has cut deeply enough given its diminished outlook and the near certainty that it will be overtaken in the U.S. market by rival Toyota Motor Corp.
Ford may also fall short of its target of slashing 30,000 U.S. factory jobs through a buyout program negotiated last week with the United Auto Workers union, analysts said.
And, Ford still needs to identify two assembly plants for closure, suggesting unresolved internal questions about its product plans, analysts said.
This (plan) does not adequately address the severity of the company's overcapacity problems given continued volume and market share declines and could result in the need to undergo additional plant closings in a few years, KeyBanc analyst Brett Hoselton said in a note for clients.
Ford unveiled a turnaround plan on Friday that will slash its North American manufacturing capacity by 26 percent, to 3.6 million vehicles by 2008.
The No. 2 U.S. automaker also conceded that its U.S. market share will fall as low as 14 percent, from its current 16 percent, virtually ensuring that it will surrender the No. 2 spot to Toyota.
Given its lower sales forecast, Ford's capacity utilization - a key indicator of profitability - is expected to improve only to a rate of about 84 percent by 2008. It would still have about 500,000 units of excess capacity, equal to the output of about two assembly plants, in 2008, analysts said.
I think it's a mistake to continue to keep those (two) plants in the system, said Catherine Madden, senior analyst at Global Insight. This indicates that Ford doesn't have a clear handle on what their product plan strategy is beyond 2008.
Glenn Mercer, an independent auto analyst, said the vagaries in the Ford plan were a disappointment, along with the years it will take to carry it out.
The implication is that they haven't really figured this out yet, and if that's the case, one has to wonder what they have been doing for the past six months - or six years, he said.
Ford spokesman Oscar Suris said the company's plan was to have 100 percent capacity utilization by 2010, saying that moving any faster would either force the automaker to surrender sales or invest in costly retooling.
What Ford stakeholders need to understand is that we are committed to addressing this part of the business equation, he said.
But Kevin Reale, of AMR Research, said he saw a risk that Ford's market share would fall below its reduced forecast, possibly to 12 percent in the years ahead.
That would compound Ford's problem with excess capacity and could prompt future cuts, a challenge for Ford's newly appointed Chief Executive Alan Mulally.
I think that's where Mulally has to come in and put his thumbprint on this, Reale said.
Ford is now offering buyout packages of up to $140,000 to all of its more than 75,000 UAW-represented workers, modeling the program on the one offered by General Motors Corp.
But analysts said Ford would be unlikely to see the same success GM found with its program, under which 35,000 union workers agreed to leave the company.
One complicating factor: Ford's workers are younger on average than those at GM, which could make it harder to find volunteers, especially as Ford is not offering better terms.
Ford workers on average are five years younger than GM's, Deutsche Bank analyst Rod Lache said. We believe Ford may get up to 20,000 takers for its plan, he wrote in a note for clients.