How the Axe Fell at Ford

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As was widely expected, Ford Motor Co. announced a massive restructuring program designed to restore profitability to its flagging North American operation, which lost $1.5 billion last year. In the program, dubbed the Way Forward, the company will first take a step backward—eliminating 25,000 to 30,000 jobs, or close to 25% of its total North American workforce, and shutting down 14 manufacturing plants in the next six years. The Way Forward is designed to bring the company's manufacturing capacity, now operating only at 79%, in line with demand. Initially it will close assembly lines in St. Louis, Atlanta and Wixom, Mich., in addition to parts plants elsewhere. The Way Forward is also a corporate culture manifesto. The message: the old bureaucratic ways of Ford are dead; it's time for new thinking and new products to attract new (and more) customers.

So just how does a downsizing company like Ford decide which of its many plants it is going to close? According to Mark Fields, president of Ford's Americas division and one of the principal architects of the plan, the decision was made using five criteria:

First, demand for the vehicle being made. That doomed the Atlanta operation, which makes the flagging Taurus, once among the best-selling cars in the nation but now an uninspired also-ran.

Second, manufacturing flexibility. Automakers used to crave making a single product and long production runs, because of the cost of tooling. Now they want just the opposite—the ability to switch vehicles on the assembly line quickly, if one model suddenly gets hot or cold, as happens more and more frequently in today's rapidly fragmenting market.

Third, material logistics, or more simply put, the closeness of suppliers and their ability to provide just-in-time parts. In the last two decades manufacturers have gotten closer to their suppliers, both conceptually and geographically. For instance,some glass making operations have been moved onto assembly sites.

Fourth, overall operating costs. Yup, some plants are just plain better than others. For instance, the St. Louis plant makes the Ford Explorer, but so does one in Louisville, Kentucky. Looks like Louisville won.

Fifth, return on investment. Every auto plant needs to invest major amounts of money for each new model. The ones marked for closure wouldn't generate a high enough return compared to other Ford plants.

The plant closures, of course, only answer Ford's cost problems. For the Way Forward to succeed, Ford has to figure out how to design and sell passenger cars that consumers really crave. And that's a metric Ford isn't likely to find on any spread sheet.