07.27.07
Ford Reports A Profit
Yesterday, based on a preview of Ford’s earnings report, we discussed their situation. Now we know that Ford actually profited in the second quarter of 2007.
Ford does not expect to be out of its slump until 2009. Because the company is just about to begin negotiations with its employee union about employee concessions, some analysts wondered whether the profit came at a bad time.
Ford’s main business, its North American automobile operations, still lost money, even after huge cost-cutting efforts (primarily labor-related costs) and lower warranty repair costs. The overall company made money due to these factors plus special items, such as the sale of its Aston-Martin unit.
One analyst asked where the company would find other costs to cut, now that it has reduced its workforce by 30%. This signals a change–previously, analysts got excited by layoffs, because this tends to have a fairly quick effect on the bottom line. Layoffs, then, are the “white sugar” of management techniques. While they tend to spark an immediate burst of energy, it quickly burns off, leaving the company depleted. This tends to cause companies to follow with another wave of layoffs.
If you cannot run your company effectively, lay off your employees. Maybe the cost reduction will help hide the fact that you are incompetent long enough for you to retire with a large payoff.
Seriously, does anyone really still believe that American workers are the problem? Isn’t it the management that are making the boneheaded moves that harm the business? Who decided not to invest adequate resources in hybrid vehicles when gas-guzzlers were selling well? Who then jumped on the bandwagon–late–and even then waffled about it? Who had record profits by sticking to big, inefficient, light trucks and sport-utility vehicles when they could have been building for the future?
Since the managers at Ford do not seem to know what to do, I’ll make a few suggestions:
- Several years ago, Ford had the slogan “Quality is job 1.” Ford should be focusing on making problem-free, long-lasting vehicles. There should be a ten year, 120,000 mile powertrain warranty and scheduled maintenance, not because the company needs to prove itself (although it really does), but because management and labor together are confident in their work and their product.
- When consumers view commercials for auto dealerships, it is often “sale price” or “rebate” or “special financing”. Once entering the lot, the old back-and-forth of negotiating begins. Now, when two acquaintances buy the same vehicle, they should get the same price–regardless of negotiating skills. When people share what they paid, some people find that they overpaid. That person may then choose to deal only with a different dealership or automotive brand, solely because of the impression that they got cheated. Your dealer franchisees need to have effective leadership in putting the customer first, selling the vehicle that the customer needs, even if that is the lower-priced economobile rather than the higher-priced luxury vehicle. They need to focus on long-term satisfaction of their customers, rather than having the transactional get all I can right now attitude.
- Fuel prices. Draw yourself a graph. The bottom left corner should say “Today.” The top right corner should say “Next Year.” Make a heavy black line connecting the two. Now, place that graph in a place where you will see it every day. Act as though prices will double in the next year. Make your vehicles such that people who buy them will not have to park them and walk to work when prices rise again.
- When one of your managers says, “let’s make a big, gas-guzzler, so we’ll make more profit per vehicle,” assign him to read and follow number three above.
- Financing. Recognize that the reason for the finance company is to get more people into Ford-made vehicles. Run the finance company in such a way that it contributes to your sales. That should include the branch that handles lower-income buyers. Lower-income buyers and first-time buyers, if you treat them properly, represent future repeat buyers. Authorize the finance company to do all sorts of creative things to enable buyers to obtain and keep Ford-made vehicles.
- Management bonuses and benefits. Anything that you won’t give to the people who actually produce your products, don’t give it to managers either. The robber baron era was 100 years ago. Work with your employees and the communities where you have facilities to satisfy your customers.
- Suppliers. There has been a major move by North American automobile companies to squeeze their suppliers. Suppliers have to cut costs, meet quality standards, ship items based on just-in-time requirements (which often means they are holding inventory instead of the big auto makers holding it), and be quick to retool when any change is requested. In exchange, they get to sell to the big auto makers until someone else beats their pricing. Far better to have a group of suppliers that meet present requirements and make a commitment to help them remain profitable without the self-destructive anti-labor moves that have characterized recent moves by big auto makers.
- Employees. Tie them into the equity side of the company, whether through stock or profit-sharing. Make sure that they get rewarded when something positive happens, such as when the company makes money on their labor or the stock price goes up. It is amazing how much they will become cost-cutters and waste-watchers and profit-pushers when these things show up in their wallets too.
Now the thing is, if Ford’s managers don’t already know these things, they should resign immediately. A high school kid learns this in his first month or two working in a local fast food joint.
