Case Study 2: The Turn Around at Ford Ford has been goingthrough difficult times and recovered more than once. The company’sshare of the automobile market continues to shrink, and its coststructure has contributed to financial losses. In 2006, Ford lost$12.6 billion. In 2007, Ford did better, posting losses of only$2.7 billion. At the same time, however, Ford’s market sharesdwindled and in 2007, its share was 14.8%—down from 26% in the1990s. In an effort to match its production with the demand for itsproducts, as well as address concerns with its high labor costs,Ford has focused on trying to get smaller to achieve long-termsuccess in the automobile industry. One of the primary ways forFord to achieve this goal is to take further steps to reduce thesize of its workforce. Ford’s workforce went from 283,000 employeesin 2006 to 171,000 in 2013. Ford then announced a new round ofbuyouts and early-retirement packages to its workers in an effortto cut costs and replace those leaving with lower-paid workers.Some of the offers made to reduce the labor supply in 2013included: Workers who were eligible for retirement would receive a$50,000 offer, higher than the $35,000 in the previous round ofbuyouts. Skilled-trade workers, such as maintenance workers, willget an additional $20,000, bringing the total potential payout forsuch a worker to $70,000. Following the 2013 round of buyouts, Fordextended its tactics to reduce the size of its workforce andongoing expenses further through means such as the following:Extending a buyout option for its 78,000 employees and specialincentives for its 40,800 workers who are eligible for retirementto retire sooner rather than later. Offering a lump sum payment for90,000 retired engineers and office workers to forgo their regularmonthly pension check for the rest of their lives. The automaker’sgoal in offering the company-wide buyouts was to cut jobs, reduceits ongoing pension expenses, to position itself to be morecompetitive in the market, and to align its labor capacity with thedemand for its products. In 2018, Ford announced that by 2020around 90% of Ford’s sales in North America would be trucks, SUVsand commercial vehicles. The only two cars to be manufactured inNorth America would be the Mustang and the Focus Active Crossover.The company has reallocated $7 billion of its research funds fromcars to trucks and SUVs.
Questions
What factors have contributed to the large-scale labor surplusat Ford?
What impact is the most recent strategic plan at Ford likely tohave on the company’s labor supply?
Over the years, Ford has decided to pursue employee buyouts andattrition in an attempt to shrink its workforce to match itsproductivity demands. Why do you think Ford uses these two tactics?Do you think these are the best options for Ford to achieve itsgoals?
What are the downsides of these two approaches? Are there anyother approaches you might recommend addressing its laborsurplus?
