Ford Poised to Accelerate Restructuring

Tim Burt and Jeremy Grant reported fo the Financial Times that when Bill Ford spoke at an outdoor dinner in rural Michigan last week about progress his company was making on its sweeping restructuring, he surprised his guests by saying exactly how many days the project had been running. "Not that I'm counting," he joked.

Beneath Mr. Ford's characteristic humour lies an uncomfortable truth. As executives at Ford acknowledge, after only 191 days into a $9bn plan to achieve turnround at the world's second largest carmaker, Ford is behind schedule.

And while Mr Ford has said he is happy with the quality of top management around him, it may take further personnel changes to get the restructuring on track. The plan is aimed at Ford generating $7bn in pre-tax profits by mid-decade.

One person close to the Ford family said: "You can assume that Bill is not finished with the people moves. The depth of solid and talented management is not as deep as it should be."

One focus will be on the role of Sir Nick Scheele, who as chief operating officer is in charge of the restructuring. Although he is not expected to retire for a further two to three years, some insiders suggest Mr Ford may be considering moves to strengthen this side of management earlier than that.

Indeed, the arrival next month of David Thursfield, chairman of Ford Europe, as Ford's head of international operations and global purchasing, is expected to signal a further acceleration of the restructuring.

Mr Thursfield worked alongside Sir Nick at the carmaker's European headquarters in Cologne - from where they orchestrated a radical overhaul of the division.

While Sir Nick was seen as the main architect of the European restructuring, it was Mr Thursfield, a 57-year-old Briton, who drove through the plant closures, job cuts and a shift to so-called "flex manufacturing". One sign of the renewed focus on top management came on Friday, when Ford replaced the head of its struggling Lincoln and Mercury brands after only a few months in the job.

Allan Gilmour, chief financial officer, said that top management would not be eligible for pay rises next year. Ford would also be cutting the number of senior executive positions by 12 per cent to 46 by the end of next year.

Indeed, Lincoln and Mercury's problems strike at the heart of why Ford's restructuring is behind schedule. The group's recovery is based on a plan to launch 20 new products across all brands each year for the next five years, at a cost of $7bn a year.

Yet it is struggling to keep vehicle development costs down. Mr Gilmour said Ford was about six months behind in reducing material costs by $3bn by the middle of the decade.

"They've started adding a lot of features to vehicles and they thought they could 'price up' for them and cover that with warranty costs," says Wendy Needham of Credit Suisse First Boston. "But because they were not paying attention to manufacturing and since warranty costs were not dropping, it was harder to cover those costs."

Although Ford returned to a $570m profit in the second quarter - its first since a $5.45bn loss for the whole of 2001 - management cannot attribute as much of that to the restructuring as it might like.

Gary Lapidus, auto analyst at Goldman Sachs, estimates that 56 per cent of the second-quarter figure was due to improved performance at Ford Credit, the financing arm.

Given that Ford has changed its chief executive, finance director (twice), head of purchasing and head of premium brands in the past year, any further major upheaval would un-nerve Wall Street. It therefore appears likely that the existing management team will be given a further six months to lay the foundations for recovery.

The test will come in the third and fourth quarters of the year, when traditionally slower summer sales and aggressive autumn pricing - led by rival General Motors - could damp any top-line improvement.

The question is how long Sir Nick will have to prove whether his initial "revitalisation" plan is paying off. Another colleague of Mr Ford, who declined to be named, said: "It remains to be seen how David Thursfield does and how Bill gets along with him. He is the obvious person to take Nick Scheele's job when he retires."