FT: Ford Looks for 20% Cost Cuts

April 7, 2003; James Mackintosh, FT Motor Industry Editor reported that Ford is trying to cut 20 per cent - or $6bn - from its administration and marketing budgets over the next two years as the carmaker accelerates its $9bn cost-cutting plan in the face of poor car sales and investor scepticism.

The company, which lost $5.4bn in 2001, said nine cost-cutting teams had each been asked to save 20 per cent from non-product costs, a total of $6bn.

The implementation of the cost reduction teams follows a pledge last autumn by Bill Ford, chairman, to speed up the revitalisation plan, which aims to make $7bn of pre-tax profit by mid-decade.

If the company hits the 20 per cent savings target this year and next it would have fulfilled the non-product part of the medium-term plan earlier than analysts expected. However, the company warned that it was not predicting early achievement of the plan, and that maintaining vehicle quality would take precedence over the 20 per cent target.

"This is probably the most ambitious cost cutting initiative ever in our 100 years," said Jim Bright, a Ford spokesman.

The cuts are designed to leave untouched the bold car and truck launch programme, on which Bill Ford, the chairman, is pinning his hopes for a recovery in revenue.

Ford has met widespread scepticism from investors about its plan to break even in its loss-making automotive division this year, a move it hopes could lead to full year earnings of 70 cents a share. Last year only Ford Credit, the finance arm, was profitable.

But analysts pointed out that the rapidly rising discounts and special finance deals for car and truck buyers were eroding income, meaning cost reductions were needed just to stand still. "It's two steps forward and one step back," said one.