The Ford Motor Company (Ford) has been going through difficult times and recovered more than once. The company’s share of the automobile market continues to shrink, and its cost structure has contributed to financial losses. In 2006, following a shrinking share of the automobile industry and a cost structure that contributed to financial losses, 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 shares dwindled and in 2007, its share was 14.8%—down from 26% in the 1990s. In an effort to match its production with the demand for its products, as well as address concerns with its high labor costs, Ford has focused on trying to get smaller to achieve long-term success in the automobile industry. One of the primary ways for Ford to achieve this goal is to take further steps to reduce the size of its workforce. Ford’s workforce went from 283,000 employees in 2006 to 171,000 in 2013. Ford then announced a new round of buyouts and early-retirement packages to its workers in an effort to cut costs and replace those leaving with lower-paid workers. Some of the offers made to reduce the labor supply in 2013 included:
Workers who were eligible for retirement would receive a $50,000 offer, higher than the $35,000 in the previous round of buyouts.
Skilled-trade workers, such as maintenance workers, would get an additional $20,000, bringing the total potential payout for such a worker to $70,000. Following the 2013 round of buyouts, Ford extended its tactics to reduce the size of its workforce and ongoing expenses further through means such as the following:
Extending a buyout option for its 78,000 employees and special incentives for its 40,800 workers who are eligible for retirement to retire sooner rather than later.
Offering a lump sum payment for 90,000 retired engineers and office workers to forgo their regular monthly pension check for the rest of their lives.
The automaker’s goal in offering the company-wide buyouts was to cut jobs, reduce its ongoing pension expenses, to position itself to be more competitive in the market, and to align its labor capacity with the demand for its products. In 2018, Ford announced that by 2020 around 90% of Ford’s sales in North America would be trucks, SUVs, and commercial vehicles. The only two cars to be manufactured in North America would be the Mustang and the Focus Active Crossover. The company has reallocated $7 billion of its research funds from cars to trucks and SUVs.
Answer the following questions:
What factors have contributed to the large-scale labor surplus at Ford?
What impact is the most recent strategic plan at Ford likely to have on the company’s labor supply?
Over the years, Ford has decided to pursue employee buyouts and attrition in an attempt to shrink its workforce to match its productivity demands. Why do you believe Ford uses these two tactics?
Do you believe these are the best options for Ford to achieve its goals?
What are the downsides of these two approaches?
Are there any other approaches that you might recommend to address its labor surplus?
Sample Solution
