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Ford Stock Struggles After US Auto Giant Reveals Aggressive Downsizing Plan

Last Updated September 23, 2020 12:44 PM
P. H. Madore
Last Updated September 23, 2020 12:44 PM

By CCN.com: Ford is in the throes of an $11 billion restructuring, which will cost 7,000 white-collar workers their jobs this year . The US auto giant believes the “smart redesign” will save billions, but the Dearborn-based company’s stock continues to struggle.

Ford’s ‘Smart Redesign’ Will Save Billions

Reportedly, the company is vastly downsizing its managerial workforce. Of the company’s more than 190,000 employees, roughly 70,000 serve in salaried positions. Collectively, Ford’s savings will total close to $600 million per year.

According to the Detroit Free Press, who obtained a memo from Ford CEO Jim Hackett this morning , the company has been advised that a 1:8 ratio of managers and employees is ideal. Hackett says in a memo that the “Smart Redesign” involves a massive reduction in bureaucracy:

“Our average span of control for managers will have increased from five direct reports to more than seven, reducing management bureaucracy by one-third.”

An anonymous employee said of the move :

“They indicate that our optimal structure would be to have one manager with eight people working under them. So people that are well connected have been scrambling to rearrange heads, create new positions in order to appear like they have the ‘right’ number of people working for them.”

A total of 7,000 white-collar workers are scheduled to lose their jobs, many of whom have already accepted voluntary buyout packages. Over 2,000 of them will be in the multionational’s North American operations. Around 500 people will undergo “involuntary” separation this week.

Some employees feel the company’s buyout options have been “generous,” with one writing on thelayoff.com:

“Ford is being generous giving these big severance packages. Remember the company is still struggling in many markets. A recession is inevitable. If they can get to an equilibrium with the right employees in the right spots at a manageable number, they hopefully won’t have to do a mass layoff when the recession happens.”

Separations in North America will complete this week, but other regions will take until August to wind down. About a third of the total white-collar workforce being laid off comes from Ford’s North American operations.

Aggressive Downsizing Fails to Reinvigorate Ford Stock

GM stock reportedly spiked when it laid thousands of workers  last year and early this year, but Ford has so far not seen any particular gains.

The company announced its layoffs amid a bearish Wall Street which is responding to aggressive trade war tactics between China and the United States.

ford stock price chart
Ford stock traded down after the aggressive downsizing plans failed to inspire investors. | Source: Yahoo Finance

As of the time of writing, Ford stock had lost 0.24% on the day. F shares last traded at $10.26, more than 15% off their 52-week high.

Peak Car Exacts a Price: Ford and Others Must Get Lean and Mean

Hackett also mentioned that the company has identified 5,000 ways to improve its processes, meaning that the managers who remain will be adapting to an entirely overhauled company.

Ford’s layoffs have been rumored for months, and while the company reported moderate sales in its last quarterly report, the company must address what some analysts are calling “peak car.”

The global automotive market is overwhelmingly saturated, making it difficult for traditional manufacturers to continue growth. The stalwart American icon has diversified its interests in various ways, including acquiring an e-scooter company and aggressively pursuing the electric car market.

The restructuring move is not a direct response to a lack of growth, but a hope to refit and adapt to the consumer market’s changing appetite for automobiles.