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The following story came out today:Ford posts worst loss in its historyFord struggles greatly despite its storied corporate history in America. Henry Ford is one of the most highly regarded figures both in and out of the business world and his novel practices helped give his company an edge in the early days of a growing industry. Aside from his well-known institution of the moving assembly line at his plants (which reduced assembly from over 12 hours to less than 3 hours), he also instituted worker-friendly policies which helped reduce turnover among employees:
Turnover meant delays and extra costs of training, and use of slow workers. In January 1914, Ford solved the employee turnover problem by doubling pay to $5 a day ($103 per day in 2006 dollars), cutting shifts from nine hours to an eight hour day for a 5 day work week, and instituting hiring practices that identified the best workers. Thus, it pioneered the minimum wage and the 40 hour work week in the United States, before the government enacted it.
http://en.wikipedia.org/wiki/Ford#Early_developmentFast forward to the next century and we have a different Ford which struggles to survive:
In December 2006, Ford announced that it would mortgage all assets, including factories and equipment, office property, intellectual property (patents and trademark), and its stakes in subsidiaries, to raise $23.4 billion in cash. The secured credit line is expected to finance product development during the restructuring through 2009, as the company expects to burn through $17 billion in cash before turning a profit. The action was unprecedented in the company's 103 year history.
http://en.wikipedia.org/wiki/Ford#Post_World_War_II_developmentsSo why the turn around? How has Ford gone from a pioneer in automotive industry to one which posts huge losses and closes plants? Do we have globalization to blame (i.e. cheaper, more efficient imported cars) or is there something fundamentally flawed with the way Ford does business now as compared to its early glory days?
I posted a link to this topic over at NJO to spur some discussion about this. I think this is a very important topic and I would like to hear some answers. I work for a company that supplies Ford and so it does personally affect me as I am laid off right now.
I think it's the global market thats causing Fords problems. They have so much more competition from around the world then they did when Henry was the boss. Not to mention he was the industries innovator, which is not the case now. But this is not just limited to Ford. Gm was in a a tail spin for a while as well and are only just now coming out of it. I think American Auto makers as a whole have suffered qiute a bit in the last decade. P.S. Hey Donnie I own three cars and there all Fords, So I'm trying to do my part. 😀
As KJ mentioned over at NJO, I think the usual suspect would be unionization. Although unions have their place in certain industries and geographic regions, it seems that (in theory at least) auto unions can be detrimental to the overall success of auto makers. In sum (and based on my understanding) they a) create inefficiencies by removing flexibility from work processes and b) force wages to a point which may be overly detrimental to the overall business entity. I think the general idea behind unions is to give employees a form of leveraging power to be used against extremely large corporations. While it's good that employees would have such a voice and power in the face of huge companies, it seems that unions would not be as necessary in developed nations which a) contain laws regulating many aspects of employer-employee relations, and b) offer a variety of alternative jobs where employees could work at. Of course if unions are to blame, it would be ironic given Ford's early pioneering in excellent employee treatment.
I'm not so sure it's just about unions, but if I had to guess, that would be a big reason. Not sure about the UAW, but a lot of American companies have to raise their prices because they are unionized, especially now with the health care costs. (unions, I think, are a big reason we are losing competitiveness in the global market). Just a sidenote, I don't think unions are necessary anymore now that we have OSHA and other regulations.As Stumpfoot said, there's a lot of competition out there and kyfatboy at NJO made an excellent point, their cars, as well as most American made cars, are just not reliable and not as good a prouct. That itself could very well be the main cause of it's demise.It's unfortunate how much this is going to affect other industries. I'm glad my company isn't involved heavily in the auto industry (as long as defense spending stays high, my job's pretty secure), many in the same industry I'm in deal a lot with the auto industry and I know it's going to affect them greatly. It already has.
The Toyota plant in Georgetown, Kentucky is trying to unionize. The big wigs at Toyota though are doing everything in their power to discourage it. I think they see how the American auto makers are so straddled down with benefit packages, buyout clauses, and rising healthcare costs, they don't want to align themselves with a union who will force them to match other companies who are declining. I can't say I blame them because the American formula has turned out to be a recipe for disaster in my humble opinion.
This is from 2001. I don't know if anything's changed. (and I can't believe I'm using a CNN link :-o)
Toyota remains un-American, at least as far as the auto industry is concerned, in one key aspect: it is a nonunion shop, a status that is also subject to intense discussion in local communities. Roger Myers, a county commissioner in Indiana who helped bring Toyota to Princeton, was a longtime executive of the United Mine Workers union and sees the new truck plant as a fertile ground for labor organizers. "I know the jobs have to be there before the union is there," Myers says, "but this is still a union community. I think there will be an attempt to organize the plant. Without a doubt, there will be."
and from a more recent article
Workers in Toyota's US plants have never voted for a union, and some observers believe that union work rules would impede its vaunted just-in-time production system.
My firm is a just in time supplier and so are the Ford plants in Louisville. I don't see how that argument holds. Having a union doesn't really affect the just in time system believe it or not….I originally thought it did, but having worked in a union plant, I can tell you that people stilll work hard and fast because even with a union, there are company people in the midst.
Wish I could say the same for the union guys in my company. My problem with them is the seniority issue, although management is at fault for letting them get away with as much as they do.Thinking about the health care issue: It is so expensive now, and many unions have contracts demanding the companies still pay 100% of it, and I think that is hurting a lot of companies.
Funny, of the big three, Ford is saying they may not need the bailout…I'm sure they'll take it just the same.
I'm not surprised. Ford began their restructuring process long before the other two realized they had serious problems too. The Explorer tire recall and 911 really set things in motion for Ford's downward spiral, but the up side is that they were the first to begin correcting problems. So by being hurt first, they will be the first to heal. If Ford uses their portion of the bailout funds properly, they could position themselves to recover nicely. At least that's my theory and hope.
Surprise, surprise: Ford says does it not need short-term loans from bailoutDoes this change your perception of Ford Motors?
It is my understanding that Ford has done a lot to position themselves to turnaround in the last few years. Wasn't the first part taking Henry Ford's heirs off the board?
