Ford Makes Very Tough Decisions

Mark Zuckerberg, chief executive of social-media giant Meta Platforms, called it efficiency. 

The year of efficiency he called 2023, to sum up the drastic cost cuts he has ordered since Nov. 9 at Meta. This austerity has eliminated 21,000 jobs -- for the moment. 

Efficiency, or cutting jobs, to preserve profits has become the corporate creed in the face of the economic downturn and rising interest rates. 

It was Elon Musk who led the way by cutting more than two-thirds (69%) of Twitter's 7,500 jobs when he acquired the microblogging platform in October. The billionaire had bet that the platform could produce the same results with fewer people. 

Since then, plenty of other companies have followed suit. 

Ford is now poised to ride this trend as the Dearborn, Mich., automaker's costs are higher than those of its rivals. Each year it spends about $7 billion to $8 billion more on its business than its rivals do due to warranty expenses and supply-chain management.

Ford Model e Could Be Affected by Job Cuts

Ford  (F) - Get Free Report is preparing to announce a new round of job cuts, according to The Wall Street Journal. This could involve thousands of jobs and should affect salaried workers in the U.S. 

The cuts will affect both car manufacturing divisions, according to the newspaper. Ford Blue, focused on internal combustion engine, or gasoline, cars, remains the main driver of profits. Ford Model e, the unit developing electric vehicles and software, will also be affected, even though it is seen as the future of Ford.

The goal is to cut costs and streamline operations, the Journal reported, adding that the announcements could come as soon as next week. 

"We have nothing to announce," a spokesperson told TheStreet. "We’ve consistently said that we'll align staffing around the skills and expertise that are needed to deliver on the Ford+ growth plan and provide customers with leading product and services. That includes hiring in key areas," he added.

But if these job cuts are confirmed, it would be the second round of layoffs within the group in a year. Last August, Ford eliminated 3,000 salaried and contract jobs, mostly in North America and India, in a bid to pare $3 billion or more costs from its business by 2026.

Earlier this year, Ford launched a reorganization of its European factories. That was  marked by the elimination of 3,800 jobs in Europe, almost 11% of Ford's workforce on the Continent, to create "a leaner, more competitive cost structure." By 2025, Ford plans to resize its European engineering footprint, resulting in 2,800 fewer jobs.

These changes are driven by the transition to fully electric powertrains and less-complex vehicles, the company explained in February.

The cost cuts are not arbitrary but strategic, to make the business more competitive beginning now, the carmaker has said. Inside Ford Motor is the belief that the company can be something in between a startup/disrupter and a legacy carmaker, setting the company apart in the industry.

Ford, which hinges its future on the widespread adoption of electric vehicles in the coming years, has seen the costs of assembling these less polluting vehicles soar because of sharply higher raw-material prices and disrupted supply chains. 

Ford Has Ambitious Goals; but Costs Increase

It plans to produce 2 million EV units per year by 2026, more than triple the expected 600,000 by the end of 2023. In total, Ford plans to spend $50 billion on electric vehicles between 2022 and 2026. It had previously planned to spend $30 billion in the five years ending in 2025. 

Manufacturing an electric vehicle, however, costs much more than a vehicle powered by a gas engine. 

Ford’s Mustang Mach-E electric SUV, with a starting price around $42,995, costs about $25,000 more than a comparable Ford Edge gasoline SUV, CEO Jim Farley said last year. The battery cost alone is $18,000, and the charger adds another $3,000.

In addition to these costs, Ford, like most companies, faces rising labor costs.

All these investments are currently not profitable. Ford Model e recorded a loss before interest and taxes of $700 million for the first quarter. This is $100 million more than in the fourth quarter of 2022. 

The margins are also in the red. The margin based on earnings before interest and taxes), which enables investors to assess the true costs of the activity, was negative 102.1%. This is more than twice as much as in the fourth quarter of 2022, during which the EBIT margin was negative 40.4%.

In April, the Blue Oval said it expected an operating loss of $3 billion for Ford Model e this year. This would be more than the $2.1 billion operating loss recorded in 2022.

The automaker is optimistic, however, expecting positive operating margins in 2026. The EBIT margin should be 8%, Ford anticipates.

The new austerity package would come after rivals General Motors  (GM) - Get Free Report and Stellantis  (STLA) - Get Free Report made similar moves by offering employee buyouts.

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