Ford is gearing up for austerity.
The first bad news of the year for the employees has just come in. The automaker will cut hundreds of jobs this week in North America, specifically in the U.S. and Canada.
The Dearborn, Mich., company says jobs will be eliminated in all three divisions -- Ford Blue, Ford Model e and Ford Pro -- but has not specified how many positions will be cut.
"The actions we’re taking this week in the U.S. and Canada are mostly (but not only) related to engineering roles, and to different degrees are across all three of the automotive business units and functions that support them," T.R. Reid, a Ford spokesperson, said in an emailed statement.
"People affected by the changes will be offered severance pay, benefits and significant help to find new career opportunities."
Job Cuts in Line With Ford+ Strategy
Reid did not say how many people will be affected, nor did he provide details of the job cuts by country.
"We continue to review our global businesses and may take additional restructuring actions where a path to sustained profitability is not feasible when considering the capital allocation required for those businesses," Chief Executive Jim Farley recently said.
The job cuts are part of Ford's overall strategy to turn the company into something of a giant startup.
In 2021, Ford (F) unveiled a strategic plan called Ford+ and updated it last year. This road map separated the company's operations into three units: Ford Model e, focused on developing electric vehicles and related software, Ford Blue, which brought together the activities of gasoline (internal combustion engine) vehicles, and Ford Pro, dedicated to fleet customers.
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.
"Delivering on that plan includes adjusting staffing to match focused priorities and ambitions, while raising quality and lowering costs," Reid said.
These job cuts are Ford's first for 2023 and the second round of layoffs 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 in costs from its business by 2026.
Earlier this year, Ford launched a reorganization of its European factories. This 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.
Ford Has Tied Its Future to Electric Vehicles
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. Ford'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, 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.
Manufacturing an electric vehicle costs much more than a vehicle powered by a gasoline engine.
Ford’s Mustang Mach-E electric SUV, with a starting price of around $42,995, costs about $25,000 more than a comparable Ford Edge gasoline SUV, 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 in the first quarter. This is $100 million more than in the fourth quarter of 2022.
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.
Ford joins two other members of Detroit's Big 3, which have already announced job cuts in the form of buyout programs offered to their employees.
For GM (GM) it was in the first quarter, while Stellantis (STLA), formerly Fiat Chrysler, said in April that 33,500 U.S. employees were eligible for a voluntary-departure program.
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