CASE STUDy 2: THE TURnAROUnD AT FORD For the past several years, Ford has been g

Question

CASE STUDy 2: THE TURnAROUnD AT FORD
For the past several years, Ford has been going through difficult times. The compa- ny’s share of the automobile market continues to shrink, and its cost structure has contributed to financial losses. In 2006, 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 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 has 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 to reduce labor supply were:
• 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.
Recently, Ford has extended these tactics to further reduce the size of its workforce and ongoing expenses through means such as the following practices:
•   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 is to cut jobs, to also reduce its ongoing pension expenses, to position itself to be more competitive in the market, and align its labor capacity with the demand for its products.
Discussion Questions
1. What factors have contributed to the large-scale labor surplus at Ford?

2. Ford has decided to pursue employee buyouts and attrition in an attempt to
shrink its workforce to match its productivity demands. Why do you think Ford is using these two tactics? Do you think these are the best options for Ford to achieve its goals?
3. What are the downsides of these two approaches? Are there any other approaches you might recommend to address its labor surplus?

Explanation / Answer

The factors that contributed to the labour surplus at ford are

Ford is doing this buyouts and attrition to reduce the labour costs that is stacking up much of its expenses. Just by asking the employees to quit may not be the best option for any company to reduce the labour cost. Instead they could look at other venues to increase sales and therby boost up profits. Have a lean production facility there by reducing the production cost. After everything is done, cutting the employee cost must be last option.

The downsides of these two approaches are that it will tarnish the image of the company in the society and in that particular country. Even if the company's sales is picking up and the future is looking bright, once the employees are asked to leave, you will not get quality work force later. Other methods that could be used are increasing the sales by providing the low cost manufactured product. Going in for lean manufacturing system.

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