What’s next?

After a year of delays and missteps, Ford Motor Co. employees are warily awaiting details of CEO Jim Hackett’s promised “fitness” plan and whether it means job losses — as investors look for signs of hope.

Does $11 billion planned in "restructuring charges" over three to five years mean thousands of worker buyouts, as suggested by market analysts?

Will the money-losing European division face thousands of job cuts as the Sunday Times of London just reported?

Is default a real risk, after Moody’s Investment Services downgraded the Ford rating to just above junk status last week?

And what about Ford’s continuing struggle in China, the world's largest auto market? Can it ever gain traction?

“The problems for Ford now aren’t financial, they’re strategic,” said Marick Masters, a business professor at Wayne State University.

“The company needs to adjust to an industry changing rapidly, and no one knows where it’s going to end up in 10 to 15 years and who the major players will be. There is concern about whether or not it is being led in the right direction.”

No one knows what to expect from the Dearborn automaker — except its promise of more trucks and SUVs and the probability of significant job cuts with its restructuring.

Jon Gabrielsen, a market economist who advises automakers and auto suppliers, said Ford simply can’t achieve its goals without cutting salaried jobs “quite significantly.”

In recent weeks, Morgan Stanley analyst Adam Jonas projected a 12 percent cut in Ford staff worldwide.

“Ford’s operations need restructuring. We do not see restructuring at Ford as a ‘nice to have’ … but as a crucial step to set the global business on a more balanced footing,” Jonas wrote on Aug. 20.

Bob Shanks, chief financial officer at Ford, declined during an interview Wednesday to comment on the job cuts forecast. He acknowledged that the term restructuring, generally, suggests "workforce reduction and closures."

"We do understand the concerns that they have and that they're expressing. We're not deaf or blind," he told the Free Press. "This is a company that's been successful for quite a long time."

He continued, "A year ago, we started a journey that's going to be a very fundamental redesign of our traditional auto business. It's a huge, huge transformation."

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'Isn't what it needs to be'

"We're looking at a major redesign in our business, particularly overseas markets. That performance is not good. After years of hard work, restructuring, new products and changes, it just isn't what it needs to be. Parts of the business are very attractive and profitable, but too much are not. The bottom line is unacceptable."

He acknowledged "frustration" and promised to announce things "along the way."

"We have done enough work that we know the redesign will result in what we call restructuring," Shanks said. "We clearly have not been forthcoming in terms of any specific actions. But we have a very clear idea of where we're heading."

Market analysts are openly annoyed.

“It’s all very vague,” said Ivan Drury, senior analyst for Edmunds. “I mean, last Friday, with no notice, they changed their plans again and just killed the Ford Focus Active. Even if it’s made in China, people want to buy the same car over and over again. Now they can’t.”

He added, “What is the actual path for Ford? It’s hard to see. There are a lot of trees and weeds and they need to take a machete and really clear that path for consumers and investors.”

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Jonas has been harsh with Hackett publicly, pressing him for details, openly criticizing him for canceling an investor briefing and asking him directly in August whether he would be around to explain details.

Hackett, whom Ford declined to make available for this article, emphatically replied to Jonas that he has no plans to leave.

No one can be sure whether Ford is strong or weak at this point, said Stephanie Brinley, a senior analyst at London-based IHS Markit.

“All the changes with the restructuring aren’t yet clear,” she said. “Some of the changes they’re waiting to implement, others (they) have already done. Volkswagen and General Motors are on their way, and to a lesser degree Toyota. In some respects, Ford is just cleaning up.

“It doesn’t seem like Jim Hackett has been embraced by the community at large as quickly as others," Brinley said. "The jury's still out."

Bet on this management?

Jonas emphasized that Ford’s $11-billion cost projection is “materially larger” than the previous $8.5 billion that analysts expected, and the lack of an investor update “contributed to investor anxiety.”

“Investors need to weigh the risk of betting on management delivering on an unknown plan that may take three to five years to play out … opening up to a range of potentially adverse economic and credit scenarios that could impede execution,” Jonas wrote.

“At this stage, we have assumed a global head-count reduction of approximately 12 percent. Such a magnitude of reduction is not without precedent in the auto industry and is coincidentally in line with market reports in 2017.”

Ford employs about 202,000 people worldwide. Analysts estimate separation costs, also called buyouts, to be roughly $120,000 per employee for Ford. Volkswagen announced its restructure plan two years ago and targeted 30,000 job cuts over five years at about $135,000 per employee, Jonas said.

“Decisive strategic actions and a cessation of negative revisions can improve investor confidence in management,” Jonas wrote in his forecast.

While Fiat Chrysler presented a five-year plan, Ford has been mum.

General Motors has already pulled out of Europe, earning praise for CEO Mary Barra.

About 300 of its top executives gathered last week in Dearborn for a global leadership meeting. The company declined a Free Press request to attend, as the meeting involved proprietary information. Company officials point to their ability to avoid the bankruptcy that befell GM and what then was Chrysler and build a $25-billion cash reserve.

To be sure, Ford is making money, having an earned adjusted pretax profit in 2017 of $8.4 billion. But second quarter 2018 profits were off 50 percent from the year before, and the stock price has been on a downward trend for four years.

Concern is abundant.

“Everybody was shocked when Ford said it was going to spend $11 billion to restructure,” said John McElroy, a longtime observer of the auto industry and host of "Autoline This Week" whose father retired from Ford.

“I think it caught Wall Street by surprise," he said. "Ford previously announced it would go through restructuring as it improves the fitness of the company, but I don’t think anybody expected it was going to cost so much to do it. Those numbers come from having to close down plants and get rid of people. This will be done through buyouts."

Treading water globally

Ford’s problems appear to be growing in Europe, South America and Asia.

“Look, Ford is treading water right now,” McElroy said.

Shanks said Ford will, "at the appropriate time, provide an overall narrative" and offer "proof points" to explain actions designed to improve the company. "It's not all doom and gloom. We're actually making a lot of progress in many parts of the business."

In fact, the company's August 2018 sales were up 4 percent from a year before and the profit-driving F-Series truck line is selling at a record pace for the year.

Academics and industry analysts said that Ford has a reputation for cyclical bad strategy and eventual recovery, but it’s painful to watch.

“Ford goes through these transitions over time. They run into problems and then figure a way out of it, more than other auto companies,” said Robert Wiseman, senior associate dean at the Eli Broad College of Business at Michigan State University. “Will analysts be patient? I’m not sure.”

He bristled when asked whether Ford might cut dividend payments to stockholders, a mechanism that provides a nice return despite a chronically low stock price that pales when compared with General Motors.

“That’s one of the reasons the stock has been worth investing in,” Wiseman said. “I still own General Motors and Ford. GM has done well and Ford is taking a beating. I hope the restructuring will produce savings in the long run.”

The shift from sedan production to trucks is going to cost money, analysts agreed.

“Product is key,” said Dave Sullivan, manager of product analysis at AutoPacific Inc.

“Ford can't cut their products in hopes things will turn around. They have to either have a profitable lineup or pull out. This is especially true in South America. GM couldn't find the magic formula with Opel and made a very bold move. The glory days of diesel in Europe are gone and now Ford looks to be behind on the electrification front in Europe. Ford has gotten rid of Volvo, Jaguar, Land Rover, Mazda and Aston Martin. Is Ford looking to mirror their lineup after Jeep and Ram? Europe is really a tough place ... with some very attractive products with outstanding value.”

While the F-Series truck franchise is a cash cow in North America, Ford lacks any comparable product overseas.

“It's hard to imagine Ford swallowing a pill like pulling out of South America or Europe but, at some point, the question is going to come up," Sullivan said. "Is Ford positioned for the next downturn in these markets?

"I do have hope that Ford and VW will quickly be able to pull something together to share developments costs (as is under discussion), but even then, it's going to be years to see substantial fruit from that. Maybe Ford could help VW with commercial vehicles in the U.S. and VW could help Ford with cars and electrification in Europe. It's not the first time Ford and VW have worked together, but it's something that should have happened eight years ago.”

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International media coverage of Ford’s purchase of the Michigan Central Station has been positive, spotlighting the site as a recruitment tool for top talent in the industry. But observers worry about cash flow.

After nearly a year of waiting for Ford to speak up, one analyst said, “Wall Street patience is hanging by a thread.”

Ford pins all its hopes and dreams to the multibillion-dollar profits of its F-Series pickups.

“But North America can’t hold the water forever,” Sullivan. “The next economic downturn or supplier fire or global incident or trade meltdown could cause something tragic to happen because of the importance of the F-Series. They can’t sell those in Europe, South America or China. So what do you have that makes money in those markets? You can’t just continue in markets for the heck of it.”

Ford lost $73 million in Europe between April and June 2018.

And the sunny forecast for North America is expected to dim.

“Competitors will chip away,” Drury said. “FCA has had production issues with Ram, getting all the engine types available for consumers. But we’re seen on our website that the F-150 consumers are looking at the redesigned 2019 Ram 1500. There’s interest among consumers. In the large truck segment, loyalty is king. And the Chevrolet Silverado is coming, too.”

As the 115-year-old company focuses on electrification and connectivity, it faces uncertain outcomes, said Kristin Dziczek, vice president of the Industry, Labor & Economics Group at the Center for Automotive Research in Ann Arbor. She worried that layoffs could cut too deeply.

“Ford has a lot of bets they’re making,” Dziczek said. “Everyone knows an economic slowdown is coming. A lot of companies are making preparations. I just don’t know how you gut everybody and still get the job done.”