 Profit growth at Ford's auto division needs a bit of a bump start |
US car giant Ford plans to cut the number of suppliers it uses by more than half to stem a slide in profits. Ford is expected to reveal the plans on Thursday, and they will cover the $35bn (�20bn) it spends on 20 key products.
The firm wants long-term contracts with the suppliers it keeps, giving them the high volumes needed to push down prices on items like seats, tyres and bumpers.
Ford, which has about 2,500 suppliers, said it expects cost savings to start filtering through by the end of 2008.
No estimate for the size of the cost cuts was available.
Delivering the goods
The plans have been reported by the Wall Street Journal and Bloomberg, and are being heralded as a major shake up.
By the time Ford has finished its cull, it will have two or three suppliers per product worldwide instead of the current 10.
Analysts gave the plans a mixed reception, saying that while Ford needed to take steps to improve its business, it already had failed to deliver on ambitious promises in the past and would need to change its corporate culture.
At present, its purchasing department is driven by the ethos of wringing out lower prices from suppliers and juggling short-term contracts, the Wall Street Journal said.
Its new approach will be based more on partnership and is likely to lead to Ford shouldering more of the suppliers' research and development costs, the paper said.
The new plan is based more on the Japanese model of purchasing, employed by carmakers such as Toyota.
Ford and its US peers General Motors and DaimlerChrysler are losing market share to Japanese rivals, who are proving so successful that one producer even considered raising prices in order to avoid possible trade sanctions.
Tough times
In April, Ford issued a profit warning, saying it would not meet its 2005 targets. The company, like many others, now relies on its loan and financial product business to drive growth as it struggles to deal with lower-priced rivals, soaring healthcare costs and high raw material prices.
In an effort to revive its business, Ford has been selling non-core assets, including car hire firm Hertz, and cutting jobs.
The move also comes at a difficult time for car industry suppliers as manufacturers try to squeeze out the last drop of savings.
Earlier this month, Ford said it would take control of 23 US and Mexican facilities belonging to its main parts supplier Visteon, which had run into financial difficulties.
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