Smith Faculty Opinion Article	September 18, 2006
By Dr. Peter Morici, Professor of International Business EMAIL WEB SITE

The Way Forward Is Ford Running Fast Enough to Catch Up?

Ford has announced acceleration of its much touted "Way Forward." Unfortunately, it may slow the decline of this venerable icon of America's industrial golden age, but it is simply not enough.

In a nutshell, Ford's labor costs are too high, and consequently, it offers products with less content and pizzazz than Japanese competitors. Ford vehicles cost more to make and are less attractive than those offered by Toyota and other Asian companies manufacturing in the United States.

Ford is behind GM in cutting its legacy costs and its outsized blue-collar work force. The buy-outs for the blue collar workforce announced yesterday will help with legacy costs and in aligning its blue-collar workforce with Ford's market share. The Competitive Operating Agreements ratified by UAW locals at various Ford plants will help improve productivity, but the fact remains that Ford pays much more for each hour worked on the line than Toyota and other Asian transplants.

As long as UAW workers enjoy higher wages, retirement in their early 50s, and better health care benefits than virtually all other Americans, Ford engineers have to be supermen to match their Japanese rivals in vehicle technology, content and quality. Ford's offerings provide no evidence of such super-human abilities.

The reductions in white collar employment in many ways recognize that Ford cars do not command a high enough price to both cover higher labor costs and provide enough margin to invest in new products. Ford has gone through success cycles like the Way Forward.

All attention should be focused on the 2007 Ford - UAW negotiations. Are Ron Gettelfinger and his colleagues ready to agree to a contract that aligns Ford's costs with Toyota's labor costs? That would require radical changes in retirement and health care benefits. If the UAW is not willing to change its tune, Ford will be going through all of this again three years from now, and Ford will disappear like a large block of ice in the summer sun.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.