Peter Viles: Impact of Ford cuts uncertain

Peter Viles

Ford Motor Co. said Friday it wants to cut its white-collar workforce by as many as 5,000. CNNfn Correspondent Peter Viles examines various aspects of the move.

Q: Did Ford announce layoffs or early retirements?

A: Ford is offering what it calls a "voluntary separation program" for salaried workers, and says it will reduce the number of salaried jobs in North America by 4,000 to 5,000 by the end of the year, "largely through retirements." In other words, it's going to ask employees to leave, but appears to be holding out the option of telling some of them to leave.

Q: What kind of separation package will Ford offer these "volunteers"?

A: No details on that yet, but Ford says the job cuts will cost $700 million -- or roughly $155,000 per worker. That doesn't mean each "volunteer" will get an extra $155,000, but it does mean Ford is sweetening their retirement benefits in hopes of finding volunteers.

Q: What's the economic impact of cutting this many white-collar jobs?

A: The loss of higher-paying jobs can have a bigger economic impact than the loss of lower-paying jobs. That said, if some of these folks take early retirement, they probably won't show up as unemployed workers, even if their jobs disappear. The government considers you unemployed only if you're actively looking for a job and can't find one. It's likely that many of these Ford "volunteers" will simply retire.

Q: Why salaried workers and not hourly workers?

A: Union contracts often make it costly to lay off hourly, or factory workers. And Ford may simply feel it has too many white-collar workers. Some economists believe all of corporate America hired too many middle managers during the 1990s boom.

Q: Why is Wall Street punishing Ford stock today?

A: Because Ford announced a big reduction in its expected profits for this year. Wall Street analysts had been expecting Ford to make $1.20 per share this year; Ford said this morning it will earn only 70 cents. It blamed "lower volume" and "higher marketing expenses," which means sales are slow and incentives are high.

Q: What role does the Firestone/Explorer fiasco play in all of this?

A: It's not clear that it plays any role. Ford has already taken charges to pay for the tire replacements; it's possible that the negative publicity has hurt sales to some extent, and is contributing to Ford's "lower volume" of sales -- but Ford did not explicitly blame the Explorer for this major financial disappointment.