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Hazelwood, Mo., Ford Plant Keeps Open a Wary Eye

Posted on: Thursday, 20 October 2005, 18:00 CDT

By Gregory Cancelada, St. Louis Post-Dispatch

Oct. 20--Two years ago, Ford Motor Co.'s assembly plant in Hazelwood survived plans to close it after an intense state and community campaign persuaded the company to keep it open through 2007.

Now, the Hazelwood plant may be forced to run a similar gantlet after Ford rolls out a restructuring plan late this year.

Excess production capacity continues to weigh heavily on the automaker. The plant in Hazelwood, where about 1,450 people work, is among the company's most vulnerable facilities.

Ford has yet to make final its restructuring plan, though analysts hope it will disclose some details today in its third-quarter earnings announcement.

Analysts believe that Ford must close at least two of its 19 assembly plants in North America, though more closures would be better given Ford's declining sales and profitability. Ford can't close any facilities until its contract with the United Auto Workers union expires in September 2007.

Forecasting firm Global Insight Inc. of Waltham, Mass., expects Ford's share of U.S. auto sales to drop to 18.5 percent this year, compared to 19.4 percent last year. The firm sees Ford's market share falling to 17.9 percent next year.

Higher gasoline prices in the last year have accelerated the sales decline as consumers flock to fuel-efficient cars or smaller "crossover" vehicles rather than Ford's lineup of pickups and sport utility vehicles. That lineup includes the Explorer and Mercury Mountaineer SUVs assembled at Hazelwood and in Louisville, Ky.

In the first nine months of this year, Explorer's U.S. sales stood at 196,878 units, a decline of 24 percent from a year earlier. If that trend continues for the rest of the year, the Explorer could post its lowest U.S. sales volume since 1991.

Ford's biggest challenge has been dealing with the decline in SUV sales, said Scott Sprinzen, an automotive analyst at New York-based debt-rating agency Standard & Poor's Corporate Ratings.

The automaker has lost a lot of market share and that has created quite a bit of slack in manufacturing capacity, Sprinzen said.

However, Ford can't put all the blame on higher gasoline prices, said George Magliano, director of automotive-industry research for the Americas at Global Insight.

"A large problem is product," he said. "They definitely got stuff coming down the pipeline, but the question is whether it's good enough for the consumer."

Meanwhile, Ford continues to face the rising costs of providing health care for retirees and workers as well as higher operating costs than its Japanese competitors, a problem also faced by General Motors Corp. and the Chrysler Group of DaimlerChrysler AG.

Building more products with fewer plants and workers is one way Ford can cut that cost gap.

In January 2002, Ford announced it would close three assembly plants, including Hazelwood, and two parts plants. However, in September 2003, Ford announced that its plant in Lorain, Ohio, would be shut instead of Hazelwood. The announcement followed negotiations with the United Auto Workers as well as talks with state and local governments about an incentive package.

Now, however, declining sales again are forcing Ford to act.

This year, Ford's North American operations will operate at 73 percent of capacity, a level that's unprofitable for the automaker, said Catherine Madden, an analyst at Global Insight.

Even if Ford closes two assembly plants with a combined annual production of 400,000 units, capacity utilization still would rise only to a mid-80s percentage, she said.

Magliano believes the Hazelwood plant would be a prime candidate for closure because the facility only has one shift and Explorer production could be consolidated at Louisville given next year's expected sales volume.

Slumping sales already have led Ford to idle the Hazelwood plant for seven weeks this year as it trimmed Explorer inventory.

While Ford hopes that the redesigned 2006 Explorer will slow the sales decline, it plans to idle the plant next week and for an additional week in November to avoid building up too much inventory ahead of next year.

The Wixom, Mich., assembly plant also operates a single shift, a vulnerable position for any plant because a single shift is unprofitable. Other plants mentioned as possible closure candidates include operations in St. Paul, Minn., and Cuautitlan, a suburb of Mexico City.

Still, it's too early to speculate about the Hazelwood plant's future, said Hazelwood Mayor T.R. Carr. He's a member of the Ford Hazelwood Task Force, the group of state and local politicians, business and labor leaders formed in 2002 after Ford announced it would close the plant.

"What is 'obvious' is not necessarily true," Carr said. "There are a lot of decisions that are up in the air for Ford right now."

The region needs to focus on building a business plan that will encourage Ford to bring a new vehicle to replace the Explorer at the Hazelwood plant, he said.

"It's kind of like (Cardinal baseball player Albert) Pujols ... the game's not over, and we're going to stay at bat until we secure a future for this plant," he said.

While the automaker has been silent about its long-term business needs, Ford hasn't signaled that it wants to close the facility, said the task force's project director, Patrick McKeehan.

Meanwhile, Gov. Matt Blunt recently communicated with Ford about Missouri's commitment to the automaker and its interest in continuing its long-term partnership, McKeehan added.

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Source: St. Louis Post-Dispatch

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