Ford case highlights the costs of inward and outward investment

The recent decision by the Ford Motor Company to reduce employment at its Halewood plant in the UK, and to produce a new-model Ford Escort in Spain and Germany, raises questions about the effects that multinational companies (MNCs) have on nation states.

The Ford Motor Company announced on 16 January 1997 that it was to cut 1,300 jobs at its Halewood plant on Merseyside (in the north-west of England) This was after five days of speculation following a report in the Observer newspaper that Ford wanted to install new efficient working practices, and that it would threaten to build its new -generation Escort model elsewhere, or close the plant altogether if trade unions did not agree to concessions. It was confirmed on 16 January that production of the new-model Escort would not include Halewood but instead be located at Saarlouis (Germany) and Valencia (Spain), and furthermore that Halewood would also immediately reduce its shift pattern to one shift per day. Because production of the old-model Escort is due to be phased out by 2000, there appears to be a real threat of the plant closing down altogether

Why scale down Halewood?

The decision by the company came as a shock to an area which has already been adversely affected by the decline of the UK's manufacturing industry. However, the decision did not come as a surprise to many industry analysts: as far back as December 1996, company executives were reported in the Daily Telegraph as saying that an attack on costs in Europe next year was going to be a top priority. Arthur Meher, head of European forecasting at analysts, LMC International, was quoted by Reuters on 15 January as saying:

Europe is a black hole for Ford in terms of the money it is losing. It has too much capacity and the costs are above the level they should be. Maybe Ford wants to extract further productivity improvements in return for some job security.

According to trade union briefings, Ford's European operations turned a USD 269 million profit in the first half of 1996 into a USD 472 million loss in the third quarter of the year. This is compared to a USD 320 million loss in the same period in the previous year. Most of the losses were linked with sluggish demand, particularly in France and Germany. Ford sold 129,000 Escorts in the UK, worth GBP 1.575 billion, last year but it only produced around 85% of these in the UK. This situation is likely to worsen if production of the Escort ends in 2000.

Ford management has insisted that the decision to reduce employment at Halewood was all to do with over-capacity, stating that Halewood had to be sacrificed to reduce surplus capacity for the Escort model throughout European operations.

Fearing further cuts at other plants in the UK, as Ford went along with its plans to stem European losses, the unions responded by calling a ballot for industrial action, even though the company said that it would be looking at locating a new Multi-Activity Vehicle (MAV) project at Halewood. The unions argued that the MAV is still on the drawing board and is unlikely to be ready by 2000. Furthermore, the new investment in the plant would be contingent on the company receiving government aid, and the unions calling a halt to the strike ballot.

The company was asking the Government for about GBP 75 million, having already receiving GBP 72 million last year towards the production of a new Jaguar car. Ford had originally asked for GBP 80 million for the Jaguar project, but the sum was reduced when the European Commission objected to part of the plan.

Analysts also believed that Ford would be aiming to make cuts at its Cologne factory in Germany as, like Halewood, this plant is said to be operating below capacity. Worries were also fuelled that other British plants could be targeted for redundancies, especially the plant at Southampton which shares production of the transit van with Genk inBelgium. However, it was later confirmed by the company that Southampton would not be effected.

Responses to the job losses

Tony Woodley, the Transport & General Workers Union (TGWU) chief negotiator for the motor industry, said before the meeting with management on 16 January that "my job today is to make it clear to the company that any threat of the partial or eventual closure of the plant is unacceptable". Manufacturing, Science, Finance (MSF), the union for white-collar, technical and craft workers at Ford, argued that there had already been a high level of teamworking between management and unions, which had greatly enhanced Halewood's productivity and quality levels, and that any job losses would be a bitter pill for its members to swallow.

According to the unions, Ford says that there are three main reasons for the decision to produce the new Escort elsewhere: high costs, low productivity and poor quality. The unions dispute the validity of all three. They state that: each Escort is GBP 500 cheaper to produce in Halewood than in Saarlouis; operating costs are 5% higher than Halewood in Valencia and 76% higher in Saarlouis; and labour costs are USD 27 an hour in Halewood, USD 28 in Valencia and USD 54 in Saarlouis. In terms of productivity, the unions claim that the company accepts that Halewood has achieved its objectives, and they argue that there are no real differences in the quality indicators of the three plants.

The unions, and a number of observers, tend to feel that that the real reason that Halewood was chosen for workforce reductions is simply that reducing employment levels in Germany and Spain is expensive and difficult, whereas in the UK it is relatively easy and cheap (see the Observer 19 January 1997.

The British government's response to the announcement was to emphasise Ford's positive investments. The Chancellor, Kenneth Clarke, said that the announcement was a blow but that more jobs were being created than lost, as unemployment had fallen overall: "you can't win them all", he said. This prompted a swift response from the opposition Labour Party's employment spokesman, Ian McCartney, who called on the Chancellor to apologise to the Halewood workers. The Prime Minister, John Major, emphasised the fact that Ford's recent investment in the Jaguar was worth 5,000 jobs and that the company plans a further GBP 2.6 billion investment by 2000.

The closure of the Halewood plant would have significant knock-on effects not only in the Merseyside area, but also in the British economy as a whole. According to union sources, imports of the new model arising from Ford's decision to produce the Escort abroad will increase the balance of payments deficit by GBP 2.5 billion, while the indirect and direct cost of unemployment would cost the exchequer GBP 50 million in benefits.

In early February, it was reported in the press that the Government is likely to offer about GBP 60 million in aid to secure the future of Halewood. This fulfils one of the requirements laid down by Ford for investment in the MAV project. The second condition was met by the unions a few days earlier, when they agreed to halt the ballot for industrial action, pending further talks, after the company gave assurances of continued production at Halewood, and also reduced the job losses to 980, on the condition that the unions would agree to further productivity-enhancing measures.

Ford employment in Europe

• BELGIUM
  • Genk - 11,800
• GERMANY
  • Cologne - 7,300
  • Saarlouis - 6,100
• SPAIN
  • Valencia - 7,900
• PORTUGAL
  • Setubal - 3,000
  • Azambuja - 400
• POLAND
  • Plonsk - 200
• UK
  • Dagenham - 5,000
  • Halewood - 4,500
  • Southampton - 2,100
  • Bridgend - 1,400
  • Aveley - 700
  • Basildon - 600
  • Belfast - 600
  • Croydon - 200
  • Dunton - 3,000
  • Enfield - 1,000
  • Leamington - 600
  • Swansea - 1,200
  • Brentwood 1,400

Source: The Observer, 12 January 1997

Commentary

The decision by Ford, and recent similar moves by companies such as Courtaulds and Coats Viyella to reduce or close down operations in the UK and move them abroad, has sparked debate about the "cost of exit" - that is, the speed with which workforces can be dismissed in order, it is claimed, to protect an MNC's profits. The Government argues that its labour market policies have attracted 40% of all investment into Europe from the USA and Japan. However, despite this inward investment, outward investment is also at record levels. There is also increasing competition from governments to attract inward investment. The Ford case highlights this clearly, with the company's European chief, Jac Nasser, commenting that many other countries were ready to provide considerable assistance for the MAV project.

It would seem with hindsight that the decision by Ford as to where to locate production is strategic, and not just a simple case of where it is cheapest to reduce employment, or of which plant is oldest and least productive. The company has a range of aims, including aid with investment, the need to secure productivity changes, the need to reduce employment and the need to reduce costs. It also has a range of means of achieving these goals. The outcome is likely to depend on the interactions of the other parties involved. The fact that the union stance at Halewood has, seemingly, altered from complete opposition to being resigned to reduced employment and changes in working practices, serves to highlight the point. The strategic aspects of Ford's actions might arguably also be illustrated by the offer of the MAV project to Halewood, which is in a special development area targeted by European Union funding.