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A bumpy ride ahead as Ford embarks on full-scale reorganization

Realizing the need to adapt to the changing market conditions, American automakers are busy revising their strategies. Following in the footsteps of its peers in the industry, Ford Motor Company (F) has launched a comprehensive restructuring initiative. The scale of the program, rolled out as a means to streamline operations, is estimated to surpass that of General Motors (GM), which recently announced job cuts and plant closures.

For both the carmakers, a key aspect of their respective programs is large-scale workforce reduction.  Analysts at Morgan Stanley warned this week that around 25,000 employees will be affected by Ford’s multi-billion dollar revamp, far exceeding the layoff planned by GM. The downsizing will be spread across all markets, including North America.

Ford’s management, which is currently in the process of phasing out the company’s iconic passenger car fleet, will have to strike a balance between applying the new business model and enhancing profitability. However, the company is yet to announce the details of the program officially. Of late, it has been facing multiple challenges in the international market, especially in Europe, South America and China, making operations unsustainable.

The scale of the restructuring program is estimated to surpass that of GM, which recently announced job cuts and plant closures

Meanwhile, Ford’s stock is on the recovery path after sinking to a multi-year low a few weeks ago, bringing relief to investors who have held it patiently over a long period. The company’s planned transformation, with a total investment of about $11 billion, is expected to enhance shareholder value in the long-term. Going by the current trend, the stock offers an attractive investment opportunity.

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In the most recent rating updates, a few analysts raised their recommendation on Ford to buy and outperform, while the majority settled for hold. While its improving debt profile and strong cash position look encouraging, the headwinds to the company’s international operations and the planned downsizing cast a great deal of uncertainty as far as growth is concerned.

Ford’s shares, which hit a six-year low in October, have started showing signs of recovery after staying in the bear market for a long period. Having lost about 28% since the beginning of the year, the stock closed the last trading session higher.

 

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