|Cost Cutting in Car Construction|
|Subject||Costs, Prices and Profit|
|Topic||Production and Costs|
|Key Words||Costs, Return on Sales, Joint Ventures, Earnings, Sales, UAW|
Ford Motor Company is attempting to reduce its costs by $1 billion in 1999 in order to maintain its return on sales of over 5 percent. It is keen to enter joint ventures, such as one with a German company to build transmissions in Batavia in Ohio. It has already cut costs by $5 billion since 1997. Its mix of vehicles is also helping to raise earnings. However, if auto sales fall as expected, the return on sales will be flat.
GM reduced its costs by $4 billion in 1998 and expects a similar reduction in 1999. However, its return is only 3 percent on sales even after adjusting for the effect of the 1998 strike. GM is going to establish some new small-car factories where workers will assemble large modular parts that have been built by suppliers. It is hoped that the new plants will be about one-third the size and cost of existing plants. The United Auto Workers fears job losses but is still negotiating.
(Updated March 1, 1999)
|Source||Fara Warner and Joseph B. White, "Ford Plans to Reduce Costs by Another $1 Billion", The Wall Street Journal, January 8, 1999.|
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