Meanwhile, GM has scaled back its Saturn small-car project, canceled a billion-dollar program to develop a plastic sports car to replace the Chevrolet Camaro and Pontiac Firebird, dropped plans to purchase thousands of new industrial robots, and reduced the number of assembly lines it will devote to the "GM-10."
Analysts estimate that GM's announced cost-cutting moves will trim its annual costs about $2.5 billion by 1990, but that still might not be enough. "They should be looking at that as taking them about halfway home on costs," says Charles Brady, auto analyst with Sanford C. Bernstein & Co.
Brady said Ford has become so profitable, even with a dip in car sales this year, because it has slashed its fixed costs by $5 billion since 1979, while GM in the same years allowed its costs to balloon.
"I think you can trace the roots of GM's current problems back to the recession," said Brady. "Both Ford and Chrysler got scared that they were going to go out of business, and so they got serious about costs. GM never got that scared, never had that traumatic experience, so they never rebounded with a reborn attitude about costs."
Ford's Dark Days
Indeed, the early part of this decade remains a raw memory at Ford headquarters in Dearborn, Mich. During those dark days, Ford was posting billion-dollar losses, its sales were plunging, and its products, both in terms of quality and design, were woefully out of step with the demands of the American public. Ford was still best known then as the auto maker responsible for Pintos with dangerous fuel tanks and LTDs that shifted from park into reverse without warning.
Today, signs of a complete turnaround at the world's second-largest auto maker are everywhere, and Wall Street has found a new darling among Detroit's Big Three.
"It's really a different world," says Ford's McCammon.
Not only is Ford about to beat GM in net income, it has emerged as the undisputed design leader in domestic cars and trucks and has made dramatic strides in quality. Its Taurus and Sable models have been enormous sales successes and have helped improve Ford's image among the upscale, import-oriented car buyers. "The Taurus-Sable has made Ford the styling leader for the entire industry," says Keller. "Ford has the magic touch right now."
And Ford, to a greater extent than General Motors, seems to have reversed the long slide in its labor relations since the recession.
Ford's financial success this year comes at a time when its total sales have actually begun to lag. Even with a 26.7% upswing in November, Ford's U.S. car sales are off 3.1% for the year.
So the real key to the reversal of Ford's fortunes has been its willingness to slash costs.
"Ford is doing so well financially because it has done a marvelous jobof cost reduction, even better than Chrysler," adds Keller.
Ford has closed 15 manufacturing plants worldwide since 1979, including seven in the United States, and has not opened any new facilities to replace them. The company has reduced its white-collar work force in North America by 30% since 1979, and plans to pare it back another 25% by 1990. Ford executives now take grim satisfaction from the fact that salaried staffing levels have declined steadily for 29 straight quarters.
"What we believe we have done right is keep an eye on the basics, which is keep an eye on cost control," says Philip Benton, a Ford executive vice president. "You get in trouble in this business when you take your mind off the ball, and you spend your money somewhat promiscuously. GM has not kept its eye on the cost ball."
By maintaining stern limits on costs, Ford has been able to keep its break-even sales figure constant, at 3.3 million units worldwide, since the recession, so that more money could flow to the bottom line, analyst Healy noted.
"A good illustration of how the cost savings have come through is that, in 1986, we will sell roughly 6 million vehicles worldwide, about the same as 1979," McCammon said, "but our profits in 1986 will be triple what they were seven years ago."
Ford has also been very cautious about devoting its resources to new product programs. In fact, the Taurus-Sable models are likely to be the last all-new domestic cars that Ford introduces for several years, company officials concede.
They say that Ford will keep product-development costs down by relying on cars either built or designed in Asia or Europe to fill out its domestic lineup.
Roger Maugh, Ford's director of international product development, acknowledged recently that product development costs are too high for Ford to justify producing an all-new line of subcompacts in the United States without at least sharing the costs with another company.
Still, Ford remains vulnerable. With no plans to follow the Taurus-Sable success with similar new products, Ford may be unable to match GM's output of new domestic models over the next few years. If it can't build on the Taurus-Sable momentum, it could once again lose market share.
Design Copying Seen
More and more competitors will be copying its successful aerodynamic designs, diminishing the distinction of the Ford look and cutting into their sales. In addition, if, as is widely anticipated, Ford makes a major acquisition in the coming months, its cash cushion will be reduced. The result could be that Ford's resources become fragmented.
Few observers--least of all executives at Ford--expect GM to lose a rematch on profits in 1987. GM is too strong for Ford to keep pace with it for very long, they say.
"It may take GM another two years to correct their cost problems, but they have recognized the problem now, and I'm sure they will turn it around," said Ford executive vice president Benton.
"I have never made the mistake of underestimating General Motors," he adds, "and I don't intend to start at this late date."