Contrast
While the City of Detroit begins what will certainly be a long process through Chapter 9 in a federal bankruptcy court, one of its principal corporate citizens is continuing its 7-year recovery. Ford Motor Company (headquartered in the Detroit suburb of Dearborn) has re-surged, from a bloated, cash-hemorrhaging entity when CEO Alan Mulally arrived in 2006, to a position characterized by profitability combined with an ever-increasing focus on environmental responsibility. Taken together, the result is a company now sufficiently strong to require the hiring of what will total some 3,000 additional salaried employees (mostly in Dearborn) in 2013.
The company reported its quarterly earnings a few minutes ago; at $0.45 pre-tax per share, they easily beat the most optimistic estimate of $0.37 per share. Seems that Ford's array of car products - and especially its trucks - are selling so well in North America that profits from this geographic region are at record levels in the current quarter - $2.33 billion pre-tax compared with $2.01 billion in the same period last year. In Europe, Ford is still incurring losses - $348 million pre-tax this quarter compared with $404 million last year - but these are shrinking as the company continues its aggressive re-structuring, closing three plants and reducing employees (much like it did in North America) to eventually reach an overall scale that can be profitable even in the depressed European market.
This is a striking example, though certainly not the only one, of how corporate America does recovery and adjustment. Regular readers of this blog will know that a common theme has been the need for governments to introduce long overdue structural reforms to their moribund economies (in Italy and other European economies, and in Japan and Egypt, and at more local levels, in Ontario and Detroit). Germany, and Canada, are two of very few examples of countries that, at quite different times, summoned political will and implemented such reforms successfully, over several years. Ford Motor Company is surely now the poster child of corporate re-structuring. Consider: in 2006, Ford employed 264,000; by 2009, Mr. Mulally had cut this number, even in the face of UAW resistance, to 158,000, a level appropriate to its sales and costs. Then, as profitability emerged, he began hiring again in North America, and China, with worldwide employees up some 10% to 175,000 currently. It's not difficult to imagine that at some point Ford will even begin a process of re-hiring in Europe.
Ford is no longer a recovery story - it's a growth story. Shinzo Abe, Francois Hollande, Enrico Letta, and Kathleen Wynne - all in charge of structurally-dated economies - should take note. So should all the (mostly) Democratic-controlled, big-American-city, and state, political machines, many of which have promised pension and health care payments to retirees far beyond their ability to pay. Any one of these could be the next Detroit, the latest prime example of what happens when the proverbial can is kicked down the road once too often.