Ford’s new Way Forward

“Turnarounds succeed when capacity and costs are aligned with a realistic expectation of demand.”

Much is riding on Alan Mulally as the Ford Motor Company’s new hope for a major turnaround.
Mulally has taken the driver’s seat from former Chairman and CEO William Ford Junior. Bill Ford led the Company in three straight years of profitability through to 2005.
Of his decision to appoint Mulally as CEO he said “I looked inside and outside the auto industry, and as I looked, Alan kept rising to the top. He had turned around a major industrial company with many of the same characteristics as Ford.” Ford stays on at the Company, continuing in his duties as executive chairman.

The Way Forward

Soon after joining Ford, Mulally shared a web cast with other top executives in which the company’s “way forward” was spelled out. “The steps we are announcing today are clearly needed to ensure the ultimate turnaround of the business in Ford’s biggest and most important market,” Mulally said. “Although the process has been under way for months, I have had a chance to review these actions and am convinced that they provide the sound, product-led underpinnings and cost reductions we will need to achieve our goals. I look forward to helping with the implementation.

“Turnarounds of this magnitude succeed when capacity and costs are aligned with a realistic expectation of demand,” Mulally continued. “These actions are certainly consistent with that goal. We will focus intensely on the needs of our customers in North America, and around the world, by pulling forward new products and creating new markets. We are a team united by a shared vision to build the best automobiles in the world at Ford Motor Company.”

Mark Fields, Ford Motor Company Executive Vice President and President of The Americas, outlined the “Way Forward”. “We’re now ready with the actions we need to take by the end of 2008 to position ourselves for future profitability,” he told the Ford staff watching the web cast. “Let’s start with the products, because this remains a product-led turnaround first and foremost. The future of Ford will be driven by bold, innovative products. To that end, we are strengthening and accelerating our product plans for Ford, Lincoln and Mercury. We’ve reexamined our entire cycle plan, and we’ve accelerated work on future products. Development is now under way on five new vehicles that previously did not exist and that will be on the road in the future. And, even in the near term, the pace will accelerate.

Between now and the end of 2008, 70 percent of our Ford, Lincoln and Mercury lineup by volume will be all-new or significantly freshened. That includes strong new vehicles in new segments like the new Ford Edge and Lincoln MKX crossovers that go on sale in November – and our new Super Duty pickup.

“We’re also committed to delivering even more crossovers to maintain our leadership in this booming segment. We expect the new Ford Edge and Lincoln MKX to make huge waves when they go on sale in November. And to keep that momentum going, we will introduce an all-new Ford full-size crossover based on the Fairlane concept that was a huge hit at auto shows last year. With bold, American design, three rows of seating and about 23 miles to the gallon, we believe this all-new vehicle can redefine the people-mover for the 21st century. We will build this new crossover at our Oakville Assembly Plant in Ontario to take advantage of the significant investment we’ve made in flexible manufacturing there.

“We have sped up the standardization of safety features across our lineup. Two-thirds of our vehicles will have standard side air curtains, and half will have electronic stability control by the end of 2008. And, by the end of 2009, all of our retail products will have standard side air bag protection and electronic stability control.

“Now, speaking of innovation, we remain fully committed to our strategy to improve fuel economy, lower emissions and reduce the country’s dependence on imported oil.
This is more than just words. We have shifted our focus from simply delivering CAFE obligations to a customer-focused strategy that requires competitive fuel economy for every vehicle – regardless of the body style or powertrain.

“We will do it through major investments in new gasoline, flexible-fuel, diesel, hydrogen and hybrid power trains – including additional ethanol-powered and hybrid vehicles on the road by the end of 2008. In addition, two out of every three Ford, Lincoln and Mercury vehicles will be offered with fuel-saving 6-speed transmissions by the end of 2008. And this is just the start. We’re also speeding our product development time and improving time to market between 30 and 50 percent by the end of 2008. And, in 2009 and beyond, the product onslaught accelerates even further. We will leverage our global product capability like never before, including new small cars developed from our B- and C-platforms not used presently here in North America.”

But re-inventing Ford is not going to be easy, both Mulally and Fields warned. “The reality is that our business today is structured around a model that worked well for us a decade ago but is no longer viable today,” said Fields. “Going forward, we must take a conservative and realistic view of our revenue and cost position. We must base our business on the customer – and that includes aligning our structure our production and our capacity with customer demand. Toward that, we now expect our U.S. market share for Ford and Lincoln Mercury to be in the low-16 percent range at the end of this year. We expect it to decline again in 2007 as we discontinue the Ford Taurus sedan and Ford Freestar minivan, which all were primarily sold to daily rental fleets.

“Going forward, with our investment in new products and improvements in quality, we expect to be in the 14 to 15 percent range – with a focus on profitable retail share. We expect these market share declines, as well as continued high raw material costs, to delay the return of full-year profitability for our North American auto operations until 2009.

“In line with this new reality, we will resize our business in North America. That includes reducing our total annual operating costs by about $5 billion by the end of 2008. As part of these cuts, we will reduce our salary-related costs by about a third, or about 14 000 equivalent salaried positions. We will do so through early retirements, voluntary separations and, if necessary, involuntary separations. We expect most employees will leave by the end of the first quarter of 2007.

“On the hourly side, we continue to work with the UAW to improve the competitiveness of our U.S. manufacturing facilities. New competitive operating agreements have been ratified by UAW locals in 30 different U.S. facilities for Ford and our Automotive Components Holdings facilities. The result is nearly $600 million in annual savings.” They also announced that Ford would be shedding 25,000 to 30,000 North American manufacturing employees by the end of 2012.

“We believe these changes – which are massive – will be enough to put us back on track. But we will remain quick, decisive and flexible in reacting to changing conditions in the future.

We know these decisions bring even more pain to the business in the short-term, and they will require sacrifice from our employees, labor unions, dealers and suppliers. We also know that our work is far from over. But, together, we are building a much stronger Ford Motor Company and a more secure future.

“As you look at all of these actions – from our accelerated product plans to our faster cost and capacity actions – you can see that we are taking challenges head on. We’re dealing with the world as it is – not as it was 10 years ago,” he said.