Ford's CEO Announces $14 Billion In Cuts, Investments Going To Trucks and EVs

Ford's CEO Jim Hackett has unveiled his plans for the company and there are a lot of cuts coming, along with shifts in various investments. 

“I get up every day feeling like time can be wasted here if we don’t get moving. I feel a real sense of urgency,” Hackett told investors yesterday in New York.

The cuts include a $10 billion cut in material outlays and a $4 billion cut in engineering costs over the next five years. Ford will also cut costs on internal combustion engines and redirect the funds to the development of EVs.

One move that consumers will see is the reduction of possible vehicle configurations. For example, the current Escape has 2,302 configurations available. Ford will cut that down to 228 for the next-generation. The Fusion will see a dramatic reduction from 35,000 to just 96.

"We really offered too many options," Hackett said.

Speaking of cars, Ford will be moving $7 billion from the development of cars to trucks. This shift would mean fewer car nameplates, but the company wouldn't go into detail which ones would be cut. As we have reported in the rumorpile, the possible candidates for cuts include the C-Max, Fiesta, and Taurus.

Other parts of Hackett's vision for Ford include,

• Playing catchup by offering internet connectivity in all of their vehicles by 2019. 90 percent of Ford's global lineup will feature some sort of connectivity by 2020.
• Building out more partnerships such as working with Lyft on deploying autonomous vehicles
• Cutting down it takes to develop and produce a new vehicle

“The mandate here is that Ford must compete. Companies never choose to die and yet many by not evolving are enabling that kind of fate. It’s clear that as a company we must then raise our gaze just high enough to ensure we’re not disrupted as the world changes,” said Hackett.

Source: Automotive News (Subscription Required), Bloomberg, Ford, Reuters
Press Release is on Page 2

FORD’S FUTURE: EVOLVING TO BECOME MOST TRUSTED MOBILITY COMPANY, DESIGNING SMART VEHICLES FOR A SMART WORLD

• Ford initiates aggressive “fitness” push, re-basing revenue growth assumptions and attacking costs, while redesigning company operations for long-term success
• Capital will be allocated to regions, products and services with highest potential for growth and return; product shift calls for more trucks and SUVs, fewer passenger cars
• Ford is accelerating work on smart, connected vehicles, including AVs and EVs and digital services to thrive in emerging transportation operating system

NEW YORK, Oct. 3, 2017 – Ford Motor Company today is providing a strategic update to investors, detailing plans to leverage its unique product strengths, trusted brand and global scale to refocus and thrive in an evolving and disruptive period for the auto industry.

The investor presentation follows a four-month deep dive into Ford’s strategy and business operations led by President and CEO Jim Hackett and Ford’s senior leadership team. Hackett said Ford will improve its operational fitness, refocus capital allocation and accelerate the introduction of smart vehicles and services.

“Ford was built on the belief that freedom of movement drives human progress,” said Hackett, who became Ford president and CEO on May 22. “It’s a belief that has always fueled our passion to create great cars and trucks. And today, it drives our commitment to become the world’s most trusted mobility company, designing smart vehicles for a smart world that help people move more safely, confidently and freely.”

The full slide deck of the presentation can be found here. Ford is reaffirming its 2017 full-year financial guidance and said its 2018 outlook will be provided in January.

Reiterating its long-term goal of an 8 percent automotive operating margin, Ford says it will embrace the profound technological changes and new competition buffeting the industry. To deliver, the company is expanding its scope to include vehicles and services – all designed around human-centered experiences. The company will tap its strengths integrating hardware and software in complex devices, its proven ability to deliver scale and the trust tied to the Ford brand.

Specifically, Ford is:

• Accelerating the introduction of connected, smart vehicles and services customers want and value. By 2019, 100 percent of Ford’s new U.S. vehicles will be built with connectivity. The company has similarly aggressive plans for China and other markets, as 90 percent of Ford’s new global vehicles will feature connectivity by 2020.
• Rapidly improving fitness to lower costs, release capital and finance growth. Ford is attacking costs, reducing automotive cost growth by 50 percent through 2022. As part of this, the company is targeting $10 billion in incremental material cost reductions. The team also is reducing engineering costs by $4 billion from planned levels over the next five years by increasing use of common parts across its full line of vehicles, reducing order complexity and building fewer prototypes.
• Allocating capital where Ford can win the future. This starts with the company reallocating $7 billion of capital from cars to SUVs and trucks, including the Ranger and EcoSport in North America and the all-new Bronco globally. Ford also has plans to build the next-generation Focus for North America in China, saving capital investment and ongoing costs. Further, Ford is reducing internal combustion engine capital expenditures by one-third and redeploying that capital into electrification – on top of the previously announced $4.5 billion investment.
• Embracing partnerships. Ford will continue to leverage partnerships, remain active in M&A and collaborate to accelerate R&D. The company recently announced it was exploring a strategic alliance with Mahindra Group as it transforms its business in India, and Zoyte with the intention of developing a new line of low-cost all-electric passenger vehicles in China. When it comes to autonomous vehicle development, the company recently announced a relationship with Lyft to work toward commercialization and a collaboration with Domino’s Pizza to research the customer experience of delivery services.
• Expanding electric vehicle revenue opportunities. The company recently announced a dedicated electrification team within Ford, focused exclusively on creating an ecosystem of products and services for electric vehicles and the unique opportunities they provide. This builds on Ford’s earlier commitment to deliver 13 new electric vehicles in the next five years, including F-150 Hybrid, Mustang Hybrid, Transit Custom plug-in hybrid, an autonomous vehicle hybrid, Ford Police Responder Hybrid Sedan, and a fully electric small SUV.

“When you’re a long-lived company that has had success over multiple decades the decision to change is not easy – culturally or operationally,” Hackett said. “Ultimately, though, we must accept the virtues that brought us success over the past century are really no guarantee of future success.” 

Revamping product development, modernizing factories

At the same time, Ford is redesigning its operations to better compete in this disruptive era.

Hackett cites as a template the example of how the company reimagined the all-new 2015 F-150. Since then, the F-Series has gained market share and the average transaction price has increased 16 percent. It has improved fuel economy and increased capability for customers, thanks in part to a 700-pound weight reduction that helped make the F-150 the company’s most positive contributor to CAFE standards for model year 2018. Additionally, 90 percent of the manufacturing equipment can be reused for the next-generation F-150, reducing future capital requirements. Finally, the innovation on aluminum and light weighting will pay off across a range of Ford trucks and SUVs.

Other priorities include:

• Reducing orderable combinations of many nameplates, focusing on what customers value most. Already the team has identified a ten-fold reduction of orderable combinations in the next-generation Escape and is moving from approximately 35,000 combinations in the current generation of Fusion to 96 in the next generation.
• Rethinking product development processes and incorporating new technology. In the next five years, Ford is aiming to reduce new vehicle development time by 20 percent, with new tools and fewer orderable combinations. Through the use of virtual assembly lines, the company has been able to reduce new model changeover time by 25 percent.
• Redesigning the company’s factories of the future. Accelerating and scaling 3D printing, robotics, virtual reality tools and big data will improve logistics and enable a more efficient manufacturing footprint.

“We believe Ford will achieve its competitive advantage by focusing deeply on our customers – whether they’re drivers, riders or cities – and that’s where we are playing to win,” Hackett said.