|BUSINESSWEEK ONLINE : MARCH 29, 1999 ISSUE|
Q&A with Ford's Jacques Nasser
''There's clearly going to be more consolidation in this business''
These are heady times for Ford Motor Co.'s new CEO, Jacques A. Nasser. Since he took the wheel on Jan. 1, Ford has acquired Volvo Cars for $6.5 billion, announced record operating earnings of $6.6 billion for 1998, and hired away top talent from DaimlerChrysler. Business Week's Keith Naughton caught up with Nasser as he headed for a Detroit luncheon in March, where he was named Automotive Industries Man of the Year. In an interview with Business Week, as well as during the luncheon, Nasser reflected on the good times at Ford and the road ahead for the world's No. 2 auto maker.
Q: With all the success Ford is having, how do you keep your feet on the ground?
A: The reality check for all of us is that although we've had many things go well for us, the majority of us have also been through times when it was tough. And we don't forget very easy. And although many things are going well for us, there are some areas where we're not doing that well.
Q: Such as?
A: You'd have to be disappointed with our performance in South America. [Ford lost $226 million in South America in 1998, including a $151 million loss in the fourth quarter of 1998. Nasser has said he does not expect to make money in South America in 1999.] Our overall results there are not what we'd like them to be. But when you get a 40% to 50% shift in currency values overnight, it's hard.
Brazil has been a bit of a shock. It is a lot worse than anybody imagined. As an industry, we did it again. We all rushed into a growing market. And then we all complained about overcapacity. There will be a shakeout there. It's inevitable.
Q: How about the difficulties you've had on the passenger-car side of the business?
A: We're not satisfied with our car performance. [Ford's car sales were down 6% in February, while sales of its sport-utilities, minivans, and pickups rose 20%] In the truck area, we have a connection with the customer that we've lost in the car business. We really did miss a beat there [with cars].
On trucks there has been incredible product innovation that just hasn't been there in the car business. Ideas like Chrysler's dual sliding doors on the minivan, four-doors on pickup trucks, and crossover vehicles have all helped to fuel the truck business. I think the truck people have connected with consumers far better than car people.
Q: It seems like you might get some help with your cars from hiring Chris Theodore from DaimlerChrysler to become Ford's VP of large- and luxury-car development.
A: I think he'll just be magic in that area because he's so creative. Chris's talents will fit very well with the rest of the team. He brings an enormous level of skill.
Q: Why are you bringing in outsiders into Ford, when the Detroit tradition was to "grow your own?"
A: We're going through a period where the world is going through an incredible amount of change. Globalization has affected almost everything we touch, from economies to capital markets to communications to trade policies to environmental issues. All these things are becoming much more global.
Also, there has been an incredible explosion of technology that has changed the way people live their lives and do business. The Internet, wireless phones, pic-tels. You are able to do things now that you weren't able to do before in business and in your personal life.
And what's becoming more and more important is the strength of brands and the relationship to consumers over a longer period. We've got to stop thinking of ourselves as a transaction-based business -- we sell a vehicle and then we wait until you want to buy another vehicle.
All of those changes, which have happened so quickly, give an opportunity to bring in different skills and different perspectives. It's helpful to have these different viewpoints and different cultures. That gives you diverse views to address the business. [Nasser was born in Lebanon and raised in Australia.]
There were times when it was difficult to attract people to the automotive industry. Now, we're seen as a very good place to be. Ford is a particularly good place. People really want to be part of a winning team.
A: Because we are different. The brands that we have, the acquisitions that we've made and the type of people that we are and the attitudes we have. And the influence of the Ford family and Bill [Ford] as chairman.
Q: But you want Ford to try be even more different. What do you want Ford to become?
A: We want a company that centers its thinking around consumers and what they want, and allow that to filter through into all our business decisions.
We've been a very nuts-and-bolts and transaction-oriented industry. We've viewed customers as always telling us about our problems. We never thought about the customers' costs after the sales -- insurance, resale value, recycling.
We've been too engineering- and manufacturing-focused. We've only recently begun to look at distribution. That's the next generation of transformation for the industry.
Q: You are known as Jac the Knife for you ability to cut costs [Ford has cut $5.2 billion in costs in the last two years, and has set a goal of cutting another $1 billion in costs in 1999]. Can you just keep cutting costs forever?
A: We've been very successful in reducing our costs. But we've only been concerned with the costs within our walls -- manufacturing, engineering and so forth. We need to take the consumer's view of costs. If we start looking at cost the way consumers do, we can come up with different strategies. And that isn't meant to be a call to arms to run out and buy anything that says consumer.com. It's a change in the mindset of the company.
Q: You've had flat to negative revenue growth. How do you grow earnings and increase shareholder return in a flat revenue world?
A: One of the biggest challenges we've got is to grow the business with top-line growth. We've managed to improve our shareholder values over recent years primarily through earnings, and partly through some better positioning of the company.
For the future, we need to continue to improve the earnings potential of the company while at the same time growing. That is going to result from doing better with the businesses we have -- organic growth, geographic growth, acquisitions. We will be active in all of those areas.
Q: With the $6.5 billion acquisition of Volvo done, Ford still has $17.4 billion left in its cash stash. Who will Ford acquire next?
A: [Laughs]. There's clearly going to be more consolidation in this business. Whether you believe in the theory of five auto makers remaining, or five plus two, it's inevitable. I think that's good for the consumer. You are seeing acquisitions because of the continuing drive toward brand and improving the value for consumers. Those factors will only intensify.
Q: When will Ford overtake GM?
A: [Laughs]. Let me see. Tuesday.
Q: Are you interested in acquisitions outside the auto industry?
A: We've tried that in the past and it didn't work out very well. At Ford, we're just going to stick to our knitting. We're not going to run off and spend our money on business where we really don't have much talent. This business is tough enough, we don't need go out and tackle new ones.
Q: You had 1998 revenue of $144.4 billion and that will grow to $157.4 billion with Volvo. When you're that big, how can you make big percentage gains in revenues?
A: We had Michael Dell in to speak to us. I like his comment, "How do they expect us to grow at 50% forever. We're starting to become a big company." [Laughs] You can relate to that. You do get to a point a where you have to reinvent the whole business.
Q: How important is acquisition to Ford's growth plan?
A: Acquisitions are always difficult to predict. I would say it's a minor part of our plan. You can't predict them and you shouldn't really depend on them.
I think there's still a lot of growth in the automotive-related businesses, including what has been the traditional business for us. It's not going to be in any one particular spot.
Some of it will come from the newly developed markets growing and coming back from extremely poor levels. Some of it will come from our presence in these markets, where we haven't been. Some of it will come from the very strong position we have in the sport-utility segment and in the light- and medium-truck segments [pickups and minivans].
Some of it will come from what I think is an extremely focused premium-vehicle brand leverage. [Ford has Lincoln, Jaguar, Aston-Martin and Volvo.] Some will come from acquisition, and many of the acquisitions will give us opportunities to grow. For example, Jaguar was an acquisition. The revenue growth from the acquisition wasn't that great. But we've now got a brand and basis of building growth. [Because of new Jaguar models Ford has developed, Jaguar car sales are expected to grow to 200,000 units within three years, from around 20,000 when Ford acquired it.]
The same will apply to Volvo. It will give us the potential to grow beyond the level of the acquisition and beyond the level that we would have been able to grow with our of present brands. Volvo can go from 370,000 [unit sales] to something bigger than that. [Ford is expected to develop a Volvo sport-utility vehicle and minivan.]
Q: What kind of acquisitions are you interested in?
A: Something that would help our basic business and nurture our basic business. Not something that would require us to take our eye off the ball.
Q: Is Mazda [in which Ford holds a controlling 33.3% stake] enough of a growth vehicle to give you the presence you want in Asia?
A: We think the combination of Ford and Mazda is powerful.
Q: Do you grow fast in Asia with an acquisition, or do you take a slow and steady climb up the hill?
A: We're always open, but for us at this time, we like the measured, reasoned, steady course.
Q: There are some real bargains in Asia, right?
A: Oh, really? [Laughs.] You know better than that.
Q: But you bid for Kia, which had plenty of debt of its own.
A: Kia was very different. We had been dealing with Kia for 12 years, so we knew them. We had a very good relationship. We knew their capabilities. We knew their products. Also, Kia is a large company, but it's not [as large as Nissan].
And the Koreans were prepared at least to look at debt restructuring. So far, the Japanese have not been. There were three bids for Kia. We showed a lot of discipline. We went in with the bid and we did not change it. We felt that we would be good for Kia and Kia would fit with us. But it had to pass the business equation test.
Q: Do you worry about the stress acquisitions can put on a company?
A: Yeah. And look at our history: We took our first equity position in Mazda in '79. We purchase Jaguar and Aston-Martin in '88-'89. And Volvo is 1999. So it's been every 10 years. We're very careful about the digestive process. We're acutely aware of it.
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