Later this month, Ford (F) will announce specifics of the next wave of its plan to regain profitability in its North American auto business and healthier profitability as a corporation. Back in 2002, CEO Bill Ford said normal profits would be restored by "mid-decade." That's not happening, and Ford -- the great grandson of Henry Ford -- has changed his management team. On Jan. 23 he'll announce a series of tough changes, including probably more than 20,000 job cuts, plant closures, and the discontinuation of some unsuccessful products.
Ford, for example, has never been especially competitive in the minivan segment and is widely expected to kill off its minivans, as well as its small pickup truck business. Bill Ford spoke with BusinessWeek Marketing Editor David Kiley at the recent Detroit auto show. Edited excerpts follow:
A year ago you said you felt you had your financial house in order and the management team you wanted in place for some time. But that clearly has changed. What happened? Oil prices hit us disproportionately as far as finances go because of the size of our truck and SUV lineup relative to our cars. Cars saw a spike in sales in the second half of the year. And we aren't out there yet with a lot of the new cars and crossovers we have coming.
We were also hit, along with others, with higher commodity prices across the board, which cut into our trend of taking our overall costs down. Not just oil, but natural gas, metals, steel, etc.
We launched some new products critical to arresting our market-share slide -- Ford Fusion, Mercury Milan, and Lincoln Zephyr -- but that wasn't until the end of the year [when] they couldn't do us much good in terms of share or profit.
What's your reaction to the Standard & Poor's credit downgrades you just had, especially as it came ahead of your restructuring announcement Jan. 23? No one likes to see a downgrade. We were disappointed. It's up to us to prove their analysis wrong. One of the misperceptions out there is that we're losing money as a corporation. In fact, we're going to be solidly profitable in 2005 when we close the books. But we do have a North American auto business issue, which we are committed to fixing.
S&P cited your interdependence on GM (GM), which is struggling, because if it goes into heavy discounting you have to follow, and if it goes bankrupt it'll likely go heavy into discounting (see BW Online, 1/11/06, "Will GM's Sticker Shock Spark Sales?"). Do you buy into that analysis? It's interesting. You all see us as more interdependent than I do. Every company has its own future and charts its own course. I look at our brands and our products. I don't think what happens to another company has such a big impact on us. So, no. I don't buy into it.
Are we in a down sales cycle in 2006? I don't think we're in a down cycle. 2005 on an industry basis was pretty good. And I think 2006 looks about the same, though we never like to forecast the industry or even individual model sales.
Is there a "sea change" going on for the domestic auto makers? What we saw was that the price for gasoline would rise over time. And our products reflect that. We have more cars and crossovers arriving now than big trucks and SUVs. But the big run-up in oil, and it happened so quickly, caught us a bit off guard and hit us in our SUV sales. And it hit us disproportionately compared with others.
But one of the assumptions I have had, and had three years ago when I took over, is that oil is a dear resource, and it's only going to get more more expensive. We are in a resource-constrained world. The bets we are making on hybrids, ethanol, hydrogen, and diesel are wise ones, I believe.
Your business has long been structured in such a way that you make your profit on trucks and SUVs, and you haven't made any profit on passenger cars for a long time. How does shifting to more to cars and crossovers help your profit picture? If this were a static world, our profits would be hurt. But the way we are sharing platforms now among cars [the Fusion, Milan and Zephyr are built off the same engineering platform and share a wide array of components], the cost of individual products is substantially less than in our prior product lifecycle.
The reality we are operating in now is one of constrained resources, and we are absolutely going to have to produce more small and fuel-efficient vehicles if we are going to stay competitive. So, we have reengineered our processes so we can realize profit on passenger cars much sooner after their launch than we used to.
When you start a new car with all-new everything, it costs well over $1 billion. But we don't do much of that anymore. From each architecture and platform we create, we are spinning off more models and sharing more power trains than we ever have.
That saves big money and gets us to profits faster, even on passenger cars. When you put the same door locks, air conditioners, radios, navigation systems, wire harnesses, and all across a host of vehicles, it saves big money. But a lot of the vehicles we've done this on aren't out yet.
Toyota (TM) is making around $10 billion a year. It just released a platform to support the Lexus LS460, a new flagship that by all accounts is a big leap forward even for Toyota. When there's such a disparity in profit between Toyota and your company, how can you compete when you seem to have to scrimp on new products because you aren't making any money selling vehicles? I don't think we scrimp, and one of the things I feel good about is our liquidity that allows us to invest properly in new products while we are working hard to get our cost structure down. There's no question that Toyota is a very formidable competitor, and they are doing a lot of things right, and we are very aware of what they are doing. But if you look at where we are placing bets and where they are placing bets, I don't see where we are deficient in any one area.
Lincoln would seem to be the brand most affected by what Lexus continues to do. You are in the process of trying to make Lincoln competitive again. I'm not sure I would compare Lexus to Lincoln straight up, because they are covering more of the waterfront with a single brand than we are trying to do with Lincoln. Having said that, we know we have to revitalize the Lincoln lineup, and you will be hearing more about that later this month when we announce the next wave of our plan.
Can you recover market share in 2006? You have lost about one share point in the U.S. for each year you have been in charge as CEO? It's important that we stabilize it before we start to recover it. We have to stop the slide in 2006. And then we talk about recovering some of it. We are just now coming to market with vehicles that are in the growing part of the industry -- midsize cars and crossovers. The product lineup we have in 2006 gives us a good chance to stop the share slide.
But I'll say this. We aren't going out [to] buy market share with heavy, across-the-board discounting. We know how to do that. We need stable and organic growth of our market share. After 10 years of losses, a cessation of market share loss probably won't happen this year, but I absolutely want to see the rate of loss slow this year if not stop, so we can turn it around. Then we can talk about growing.
This is the second whack at getting Ford's results stabilized. What mistakes have you made since you became CEO? I'm sure I've made a million mistakes. You all [the media] are not hesitant to point them out. But I would say that in hindsight the plan we set out in 2002 was the right one. We're profitable again. We have been profitable every year since. A lot of what we put in place was right.
But a product lifecycle, the time it takes to bring a vehicle to market after it's green-lighted, is three years. So a lot of the product decisions we made are only just now starting to materialize in the showrooms: The Ford Edge and Lincoln MKX crossovers are coming this year, and the midsize cars are only just out.
Now, did I anticipate oil doing what it did this year? No. So, I guess that's a mistake. But I did anticipate a more gradual trend of oil becoming more difficult in terms of pricing and changing the mix of our business. It just happened a bit sooner and faster than we thought.
Are you going away from developing as many trucks and SUVs? We are remaining a full-line manufacturer, because that's what we are and you have to offer the public a full menu. But the introduction of our Super Chief pickup this week, which is a truck that's as big as it gets, is instructive. It's a concept, but besides running on gas, it is meant to be developed around ethanol and hydrogen as well.
Do you believe you are getting the full support of your unions with the moves you are announcing Jan. 23? Our union partners are informed of everything. But I'll say this, it is going to be painful for some people. Is everyone going to be happy with the plan? No. And they shouldn't be.
You have changed your management team. You have a new president, operating chief, and chief financial officer. Why is this the right team, and why so many changes? [President] Mark Fields, [COO] Ann Stevens, and [CFO] Mark Shanks work seamlessly together, and they have been working on this new phase of a turnaround. There is no jockeying for position and that sort of thing. They all share a common trait. They are all three impatient. And they'd better be. Some of the people who left us last year didn't want to be part of what is going to be wrenching change in the way we do business. And that's O.K. The team we have in North America understands that we have to change or die. In the past, we had some executives who either didn't believe that or weren't comfortable with it. So it was appropriate that they left.
What's changing in terms of the way you go to market with new products? We have to get away from the launch and abandon method, which we have been guilty of. We have to keep the products fresh and up-to-date throughout the lifecycle they are in the showrooms. Our lower cost structure will enable us to do that -- to make enough changes over four and five years to keep products looking and feeling fresh to the consumer. Too often in the past, we launched a single new product with a huge investment and then set it aside, and it got old fast (see BW Online, 1/5/06, "Ford's New Drive: Marketing").
You and [Ford president] Mark Fields have talked about the need to enter the so-called B-car, or entry-level segment (see BW Online, 1/10/06, "Suddenly Revved About Small Cars"). That's a segment where profits are brutal if not impossible for domestic auto makers because of costs. GM is into it now with the Chevy Aveo, but that's made in Korea. Should we take it as a given that if you develop a car that it's not going to be built in the U.S.? If you look at our small cars in South America, for instance, they are profitable. We know what it takes to make a small car profitable. But we also know you can't introduce a small car into this market profitably if it's a stripped down, bare-bones car and expect to be successful. You just can't do it anymore.
We are using the so-called "top-hat" strategy of putting differentiated hats on top of common vehicle platforms and architectures. And even some of our new platforms can be adapted to different sizes. So, it's a new economy of product development for us. There's no given that we can't manufacture the car we choose to build in the U.S., but in any case it's premature to talk about sourcing of a small car.
What's your biggest challenge this year? I don't have the luxury of a biggest challenge. I've got a lot of them.
Kiley is BusinessWeek's Marketing editor in New York
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