Ford plans to cut costs by $14 billion
DETROIT: Ford Motor Co’s new CEO plans to cut $14 billion in costs, drop some car models and focus the company’s resources on trucks, SUVS and electric vehicles as part of a renewed effort to win over skeptical investors.
Jim Hackett, who became Ford’s CEO in May, met with around 100 investors in New York on Tuesday to lay out his plans for the future. He said getting the company lean and flexible will help it handle the changes the auto industry is facing, from car-sharing to the shift to electric cars.
“I feel a real sense of urgency for what we’re doing here,” Hackett said.
Hackett and his executive team spent the summer reevaluating Ford’s operations after former CEO Mark Fields was ousted in May. Hackett traveled to Russia and Turkey and visited North American plants and Ford’s Silicon Valley research center as part of his review.
He said he was impressed by the talent at Ford, but wants to update factories and speed product development and decision-making. One of his first moves was to pare down the number of people reporting to him. Hackett has eight direct reports, compared to 18 for Fields.
Ford told investors it expects to reduce material costs by $10 billion by 2022 through new deals with suppliers and simpler designs. The company plans to share more parts between vehicles and reduce the options available for configuring a car. For example, customers can now order a Ford Fusion sedan in 35,000 possible combinations. Ford is reducing that to 96.
Ford also says it will cut $4 billion in engineering costs through 2022 by making fewer prototypes and reducing product-development time.
It plans to cut one-third of its engine development costs and redeploy them to electric and hybrid vehicles. Ford plans to introduce 13 new electrics and hybrids over the next five years, including a small electric SUV coming in 2020. The company plans to reallocate $7 billion from cars to SUVS and trucks.