Ford plans to slash costs by $14 billion
DETROIT: Ford Motor Co planned to slash $14 billion in costs over the next five years, chief executive officer Jim Hackett told investors on Tuesday, adding that the No. 2 US automaker would shift capital investment away from sedans and internal combustion engines to develop more trucks and electric and hybrid cars.
“Most of those savings will not show up on Ford’s bottom line until 2019 and 2020,’’ Hackett and other Ford executives said, reflecting the industry’s long product engineering lead times.
“Ford will be open to more partnerships to spread the costs and risks of simultaneously developing new technology and services while churning out profit from selling trucks and sport utility vehicles in North America,’’ Hackett said during a nearly twohour presentation.
He cited a partnership with ride services company Lyft Inc to deploy future Ford self-driving cars, an alliance with Indian automaker Mahindra and Mahindra Limited and a potential alliance with Chinese electric vehicle maker Zotye Auto.
Ford reaffirmed a goal of achieving 8% automotive operating margins and generating returns that exceed the cost of capital. Chief financial officer Bob Shanks said it could take until 2020 or later to achieve that goal.
Other automakers have warned that shifting to all-electric vehicles could undercut profit margins.
“I don’t think we should walk off a ledge where we destroy the earnings power of the company,” Hackett said, saying Ford “is planning for a third of vehicles to still have internal combustion engines by 2030 — the year some European governments have proposed banning petroleum fueled cars.’’
Hackett, former CEO of office furniture maker Steelcase Inc, took the top post at Ford in May after his predecessor Mark Fields was pushed out.
At the time, Hackett promised to tell investors after 100 days how he would improve the “fitness” of Ford to compete as the auto industry becomes more digital, more electric and less wedded to selling one vehicle at a time to individuals.
Hackett has signed off on a series of moves, including a plan to shift production of Ford Focus compact cars from Michigan to China. He also hired a company outsider, Jason Luo, to lead Ford’s business in China, the world’s largest car market, where Ford is revamping operations and looking to expand partnerships in electric vehicles.
“Ford is playing catch up in some areas. By 2019, Ford plans to equip all US models with built-in modems and to install mobile internet connections in 90% of global vehicles by 2020,’’ Hackett said.
Rival General Motors Co has been installing built-in mobile broadband connections in its US vehicles since 2015 and now has about seven million 4G LTE connected vehicles on the road globally.
“Of Ford’s $14 billion in promised cost reductions over five years, $10 billion will come from material costs and $4 billion from reduced engineering costs,’’ Hackett said.
“We have too much cost across our business,” he said.
By 2022, Ford plans to cut spending on future internal combustion engines by a third, or about $500 million, putting that money instead into expanded electric and hybrid vehicle development, on top of $4.5 billion previously announced.
Ford had already promised 13 new electric or hybrid vehicles within the next five years.
“Electric vehicles will mean auto factories can have a final assembly area that is half the size, requires half the capital investment and 30% fewer labour hours per car,’’ said Joe Hinrichs, president of global operations.
“One way to cut costs will be to offer fewer variations of Ford’s models,’’ Hackett said.
“The slow-selling Ford Fusion mid-sized sedan can now be ordered in 35,000 combinations of features, colours and powertrain options. The future model will come in just 96 combinations, meaning fewer parts to design, produce and store in inventory,’’ Ford showed in a presentation.
Hackett said Ford would also cut the time it takes to engineer a new car by 20%, and invest in “factories of the future” that will occupy less space and use more robots.