Ford announces $14 billion in cost cuts
October 4, 2017
In a bid to win over shareholders, Jim Hackett, the new CEO of Ford Motor Company met with around 100 investors in New York on Tuesday to lay out his plans for the future.
Hackett, who only became the company's CEO in May, said making the carmaker leaner and more flexible will help it handle the challenges facing the industry — everything from car-sharing to self-driving vehicles and the shift to electric cars.
Hackett and his team spent the summer reevaluating Ford's operations after former CEO Mark Fields was ousted. Hackett traveled to Russia and Turkey and visited North American plants and Ford's Silicon Valley research center as part of the review.
He said he was impressed by the talent at Ford, but wants to update factories and speed up decision-making and product development.
Hackett said the decision to change was "not easy — culturally or operationally," adding "I feel a real sense of urgency for what we're doing here."
The devil is in the details
America's second-largest carmaker is planning to slash material costs by $10 billion (8.5 billion euros) and engineering costs by $4 dollars by 2022 through new deals with suppliers, making fewer prototypes and reducing product-development times.
After a tough year and a large cut to its global workforce, the company also intends to have simpler designs in which more parts can be shared between models. It also wants to reduce available options for configuring a car. One example of this is the Fusion. Customers can now order the sedan in 35,000 possible combinations; this will be reduced to 96.
In another big strategic change the company will reallocate $7 billion from cars to SUVs and trucks, which are more profitable.
Global demand for those vehicles is rising and they are critical to Ford's bottom line. The automaker plans to cut some cars from its lineup, but didn't name them on Tuesday.
Ford likewise announced it will reduce spending on internal combustion engines by one third and instead invest in electric and hybrid cars — on top of a previously announced $4.5 billion investment in the sector. In the next five years the carmaker plans to introduce 13 new electric or hybrid models.
Cutting from a high
The changes announced by Ford come as September sales numbers were released showing that the American auto industry posted its first monthly sales gain of the year. The strong growth was led by sales of new trucks and SUVs and the replacement of cars destroyed by Hurricane Harvey in Texas.
Ford sales rose 8.7 percent: F-Series pickup sales were up 21 percent from a year ago, while SUV sales grew 8.8 percent.
Ford hired Hackett in part to fix its share price, which has languished for the last two years even as rival General Motors saw its shares rise to their highest level in seven years. Even more humiliating, this year Ford saw its market value fall below Tesla, even though it earned $4.6 billion in 2016 and Tesla has never made a full-year profit.
Overall US vehicle sales rose 6.1 percent in September to just over 1.5 million, according to Motor Intelligence. Toyota, Honda, Ford, General Motors, Nissan and Volkswagen all posted strong numbers. Of the biggest automakers, only Fiat Chrysler and Hyundai reported declines in sales.
tr/jbh (AP, dpa)