REMARKS: FORD ACCELERATES ‘WAY FORWARD’
NEW PRODUCTS, LEANER STRUCTURE FURTHER DEFINE TURNAROUND
Following is a transcript of remarks as prepared for delivery by Mark Fields, Ford Motor Company Executive Vice President and President of The Americas, on Friday, Sept. 15, 2006, during a webcast to discuss the company’s accelerated North America Way Forward turnaround plan.
Thanks, Alan (Mulally), and good morning, everyone.
I’d like to especially welcome the men and women of the Ford Motor Company who are watching this webcast, just like many of them do each week as we report on the progress of our Way Forward plan.
During earlier webcasts, we’ve highlighted our progress. We’ve explained the customer-led vision that our design, engineering and marketing teams now share for the Ford, Lincoln and Mercury brands. And we’ve celebrated product and quality achievements, like the growing number of accolades for our mid-size sedans.
The Ford Fusion, Mercury Milan and Lincoln Zephyr are the highest-quality products we’ve ever introduced, and they rapidly have established themselves as credible competitors in a segment dominated for too long by the Japanese. For me, it’s been rewarding to communicate our progress, as well as our challenges.
And one of the biggest changes I’ve seen as a result of the Way Forward plan is a new culture of candor and honesty in both our decision-making and our communications. We’ve remained dedicated to honest, open, two-way communications throughout the business – even when we have tough news to deliver. And today is no exception.
When we met with you in late January, we presented an aggressive plan to rebuild our North American business. We explained that the Way Forward plan focuses every part of the business on the customer – building stronger brands, strengthening our product lineup and delivering improved quality, while accelerating progress on competitive costs and productivity.
Now, a lot has changed since January, and it’s required us to take another look at the industry and our business in light of the significant changes we’ve seen externally. The conclusion has been very clear. We need to go further and faster, and accelerate our pace.
What we communicated as a six-year plan in January now needs to be focused squarely on the actions we must take starting today – and continuing through the end of 2008 – to turn around this business once and for all.
Now, let me be clear: The fundamentals of our Way Forward plan have not changed. It’s our timetable that has changed – and changed dramatically. Let’s talk about why.
In April, gas prices rose 40 cents a gallon to $2.90, and it hit $3 a gallon this summer for the first time since Hurricane Katrina. This triggered an acceleration in demand away from less fuel-efficient vehicles. And it hit full-size pickups – our bread and butter – particularly hard.
Our trucks continue to do well, and they’re outpacing the competition. Through August, our segment share is up 1 point, and we remain America’s truck leader by a wide margin. But the segment itself has suffered a shock this year.
In the first quarter, full-size pickups did fairly well – with sales about even with last year. But, in the second quarter, the bottom fell out. Pickups were 12.7 percent of the industry compared with 14.5 percent for all of last year. That decline, on an annual basis, equates to roughly 300,000 fewer industry-wide truck sales. Put another way: a 2-point shift away from trucks in the U.S. has an annual industry-wide price tag of about $8 billion in lost revenue.
This segment shift has a substantial impact on the entire industry but on Ford in particular,
where the F-Series accounts for a third of our sales.
In addition to gas prices, commodity costs are up substantially this year. That has put even more pressure on the business. Rhodium and copper are up about 60 percent. Platinum and palladium are up about 30 percent. And steel has risen another 15 percent.
Added to this are demographic changes that will accelerate over the next decade and dramatically affect the types of vehicles we produce. Just as the largest buying group, the Baby Boomers, are downsizing every other aspect of their lives – including their homes –they are moving to smaller cars, crossovers, small SUVs and small premium utilities.
The net result? This chart sums up where we think the industry is headed within the next 10 years. As you can see, the winners include crossovers and small-cars, as well as small premium utilities.
Against these challenges, it is now clear that we were too optimistic in January about our ability to stabilize our market share given the quicker than expected shifts in the marketplace.
The simple fact is that the business model that served us in North America for decades no longer works. We must change to a new business model that delivers greater bottom-line contributions from cars and crossovers, continued leadership in pickups, new products that drive revenue and actions that more rapidly reduce costs to achieve profitability.
So, how are we going to get the job done?
This spring, we began looking at accelerating the Way Forward plan. And we’re now ready with the actions we need to take by the end of 2008 to position ourselves for future profitability.
And that is the focus of today: now through 2008.
Our accelerated actions are two-fold: products and costs.
Let’s start with the products, because this remains a product-led turnaround first and foremost.
As we made clear in January – and as we will underscore today – the future of Ford will be driven by bold, innovative products. To that end, we are strengthening and accelerating our product plans for Ford, Lincoln and Mercury.
We’ve reexamined our entire cycle plan, and we’ve accelerated work on future products. Development is now under way on five new vehicles that previously did not exist and that will be on the road in the future. And, even in the near term, the pace will accelerate.
Between now and the end of 2008, 70 percent of our Ford, Lincoln and Mercury lineup by volume will be all-new or significantly freshened. That includes strong new vehicles in new segments like the new Ford Edge and Lincoln MKX crossovers that go on sale in November – and our new Super Duty pickup, which we will reveal in two weeks.
Our plans also include some vehicles you haven’t seen yet – like the next-generation F-150.
Since January, we have dramatically expanded our original plans for the next-generation
F-150 which goes on sale in 2008. As a sign of just how serious we are about truck leadership,
we literally stopped development for two months earlier this year, and we took a look at every element of the product to ensure we remain America’s unquestioned truck leader.
The results are substantial, including a full redesign of the product from front to back,
more innovative customer features and technologies, and an even stronger powertrain lineup.
That, by the way, includes adding higher performance gas and clean diesel options for the
F-150 beyond 2008.
What else has changed? More Mustangs.
We added additional Mustang derivatives to our near-term product plans – to ensure we have at least one new Mustang every year. One of those will be the return of the Bullitt, and it’s coming in 2008.
To help us earn our fair share of the growing market for small SUVs, we’re also introducing redesigned gas and hybrid versions of the Ford Escape and Mercury Mariner, which go on sale early next year.
Also coming next year are updated versions of the Ford Five Hundred, Ford Freestyle and the Mercury Montego. They include bolder styling, upgraded interiors and more powerful engines.
We also have an updated Ford Focus coming next year with new interior and exterior styling
to help us capture more of the growing market for small cars.
In 2008, we further strengthen the Lincoln brand. In August, I confirmed plans for a new Lincoln flagship sedan the Lincoln MKS. We plan to build it in Chicago and equip it with more technology and features than any Lincoln before it, including all-wheel drive and a new, exclusive 3.7-liter engine.
We’re also committed to delivering even more crossovers to maintain our leadership in this booming segment. We expect the new Ford Edge and Lincoln MKX to make huge waves when they go on sale in November. And to keep that momentum going, we will introduce an all-new Ford full-size crossover based on the Fairlane concept that was a huge hit at auto shows last year.
With bold, American design, three rows of seating and about 23 miles to the gallon, we believe this all-new vehicle can redefine the people-mover for the 21st century. We will build this new crossover at our Oakville Assembly Plant in Ontario to take advantage of the significant investment we’ve made in flexible manufacturing there.
We’re also delivering safety sooner because it continues to grow in importance to our customers.
We have sped up the standardization of safety features across our lineup. Two-thirds of our vehicles will have standard side air curtains, and half will have electronic stability control by the end of 2008. And, by the end of 2009, all of our retail products will have standard side air bag protection and electronic stability control.
Now, speaking of innovation, we remain fully committed to our strategy to improve fuel economy, lower emissions and reduce the country’s dependence on imported oil.
This is more than just words.
We have shifted our focus from simply delivering CAFE obligations to a customer-focused strategy that requires competitive fuel economy for every vehicle – regardless of the body style or powertrain.
We will do it through major investments in new gasoline, flexible-fuel, diesel, hydrogen
and hybrid powertrains – including additional ethanol-powered and hybrid vehicles on the road by the end of 2008. In addition, two out of every three Ford, Lincoln and Mercury vehicles will be offered with fuel-saving 6-speed transmissions by the end of 2008.
And this is just the start. We’re also speeding our product development time and improving time to market between 30 and 50 percent by the end of 2008. And, in 2009 and beyond, the product onslaught accelerates even further. We will leverage our global product capability like never before, including new small cars developed from our B- and C-platforms not used presently here in North America.
Now, as I said earlier, the future cannot be delivered without changing our business model and addressing our uncompetitive cost position. The reality is that our business today is structured around a model that worked well for us a decade ago but is no longer viable today.
Going forward, we must take a conservative and realistic view of our revenue and cost position.
We must base our business on the customer – and that includes aligning our structure our production and our capacity with customer demand.
Toward that, we now expect our U.S. market share for Ford and Lincoln Mercury to be in the low-16 percent range at the end of this year. We expect it to decline again in 2007 as we discontinue the Ford Taurus sedan and Ford Freestar minivan, which all were primarily sold to daily rental fleets.
Going forward, with our investment in new products and improvements in quality, we expect to be in the 14 to 15 percent range – with a focus on profitable retail share. We expect these market share declines, as well as continued high raw material costs, to delay the return of full-year profitability for our North American auto operations until 2009.
Clearly, we could have cut product programs and maintained our goal of North American profitability in 2008. But we cannot – and we will not – retreat from the critical investments to deliver more products for our customers. The competitive landscape and our future demand it.
In line with this new reality, we will resize our business in North America. That includes reducing our total annual operating costs by about $5 billion by the end of 2008. As part of these cuts, we will reduce our salary-related costs by about a third, or about 14,000 equivalent salaried positions. We will do so through early retirements, voluntary separations and, if necessary, involuntary separations. We expect most employees will leave by the end of the first quarter of 2007.
On the hourly side, we continue to work with the UAW to improve the competitiveness of our U.S. manufacturing facilities. New competitive operating agreements have been ratified by UAW locals in 30 different U.S. facilities for Ford and our Automotive Components Holdings facilities. The result is nearly $600 million in annual savings.
We also have reached an agreement with the UAW to extend buy-out offers to all Ford and ACH hourly employees in the U.S. Employees will begin receiving details by mid-October.
The move allows us to accelerate by four years our previously announced goal of reducing 25,000 to 30,000 North American manufacturing employees by the end of 2012.
These moves are being taken in parallel with our efforts to match our installed capacity with demand.
As we announced in January, our North American capacity is being reduced by 26 percent by the end of 2008 versus 2005. In January, we said we would idle seven facilities through 2008. Today, we are announcing two more.
It is our intent to idle our Maumee Stamping Plant in 2008 and to cease production at our Essex Engine Plant next year. In addition, we will idle our Norfolk Assembly Plant a year earlier than planned. And we will eliminate a shift in advance of idling Norfolk and our Twin Cities Assembly Plant.
Norfolk production will move to our Dearborn Truck Plant, where we will add a third crew, beginning in 2007. And, to meet ongoing demand, we intend to move production of the Lincoln Town Car to our St. Thomas Assembly Plant, following the end of production at Wixom next year.
All together, we have announced plans to idle and cease production at 16 of our North American manufacturing facilities by the end of 2012 including seven vehicle assembly plants.
We also are announcing today that ACH is accelerating its efforts and will sell or close all facilities by the end of 2008.
We believe these changes – which are massive – will be enough to put us back on track. But we will remain quick, decisive and flexible in reacting to changing conditions in the future.
We know these decisions bring even more pain to the business in the short-term, and they will require sacrifice from our employees, labor unions, dealers and suppliers.
We also know that our work is far from over. But, together, we are building a much stronger Ford Motor Company and a more secure future.
As you look at all of these actions – from our accelerated product plans to our faster cost and capacity actions – you can see that we are taking challenges head on. We’re dealing with the world as it is – not as it was 10 years ago.
As we’ve outlined today, we are committed to moving further and faster throughout our business.
And we are more passionate than ever to deliver our results.
Sept. 15, 2006