The inside story: Ford's roadmap for survival

I thought the article below was an interesting look inside one of the "Big 3" that is being beleaguered in the press. Ford has not sat idly by while the industry has changed, and has actively restructured itself since 2001. You may not remember, but in 1999 we were the industry's most admired company. Since Alan Mulally arrived 2 years ago, Ford has accelerated its plans and is bringing its global resources together under One Ford. He is leading the Company in the right direction, and continues to make tough decisions to ensure our viability. We did not get to the position we are in overnight, but the ground work has been laid, and the plans are in place to ensure Ford continues to be an industry leader into the future.

The current downturn has taken an industry that has recently sold 17M vehicles a year down to 12.6M vehicles forecast for 2009. The effects of the downturn are being felt across many other key areas in our economy, too. While the Big 3 are often lumped together, and I want to point out some of the reasons Ford is different. I would also like to point out a couple of other interesting facts, and I hope you find the article at the end of this insightful. Please pass this on to others, if you so choose.

Ford Quality

* Ford improved vehicle quality again, marking four consecutive years of progress. Ford, Lincoln and Mercury vehicles collectively reduced things gone wrong by 7.7 percent compared to last year, pulling Ford into a statistical quality tie with Honda and Toyota atop the list of seven major automakers in the U.S. Global Quality Research System study. This is also supported by 3rd party studies from consumer reports to JD Power.
* Building on vehicle quality that is now on par with Honda and Toyota – and that consistently is being recognized by important third-parties like J.D. Power and Associates’ Initial Quality Study – driven by Ford’s disciplined and standardized processes for every product.

Fuel Efficiency

* With every new Ford vehicle, we commit to delivering the best or among the best for fuel economy with every new vehicle introduced globally.
* Innovative technologies and clever engineering solutions already are putting Ford at the head of the pack for fuel economy in vehicles including the 2009 Ford Focus, Escape and Escape Hybrid, Flex and F-150.
* The 2010 Ford Fusion and Mercury Milan (introduction in early 2009) will be the next products to offer customers a more fuel-efficient powertrain lineup. The all-new Duratec 2.5-liter four cylinder engine is expected to deliver fuel economy that’s at least 3 mpg (hwy) better than Honda Accord and 2 mpg better than Toyota Camry.
* The all-new Fusion and Milan Hybrids are expected to achieve class-leading fuel economy, beating Toyota Camry Hybrid by at least 5 mpg (city).
* By the end of 2010, nearly all of our North American engines will be upgraded or replaced.
* Within two years, nearly all of our North American lineup will offer fuel-saving six-speed automatic transmissions.
* With these new hybrids, Ford will double the size and volume of its hybrid lineup and will be the largest domestic producer of full-hybrid vehicles in North America. Ford also will have the most fuel efficient SUV and mid-size sedan on the road.
* Introducing industry-leading, fuel-saving EcoBoost engines and doubling the number and volume of hybrid vehicles.

Safety Honors

* Building on vehicle safety leadership – with the most U.S. government 5-star safety ratings of any auto company and recently moving past Honda for the industry’s most IIHS “Top Safety Picks” – plus new smart safety features, such as the industry-first MyKey technology that limits top speed and audio volume for teens and the first forward crash-avoidance system for mainstream vehicles.
* Ford achieved the leading number of “Top Safety Picks” from the U.S. Insurance Institute for Highway Safety with the 2009 Ford Flex and Lincoln MKS earning top honors.

Innovation

* Our EcoBoost technology is slated for a wide range of global vehicles and will benefit millions of customers. It uses gas turbocharged direct-engine technology to deliver up to 20 percent better fuel economy, up to 15 percent fewer CO2 emissions and superior driving performance versus larger-displacement engines.
* The first applications of EcoBoost V-6 engines come next summer in the Ford Flex and Lincoln MKS. Four-cylinder EcoBoost engines will debut in 2010 in North America and Europe.
* We’ll offer EcoBoost on more than 80 percent of our North American lineup by the end of 2012.
* Upgrading the Ford, Lincoln, Mercury lineup in North America almost completely by the end of 2010.
* Bringing six European small vehicles to North America from global B-car and C-car platforms.
* Retooling three North American truck plants to produce small, fuel efficient vehicles.
* Supporting Ford’s global products with a lean, flexible global manufacturing system
* Our sustainability strategy also includes mid- and long-term technologies that will benefit millions of customers without compromising their expectations for fuel economy, quality, safety and performance.
* For the mid-term (2013-2020), we’ll achieve gains by fully implementing solutions and proven technologies that we’re evaluating for high-volume introduction – such as significant weight reductions, high-volume hybrids, plug-in hybrids and a broader application of EcoBoost. Beyond that, we’ll look at volume introductions of emerging alternative solutions such as hydrogen, full-battery electric vehicles and bio fuels.
* Leveraging Ford’s product strengths to deliver more global vehicles in the B, C, C/D and commercial van segments. By 2010, nearly 40 percent of Ford’s product entries in these segments will be shared between Ford North America and Ford Europe, and 100 percent alignment will be achieved by 2013.
* We already have class leading technologies in place like SYNC, Ford Works Solutions, Sirius Travel Link, and blind spot mirrors to name a few.

General Info

* The "bailout" being discussed is not a free handout to the Big 3, a la the Financial Bailout, it is a loan that will be repaid.
* I have heard the Domestic Big 3 do not produce vehicles people want to buy. Domestics still account for 41.3% of all retail purchases in the US through Oct 2008 (vs. 40% for the Japanese Big 3).
* Failure of one automaker would trigger a domino effect on the supply chain and the finance subsidiaries and on other domestic automakers. Auto industry is a national asset and a critical economic component that runs straight through Main Street…Look to Germany, Japan, China and Korea to see if their governments feel this way.
* Almost 4% of U.S. gross domestic product is auto-related and represents 10% of U.S. industrial production by value. One out of every 10 U.S. jobs is auto-related, and auto workers receive $335 billion annually in compensation. Specifically, GM, Ford and Chrysler account for roughly 70 percent of U.S. auto production and are estimated to support around five million jobs across all 50 states.
* Over the last two decades, America’s domestic auto industry has invested nearly a quarter of a trillion dollars in the U.S., including $10 billion alone last year. The industry also spends $12 billion annually in R&D in U.S., which is among the top industries such as aerospace, medical equipment and computer/electronic industries.
* Supports maintenance and growth of supply base. The auto industry purchased last year $156 billion in U.S. auto parts supporting jobs in all 50 states and is the largest purchaser of U.S. steel, aluminum, iron, copper, plastics, rubber and electronic and computer chips.
* Enables auto industry to continue to meet extensive obligations…Families depend on a healthy industry that provides healthcare benefits to two million Americans and supports nearly 800,000 retirees and spouses with pension benefits.
* Enables thousands of dealers to survive and prosper…Throughout towns in every state in America, over 20,000 automobile dealers provide high paying jobs for over 1 million employees.
* Autos account for $690 billion, or about 20% of all U.S. retail sales.
* Auto sales generate more than $10 billion dollars of annual tax revenue (sales tax, registration fees, payroll taxes) which for many states and local communities is among their top sources for revenue.
* Many U.S. financial firms are staked to a healthy auto industry because many have provided credit to manufacturers, hold their bonds and have financed the purchase of their vehicles. Millions of Americans also hold auto stocks and/or bonds that are held in mutual funds, 401(k) plans and pensions.
* Did you know the Hybrid technology Toyota is using here was financed by their government who also provides free healthcare to its workers (BTW - I am not a fan of this!)

The inside story: Ford's roadmap for survival
The Detroit News 11/13/08 by Bryce G. Hoffman
DEARBORN -- For the last six weeks, Ford Motor Co.'s top executives met almost daily to craft a plan to keep the company solvent in the face of the worst financial crisis in decades. Surrounded by black-and-white photographs of Henry Ford and the Model T in the Thunderbird Room on the 11th floor of Ford's world headquarters, they waged a battle to decide Ford's future.

CEO Alan Mulally and his leadership team worked through lunch, taking quick bites of Caesar salad as the global credit crisis deepened and automobile sales collapsed. With gasoline prices falling, some argued that Ford should abandon its costly plan to retool North American truck factories to produce smaller, more fuel-efficient cars from Europe. Others pushed to curtail future investment in key products like the F-150 pickup that have seen sales drop off dramatically in recent years.

Global product development chief Derrick Kuzak -- backed by Mulally -- countered: If Ford has a future, it depends on delivering a new generation of class-leading cars and trucks that people actually want to buy. They fought off every challenge to one of the most ambitious product plans ever put together, albeit at the cost of thousands of jobs.

"We're only going to be in business if we create products that people really do want and value," Mulally told The Detroit News in an exclusive interview Tuesday. "This is the essence of creating a viable Ford."

Unlike rival General Motors Corp., which has curtailed its investment in some new vehicles to conserve cash, Ford is betting the business on new cars in a make-or-break bid to turn the company around before time runs out.

Ford's latest launches have done little to arrest its decade-long decline in U.S. market share, and it is far from certain that the cars and trucks in Ford's pipeline will be enough to turn the tide. Yet, Wall Street analysts such as Eric Selle of JPMorgan say this is the only way forward for an automaker that has wasted too many years producing lackluster products that barely covered its costs.

"The status quo is no longer acceptable," he said. "Abandoning the product plan would have been a bad move."
Ford has demonstrated that it can make money off its small cars in Europe, Selle said, adding that the concessions it won from the United Auto Workers union last year should allow Ford to do the same thing in this country.

Crunching the numbers
In Mulally's Thursday morning meetings, already the stuff of legend in Detroit, Ford's top executives review the company's progress on the turnaround plan. By the end of September, the full magnitude of the global credit collapse was becoming all too apparent to Ford and the company needed to take urgent action to shore up its liquidity.

The weekly meetings became daily sessions. Mulally summoned the leaders of Ford's Asian and European operations to Dearborn. Along with Ford Americas President Mark Fields, Kuzak and other key executives, they began looking for ways to conserve Ford's liquidity.

Each time, they would emerge from the Thunderbird Room with orders for their respective teams, which would then work long into the night crunching numbers and running models.

They worked Saturdays and Sundays, poring through the company's business plan looking for places to shave more costs. But the discussion always returned to the product plan.

Vehicle programs are a huge expense. Cutting one is an easy way to balance the books. GM is postponing new investment in its pickups to save money. Chrysler LLC canceled part of its product portfolio earlier this year. Some at Ford wanted to do the same thing.

"It was like, OK, which one do you want to cut out? Which one do you think we don't need? Remember, this is to stabilize our position in the marketplace and actually grow. We're not going to stabilize anything" if we keep cutting, Mulally said. "You have to allow that debate to happen, because we had to still come up with all of the hard actions."

Kuzak told The News that he saw little point in preserving cash at the expense of Ford's lineup.
"Outstanding products are the heart of any turnaround of our business and its future success," he said. "The whole intent from the beginning was to protect the product plan and the capital spending and engineering that goes with it and look for every other element of cash that isn't directly tied to the products."

Mulally's turnaround plan is based on consolidating Ford's worldwide operations to better leverage its global scale. Kuzak said many elements of that plan are ahead of schedule, and he challenged his department heads around the world to study their budgets to determine what could be eliminated in light of these newfound efficiencies. Other executives did the same.

Bonuses, advertising cut
They also began a careful analysis of Ford's most efficient operations, like its new joint-venture factory in Nanjing, China. Chinese partner Changan had introduced some cost-saving tooling practices there that Ford rushed to implement at other facilities around the world.

As part of this effort, executives decided to cut another 10 percent of the company's salaried payroll in North America. Benefits, including the bonuses paid to Mulally and other senior executives, are being cut. So is advertising.

Ford was already on track to cut at least $5 billion in annual operating expenses because of its earlier restructuring actions. These new cuts, announced Friday, are expected to save another $8 billion to $9 billion.

At the same time, Ford is transferring money from its lending arm, Ford Credit, to the parent company and will continue debt-equity swaps to raise additional capital. These actions, combined the possible sale of assets like its stake in Japan's Mazda Motor Corp., are expected to raise another $6 billion to $8 billion through 2010, when the full benefits of the new UAW contract kick in.

The product plan remains largely intact. In the end, Ford only delayed one new product program -- a European crossover that had not even been announced. It is also postponing plans to offer a diesel version of the F-150, as well as the freshening of a few of its poorer sellers in the United States.

Because Ford's plan assumes no help at all from the federal government, some of these actions could be reversed by a federal bailout. And Mulally said Ford's approach should help make the case for government assistance.

"Whoever is going to invest or loan us money wants to know we're taking the actions to create a viable company going forward," he said. "We are absolutely taking the appropriate actions. We've demonstrated that we're making progress."

Ford's future
Products and launch dates for Ford's new lineup.

* 2009 Ford F-150 Now on sale
* 2010 Ford fusion and Fusion hybrid on sale in early 2009
* New Ford Fiesta Early 2010. U.S. version will be similar to European model.
* Ford Explorer America 2010.
* New European Transit Connect small multipurpose van in mid-2009.
* New Lincoln seven-passenger crossover Mid-2009
* 2010 Mercury Milan On sale in early 2009.
* 2010 Lincoln MKZ sedans On sale in early 2009
* New Ford Mustang Coupe, convertible and glass-roof models in early 2009
* New Ford Taurus sedan Mid-2009
* New European Ford Focus 2010
* New Mercury small car 2010