The way forward by CEO Bill Ford
Following is the text of remarks by Bill Ford, Chairman, and CEO, Ford Motor Company, at the Ford Motor Company Business Review on January 23, 2006.
Today, we declare the resurgence of the Ford Motor Company.
It doesn’t begin today; it’s already begun. But today, you’ll see and hear how serious we at Ford are about winning in the 21 st century “ both in North America and around the world.
We call our North American plan, “The Way Forward.” It’s bold and sweeping and it builds on the innovation-driven vision we talked about last September. It’s a strategy that calls for sacrifices at all levels of the Company. It puts the customer first. And it demands we look beyond short-term financial targets to create sustainable, profitable change in our North American business.
Much of what’s written about today’s discussion will focus on the cuts to plants and personnel, and that’s understandable. These cuts are a painful last resort and I’m deeply mindful of their impact. They’re going to affect many lives, many families and communities “ and we’re going to do everything we reasonably can to ease the burdens.
The people in some of our plants arent the only ones asked to sacrifice. As you know, we are reducing our salary-related costs by 10 percent. And we are reducing our officer ranks by 12 percent by the end of the first quarter.
By taking the actions we are today, in the long run, we will create far more stable and secure jobs. We all have to change. And we all have to sacrifice. But I believe this is the path to winning.
The Way Forward contains some strong medicine for our North American business. But it also contains the vision and strategic focus to rebuilding the business. With it, we will retake the American roadway.
Mark Fields will explain the details of the plan shortly. But the full story of what’s happening at Ford cannot be told by cuts “ you can’t cut your way to success. The full story is about what Ford stands for “ and what we will no longer stand for.
Ford Motor Company stands for a far-sighted commitment to growth. We stand for a renewed focus on the customer. We stand for boundless innovation in every aspect of our business “ from design, to safety, to fuel efficiency, to efficiency on the factory floor.
We stand for the distinctive look, feel quality, toughness, boldness, and fun of automobiles that are unmistakably Ford. And we stand for the hard-working men and women of Ford Motor Company and their families.
Business plans change as the world changes “ but these principles will never change.
Here is what we will not stand for: incremental change, avoiding risk, thinking short-term, blocking innovation, tying our people’s hands, defending procedures that don’t make sense, and selling what we have instead of what the customer wants. In short, we will not stand for business as usual.
When I took over as CEO at the end of 2001, we were awash in red ink, losing more than $5 billion that year. In 2002, we launched a major effort to revitalize our company.
We divested ourselves of several non-core businesses and created the biggest wave of new product launches in our history. Since 2003, we have made money each year. In fact, this morning we announced a net income of $2 billion.
Outside of North America, we’ve made continuous progress. Our automotive operations in Europe, Asia, and South America were all profitable last year. Mazda is enjoying its best performance ever. Jaguar is bringing out fast, beautiful, groundbreaking cars. Aston Martin is expanding.
Land Rover’s largest-ever introduction of new products is winning in the marketplace. And Volvo is entering it’s most aggressive product period ever, with five new models in eighteen months.
And in parts of the world where the car market is growing sharply, so are we. Were doing especially well in Russia, Turkey, and Hungary. In India, we introduced our most important new product in years. And Ford sales in China “ the fastest growing market in the world “ were up 46 percent last year.
Were proud of our success around the world. But here, on our home turf, we must do more.
The plans we announced in 2002 were not wrong. They took us as far as we could go without making dramatic changes “ but that’s not nearly far enough, especially in light of how much the global marketplace has changed. Oil and steel prices are up, competition from abroad has intensified, and domestic demand for SUVs dropped sooner than anticipated.
We need to change the business model that’s existed for many decades at Ford. How will we do this?
First, we are taking a more far-sighted approach.
Last year, we stopped publishing quarterly earnings guidance. This was a result of the tremendous volatility in the market as well as the spikes that we saw in steel, crude oil, and other commodities. Today, I am announcing that Ford Motor Company will no longer publish annual earnings guidance either.
This decision may be contrary to the advice from some of the respected people in this room. It is not that we do not value your opinion. We do. But we need to underscore an important point inside the company and out: we cannot succeed in the long run if we’re focused only on the short term.
We must be guided by our long-term goals of building a brand, satisfying customers, developing strong products, and accelerating innovation.
Over time, we believe this approach will lead to sustainable profitability. You’ll be able to judge our results as we report our progress.
We do have extremely rigorous targets for costs, capacity utilization, and other traditional metrics. But we will also be managing to allow our employees more freedom, to take smart risks, and to demonstrate their creativity. Mark will elaborate on all this in a moment.
Second, we’re going to sharpen our focus on those who count the most “ our customers. They are changing and we’re going to change with them.
True customer focus means that our business decisions originate from our knowledge of what the customer wants, both today and tomorrow. “If you build it, they will buy it” “ that’s business as usual, and that’s wrong. “If they will buy it, we will build it” is right “ and were going back to it.
Our over-reliance on SUVs was business as usual. We were obviously pleased with their profitability and hoped that demand would continue to rise, even though we knew that day would come when customers would begin to embrace other segments, like cars and the fast-growing crossover market.
Our product plans for too long have been defined by our capacity. We developed vehicles to fill plants, sometimes at the expense of creativity. That’s why we must reduce capacity in North America.
From now on, our products will be designed and built to satisfy the customer “ not just to fill a factory.
Were going to go way beyond what we’ve ever done before at Ford to find out what’s on the customer’s mind. But we’re determined to do even more than that.
My great-grandfather once said of the first car he ever built: “If I’d asked my customers what they wanted, they’d have said a faster horse.”
At Ford, we’re going to figure out what people want before they even know it “ and then we’re going to give it to them. Its where we began and it’s where we must go.
This is going to require change number three: we must unleash our spirit of American innovation. To me, innovation is seeing what others can’t see and using that vision to build what others have never built.
Its the only way to make a car that’s smaller, yet roomier; lighter, yet safer; faster, but more fuel-efficient. Innovation resolves contradictions. It flattens old barriers, and it’s the heart of all progress.
It has a very specific purpose here at Ford. It will drive the bold American designs of our cars and trucks “ giving them the uniquely American look and feel that reflects our country’s spirit, ingenuity, and sense of adventure.
Innovation will drive our new advances in safety. Ford and Volvo engineers are exemplifying that by working together on safety innovations like a new collision-avoidance system, night-enhanced vision, and the next generation airbag. Finally, American innovation will drive our new advances in fuel efficiency “ to offset high gas prices, the environmental impact, and dependence on foreign oil.
By 2010, more than half of our Ford, Lincoln, and Mercury products will have the hybrid capability. Well have the capacity to produce up to a quarter of a million hybrids a year, and scale up as the market demands. Right now, we are also offering four new flex-fuel vehicles for 2006 that run on a mixture of gasoline and ethanol. These new advances in fuel-efficiency “ as well as bold American design “ all spring from innovation.
There’s a lesson for us in the launch of the Ford Escape Hybrid. The Escape was the first hybrid ever designed, engineered, and built by an American automaker “ and the first hybrid SUV launched by anyone.
As we tried to design it, test it, and launch it on time, we found that the old systems and methods were getting in the way. So we put scientists and product engineers on the same design team and offered them the flexibility to get the job done.
They delivered the product on time “ generating more than a hundred patents, and developing new design techniques that we are using now to develop other products.
Getting scientists and engineers together doesn’t sound so complicated. Getting management off their backs doesn’t sound so revolutionary. Why didn’t we do this before? Because we didn’t have to. The system in place was good enough for getting other products out at that time.
Now the question is: what other bureaucratic walls have we built that are holding us back?
Rouge is another example of innovation. Despite cynicism and institutional barriers, we built the most progressive assembly plant in the world. The Rouge marries lean, flexible, and environmentally friendly manufacturing with America s best-selling vehicle, the F-Series truck.
Over time, the Rouge will save us many millions of dollars not just because of its green roof, but in energy costs like heating, cooling, and lighting.
Projects like these need to be the rule, and not the exception.
I like to tell school kids about a time a hundred years ago when my great-grandfather Henry Ford built his first car in a shed behind his house.
In the end, after he was finished, he realized there was one thing he hadn’t anticipated. The car was too big to go out of the door. He actually had to knock down a wall to drive it out.
We intend to remind people every day that if you want to build something that’s never been built before, you may have to knock down a wall or two.
Today, we are moving from a culture that discourages innovation back to a company that celebrates it.
In this effort, we recently sent out a mailing to 120,000 US dealers, employees, and retirees asking for ideas. Going forward, our employee evaluations will include a section on innovation. Were also going to design compensation plans that reward new thinking. And were going to create a way for employees to appeal a decision, even if they have an idea and the boss says no.
We also launched an innovation website in November to solicit ideas from employees. In our first month, we received more than 1,000 ideas and were following up on some very promising ones.
This company was founded by an inventor; we want to make sure that today the company is overflowing with innovators. We’re going to find them, encourage them, and then we’re going to reward them.
This is what it is going to be like at Ford: Far-sighted, customer-focused, and innovative.
At the same time, we must make some dramatic improvements in our cost structure. Mark will talk shortly about our plants and our employees. Our capacity must be tailored to customer needs “ to a level that will boost profit margins and stabilize market share.
We also have to reduce the gap between Ford and our competitors in material costs. Doing so will not only improve our cost structure through economies of scale, but it will allow us to foster greater innovation through stronger, smarter partnerships with our key suppliers.
As you know, our health care and legacy costs are enormous.
We’ve been working in partnership with the UAW to address the ever-escalating costs of our health care benefits, including a recently approved agreement to reduce costs in a reasonable way. Still, more progress is needed.
But we can’t solve this problem alone, not when health care costs nationally are rising eight percent a year and the system is full of disincentives to control costs. This problem will only be solved with business and government working closely together. For US-based companies to remain competitive worldwide, we must find new solutions to this problem.
Just as important as setting a strategy for the company is finding the right people to lead it.
Mark Fields was our choice to turn around North America. He is a great motivator and a great leader. He has the kind of courage, candor, and communication skills it takes, and that we need, to turn tradition on its head. And he’ll do it.
Our plan in North America reflects lessons from our successes around the world “ including Mazda, where Mark led the turnaround by telling his team: “Change or die.” They changed. Under Mark, North America will change, too.
Anne Stevens is working with Mark as a chief operating officer of the Americas and the first female executive vice president in Ford’s history. She’s a no-nonsense, straight-talker who takes on the tough challenges and doesn’t back down. Before taking on the Americas, Anne was responsible for the dramatic turnaround in our South American business.
That team is further bolstered by Bob Shanks, the CFO of the Americas, and the financial brains behind Mazdas and Land Rover’s successful turnarounds. Bob has brought a comprehensive financial perspective to the team and a deeper sense that cutting alone is not enough. We must invest in our future if we’re going to have one.
In closing, I want to emphasize something I said at the start. We are making important announcements today about The Way Forward “ but this change has already begun. The proof is in our products.
For the third year in a row, the Ford F-Series was named the “Truck of Texas,” and it was a best-selling pickup in North America for the twenty-ninth year. The Ford Five Hundred and Mercury Montego were the only sedans to earn the Insurance Institutes gold rating for frontal, side, and rear crash test performance.
The 2006 models of the Ford Five Hundred, Ford Focus, and Mustang Convertible have all been rated among the top two in their class by Consumer Reports. And the Ford Fusion, Mercury Milan, and Lincoln Zephyr are all off to a very good start.
These products will help us stabilize our market share and move toward long-term sustainable profits. But that’s only the beginning.
Let’s imagine for a moment that we didn’t have a 100-year old history, a well-loved brand, economies of scale, loyal customers, great suppliers, and committed dealers.
Imagine, instead, that we were a start-up company without all those advantages, and we had to compete against the best companies in the world. What would we do?
The only way to compete would be to become far-sighted, customer-focused, and innovative “ exactly what we were a hundred years ago, and exactly what we need to become today to win again in America and around the world.
For too long, we’ve used the advantages of size to avoid change. Now, were going to use the advantage of our size to accelerate change. Were going to be a big company that thinks like a small company. If we can do that, Ford will win “ and win big.
I appreciate the fact that winning will require sacrifices by the people of Ford, and there will be fewer of us here in the future than there are today.
We take these difficult steps with a sense of compassion and gratitude for those who have served us with all their hearts. But we must press ahead for the good of all.
I know that if we come together behind these shared goals we can seize our heritage of innovation and emerge stronger than we’ve ever been.