Way Forward Speech – January 23, 2006, The following is a transcript of remarks delivered by Mark Fields, Ford Motor Company Executive Vice President and President of The Americas, on Monday, Jan. 23, 2006.
Thank you, Jim (Padilla), and good morning, everyone.
I’d like to join Bill Ford and Jim Padilla in welcoming the investment community and media guests, as well as Ford employees watching around the world. I can’t think of a better place for us to be today than in this design studio.
In many respects, the Way Forward begins right here, among the sketches, clay models, computer work stations, and the designers and engineers. This is where our commitment to see the world through our customer’s eyes takes shape, and this is where the future of the Ford Motor Company begins.
Its also fitting to be here because we’re only a few steps from the spot where 50 people, working on 10 different teams, spent 60 days working together to develop our Way Forward plan. Every part of the business was represented, and the teams were told to put everything on the table, start with a clean sheet of paper and to be unconstrained in their thinking.
It was liberating and invigorating. And the Way Forward plan was going to discuss this morning is the direct result of those efforts. Efforts created on behalf of the tens of thousands of men and women at Ford, whose passion and commitment will now drive its success.
Let me be very clear and very candid. I recognize that you’re a tough audience. You’re skeptical and with good reason. My promise to you this morning is a level of candor that you might not have heard from us in the past. And my request, including to those of you who have written us off, is to keep an open mind and to ultimately judge us by our results – not our words. Those results, as Bill Ford mentioned, will be to slow the rate of loss and stabilize our market share in the near term, and return to profitability in Ford’s North American auto business no later than 2008. That’s not a prediction. It’s a promise and a clear way for you to measure me and the entire North American team.
I’ll spend most of my time this morning talking about the specifics of the Way Forward plan. But I will start with some of the external and internal business challenges that brought us to this point. A lot has changed since 2002 when we launched our Revitalization Plan.
In 2002, gas prices averaged $1.30 a gallon. Four years later, it’s a dollar higher. Steel prices were $320 a ton. Today, it’s nearly double that. Four years ago, there were 215 nameplates fighting for customers in the U.S. Today, there are 40 more, in an industry where volumes have been essentially flat. And the challenges are only going to get tougher.
The auto market in the U.S. isn’t expected to grow much by the end of the decade, but there will be far more players slicing up the pie. We expect more than 300 nameplates by the decades end – a 50 percent increase in only seven years. That’s unprecedented, and it has spelled the end of the Big Three as we know it. Today, it’s the up-for-grabs Big Six and a competitive shootout like we’ve never seen before.
We have addressed many of these problems in a significant way since 2002. We reduced capacity by nearly a million units. We slashed material costs. We added new products. And we refocused on our core business again. But our revenue didn’t keep pace with higher costs. Our prior plan was based on share growth to justify our overhead and, frankly, we were driven by costs and capacity, and not enough by our customers.
Now, there’s not much we can do about the external environment. But we can control our destiny. And that is what the Way Forward is about. It’s not a cost-cutting exercise or a retreat into smaller markets. Its a retaking of the American marketplace.
Its time to play offense. Its time to fight back. We are doing what it takes to be America s Car Company. We are doing what it takes to give customers and our employees a reason to believe in Ford again.
Our Way Forward starts with a sharp customer focus as the foundation for everything we do. We will be relentless in this regard because growing companies, the ones that are increasing their market shares today, see the world through their customer’s eyes. We’ve seen it work inside and outside of Ford.
Six years ago, the world had written off Mazda. Mazda had no point of view in the marketplace and its sales dropped to a record low. When I stepped up to announce Mazda’s Millennium Plan, I saw the same skepticism and the same questions as I see on faces today. But we had a plan – one based on the customer and the brand.
We fought back and we delivered everything we promised – and more. Today, with a deep understanding of customers and a very clear point of view in the marketplace, Mazda is posting record sales and record profit. But this turnaround story isn’t just for Mazda.
As you saw in our 2005 results this morning, that same customer focus is turning around Ford of Europe and South America, Land Rover, and Aston Martin. It’s the same formula that has made Volvo so successful. And it has been the mainstay of Ford trucks and the Ford Mustang for years. Going forward, this customer focus will set up every part of our business: the products, the volumes, the revenue, and the cost structure.
As Mazda and others have demonstrated, we can stabilize market share and ultimately grow by making customers central to our business model. It leads to stronger brands and a more targeted product portfolio.
This clear view of the customer and our brands also improves product quality, as well as the quality of the selling process with straightforward pricing that is clear and simple. It leads to improvements in our cost structure and capacity. And it will unlock the talents and energy of the entire Ford team through bold leadership.
Bold leadership means being honest and realistic in our assumptions and our commitments, such as initially slowing the rate of loss and then stabilizing our market share in the near term. It means adopting a “change or die” mentality. And acting like a smaller, more agile company.
Bold leadership started with the way we developed the plan itself. We approached the job with more honesty, more speed, and better teamwork than I’ve ever seen in my career at Ford. Walk these halls, and you’ll see the spark of a new culture and a renewed winning attitude. It’s tempered by the sacrifices before us and the difficult actions we must take as a business. But there is an equally powerful and pent-up desire to take back our future.
When Bill Ford told employees last fall that innovation was going to be the compass that would guide our future, we were flooded with stacks of ideas. And when we asked the North American team for specific ideas for the Way Forward plan, we received more than 4,000 suggestions in just two weeks. You see, being bold and innovative is not only about the design of our products. It’s about changing the culture at the Ford Motor Company.
Now, just to clarify: there are many strengths within the Ford culture that we will and must preserve today. I’ve been impressed every day since arriving back in Dearborn with the intelligence, work ethic, passion, and loyalty of the Ford team. What we’re going to attack is the outdated habit that develops within any company that is more than 100 years old. When I speak about operating like a smaller company, I’m not talking about shrinking our size. I’m talking about the way we operate, the way we make decisions, and the way we relate as a team.
As Bill Ford pointed out, we’ve grown too conservative, too hierarchical, too resistant to change and new ideas, and, frankly, true accountability has not been our strong suit. Acting like a smaller company changes this. We need to preserve what is right in the Ford culture but make the necessary changes to help us compete with the best, the fastest, and the most efficient global competitors.
We realize that, even after today, there will be skeptics. There will be those who demand to know more about the plans for proprietary details and metrics. But we at Ford are cutting our own path. We are establishing our own clear point of view. And we fully expect to be measured by the results we have promised. Let’s start with more detail about customer focus. One of the problems we’ve faced in the past is that we’ve tried to be all things to all people. And that sometimes led us down a design path that was too conservative. In other cases, we let the competition drive our investments and launched “me too” products, or worse, we invested in segments where our customers didn’t care to follow.
To stand out in a world awash in car manufacturers, Ford’s brands and products have to be clear, relevant, and distinct. And we have to be loyal to our customers if we expect our customers to be loyal to us in return.
The driving force, as Bill Ford said, is an American innovation. But it’s not innovation for innovation’s sake. Its to differentiate ourselves in the marketplace through design innovation, safety innovation, and environmental technologies, like hybrids. In North America, we will focus this innovation on three complementary brands: Ford, Mercury, and Lincoln.
Why three brands? At one time or another, many who follow Ford have advised us to kill one of our brands and reinvest the “savings” elsewhere. I have to admit that I asked the same question when we started the Way Forward process. I challenged the team to justify each brand’s role in our portfolio going forward. The conclusion, after a very in-depth analysis, was that Ford is a stronger company with all three brands, but if – and only if – each appeals to a different set of customers.
This analysis showed that there’s more than enough room for Ford, Mercury, and Lincoln to each have their own point of view in the marketplace. Doing without one of the three would not result in savings only lost customers and lost profits.
Let’s start with Ford. The good news is that Americans buy more than a million F-Series trucks and Mustangs every year. Unfortunately, they don’t buy enough other products from us. That’s because we have had an inconsistent and, in some ways, an unhealthy approach to the market.
We studied the values and attitudes of tens of thousands of consumers for clues that could help us sharpen our focus. And we didn’t just study our customers. We looked at everyone’s customers. Our research confirmed for us what we knew in our hearts. Ford’s strength and identity are defined by three words: bold, American, and innovative.
Yes, we are a global company. And we proudly sell premium brands like Volvo and Jaguar. But Ford is best in this market when our cars and trucks embody the American spirit. We’ve come up with a phrase that we’re using internally to define that spirit. We call it “Red White & Bold.”
This phrase is not about wrapping ourselves in the American flag. And it’s not an advertising tagline. Its an internal rallying cry that reminds us what will drive us to success. It’s about asking our designers and engineers to reflect American values and attitudes such as optimism, innovation, and inclusiveness. It’s about instilling the values and spirit of America in every Ford vehicle we produce in the same way that Volvo is unmistakably Swedish.
Visually, in our products, it means bold, American design. Many of our products already reflect this philosophy, like the F-Series, Mustang, Fusion, and the new Ford Edge coming this year. As we move forward, all of our products will embody this, from our smallest cars to our largest trucks.
Now let’s talk about Mercury. We’ve earned some skepticism over the years with a haphazard approach to our products and marketing for Mercury. But there’s something going on at Mercury that’s very powerful, and we probably haven’t done a good enough job communicating it.
Our newest Mercurys – the Milan, the Mariner, and the Mariner Hybrid – are attracting younger customers to the brand and more women than Ford-brand products in the same segments. More importantly, our new Mercurys are bringing new customers to Ford Motor Company at conquest rates as high as 50 percent.
So, what’s the attraction of Mercury? Its modern, expressive design – differentiated from Ford vehicles. Our Mercury target customer is looking for product functionality that is similar to Ford vehicles. But they do have different attitudes and values, and they want a product that visually communicates that distinctiveness. Its more personalized in the sales and service experience and, again, different from Ford vehicles.
No American automaker is doing a good job at attracting these customers today, and I’m surprised by this, quite frankly. You just have to look at the growing number of magazines devoted to modern design and architecture to get a sense of this trend in America. Just look at the people buying furniture from Design Within Reach and computers and iPods from Apple.
These same customers are buying Mercury Mariners and Milan. And we will be more aggressive in appealing to them going forward with clear, modern differentiation in the design of Mercurys, unique purchase experience and marketing that is targeted, personalized, and interactive.
Finally, there’s Lincoln – a brand that has meant different things to a lot of people. I admit we lost focus and created confusion. That’s because, for a time, the qualities that define a Lincoln for our customers took a backseat to individual nameplates. Our vision is to make customers proud to own a Lincoln first and foremost. The goal is to make Lincoln the reward for people living the American dream.
Lincoln appeals to different customers from those who need to showcase their success through a brand like Cadillac. Lincoln customers don’t need to shout about success. They are self-made people, with enough confidence to be elegant and understated. And that understanding of the Lincoln customer will drive our brand and product decisions going forward. We will not waver.
The new Lincoln Zephyr and Lincoln MKX are significant first steps. Going forward, we plan to give our Lincoln vehicles an even clearer point of view through their powertrains, unique comfort and convenience, and, of course, unique designs.
We are moving Lincoln to be our largest volume contributor in the Lincoln-Mercury business. But we have no aspirations to take Lincoln to the world stage to achieve growth. Lincoln is about American luxury. And there are more than enough customers in this country who are living the American dream and who would prefer to drive America s luxury car. And that is where we are headed.
With that understanding of our customers and our brands comes a realignment of our product portfolio and a significant investment in future products. But, again, were going to cut our own path and make clear choices about where and how we will compete. We will use innovation as a differentiator throughout our lineup. We will bring to market more products faster and more efficiently.
Our product plan starts by investing in new and growing segments, like more hybrid vehicles. Bill Ford mentioned our commitment to producing 250,000 hybrid vehicles by 2010. That’s a far greater commitment than nearly every one of our competitors. It helps families with high prices at the gas pump and helps us attract more customers to our products than today.
In addition to the hybrids that we’ve already announced or that are on the road today, we are announcing four more hybrid vehicles by the end of the decade: the Ford Five Hundred, Mercury Montego, Ford Edge, and Lincoln MKX – with more to come as we introduce future models and nameplates.
We also are entering new “white space” segments, like the one envisioned by this Ford Fairlane clay model. And investing in small cars, as more and more customers realize that small is big in America. We predict that sales of small cars will grow by 40 percent by 2010. And Ford will be there with bold, innovative and American small cars – not bland econoboxes.
Small cars are ripe for bold design and innovation. But no company today is putting an American stamp on the small car segment. That means there’s a huge growth opportunity if only someone is willing to seize it. Ford plans to seize it, and you’re seeing a hint of what’s to come with vehicles like the Reflex.
At the same time, we will build on our strengths, including increasing our product investment to fortify our F-Series truck leadership. We will build on the momentum of our hot cars, like the Ford Fusion and the Mustang, with new derivatives and fresh appeal. And we will continue to build on the collaboration between our Ford and Volvo safety engineers.
One question that is surely top of mind is: how can you afford all of this? The answer is in changing the economics of our business. We will leverage our global scale like never before. It will improve the average age of our products – or the time since the last major refresh – from 4.4 years today to 3.2 years by 2008. This will put us in the same league as the best of the competition.
We have taken some important first steps in architecture sharing with the Ford Fusion, Mercury Milan, and Lincoln Zephyr. But we have to do even more. Today, we build three vehicles on the Volvo and Ford-designed architecture of the Ford Five Hundred. Over time, we will add four more cars and crossovers, including front- and all-wheel-drive models with V-6, V-8, and hybrid power packs.
The benefits of adopting this global architecture instead of starting from scratch are huge. Our total investment for all seven products will be about 25 percent less than we would have spent in the past. And our aim is to have our entire lineup profitable by the end of the plan period – from small cars to full-size pick-ups.
Driving us is our Global Product Development System. Its based, in part, on Mazda’s highly successful model. It requires us to do more planning upfront so that there are fewer changes down the line. And the payoff? Product development times are six to 12 months faster than today.
What’s more, by equipping plants so they can switch easily between products, we will dramatically reduce the investment in each new vehicle. The conversion of Oakville Assembly to flexible manufacturing, which we announced earlier this month, keeps us on track to convert 75 percent of our North American assembly plants to flexible manufacturing by 2008. But it’s not enough to deliver more products, faster. They have to be high-quality products. And improving quality requires innovation in the way we manage our people and our processes.
Ford knows how to improve quality. In the early 1980s, with the help of our UAW partners, we launched our “Quality is Job One” initiative. Between 1980 and 1985, we improved quality by an average of 50 percent in our combined car and truck lines.
Today, we continue to improve quality across our lineup. In Consumer Reports “New Car Preview,” Ford had the best showing among domestic automakers. But you won’t see us patting ourselves on our backs because we also had 12 vehicles listed among the “least reliable.” And that’s unacceptable. So, were accelerating the pace of quality improvements by re-adopting a “Quality is Job One” mindset.
The first step is to achieve a rapid improvement in the quality of our current vehicles. To that end, were aligning our engineering and plant teams around our top customer-driven concerns.
In addition, were assigning all of our 6-Sigma “black belts” – 1,150 highly trained people – to work on improving quality in product development and manufacturing. And were pushing more of the decision making down to the people most qualified to act. That means giving the quality teams in our plants the budgets and the tools to resolve problems quickly. Finally, were expanding accountability and linking compensation directly to specific quality improvements.
Now, even with the best products and the highest quality, we cannot succeed if we continue with the irrational pricing and incentives war that our competitors have started. Here again, we are cutting our own path. Let me start with pricing.
For several years, Ford – along with GM and Chrysler – has systematically raised vehicle sticker prices to offset the cost of higher incentives. This has led to consumer confusion about the true price of vehicles, and it has contributed to resale values that are generally lower than comparable Japanese products. This must end. Were going to re-establish the value of our products through straightforward and simple pricing.
We started introducing clear pricing two years ago with the Ford Mustang and last year with the Fusion – well before the other guys ever talked about it. These vehicles have proven that well-priced products with great appeal can break out of the incentive shell game. A growing percentage of our products have clear, simple pricing, and the Way Forward plan will make it 100 percent over time.
We will bring sticker prices more in line with actual transaction prices and cap “cash on the hood” rebates as we introduce new cars and trucks into the marketplace. It will protect our margins and consumers, too, through higher resale values.
We’re already closing in on the best of our competitors with products like the Ford Five Hundred, Mustang and Fusion, which all launched with three-year residual values approaching 50 percent.
This is a bold move away from selling the deal and back to selling on appeal. And we are committed to it – even if the competition backslides. These moves will be accompanied by increased advertising that focuses on product design and product innovation.
To support those competitive prices and simultaneously improve profitability, we will dramatically improve our cost structure. We are targeting net material cost reductions of at least $6 billion by 2010. That’s $6 billion after all-new product costs are added in.
To get there, we will pursue more parts commonality in areas that are invisible to the customer, and we will forge much closer and mutually profitable relationships with key strategic suppliers. I saw and personally experienced these types of relationships and the benefits they can bring to the business during my years at Mazda.
As part of the “Aligned Business Framework” strategy we announced last fall, we have begun entering into new, long-term agreements with strategic suppliers to improve our business collaboration, accelerate innovation and drive higher quality and more competitive costs. Our agreements with Visteon to restructure the components business also will help us reduce our materials costs.
Another enabler to commonality and more competitive costs is a single team approach to product development and purchasing, with a single objective and a single process – versus each team working separately as in the past. It might seem like a simple move, but it’s already providing savings and efficiencies in Europe while improving the technology and cost of key commodities – from airbags to transmissions.
Finally, were targeting lower fixed costs. As Bill Ford pointed out, we are making sacrifices at every level. This includes our previously announced plan to reduce our salary-related costs 10 percent by eliminating the equivalent of 4,000 salaried positions by the end of the first quarter. This builds on the reductions we already have taken during the past few years.
At the same time, we must take the difficult but important steps to bring our capacity in line with customer demand. The hard but simple reality is that Ford has the costs, capacity, and staffing of a company that is much larger than our sales and market share can support – even under the best of conditions.
Today, we find ourselves with plants running at about three-quarters of capacity, and that is clearly unsustainable. Obviously, this has significant implications for our labor force. Its something we knew we would have to address honestly and with sensitivity to the impact on Ford employees and their families. Our pledge is to address those challenges in full collaboration with our union partners.
To achieve the right capacity for the size of today’s business, we will idle and eventually cease operations at 14 North American manufacturing facilities by 2012, including seven vehicle assembly plants. This does not include any Automotive Components Holdings actions related to our Visteon deal or any plans announced in our previous restructuring.
These actions will reduce our assembly capacity by 1.2 million units, or 26 percent, by the end of 2008. That will help us improve our assembly capacity utilization rate dramatically. I’d emphasize that most of these capacity actions are occurring early in the plan period, with the most substantial actions completed by the end of 2008. In the process, we expect to reduce plant employment by 25,000 to 30,000 positions – both salaried and hourly – over the 2006-2012 period.
The financial impact of all of these actions this year will include charges for hourly personnel separations and fixed asset write-offs. The facilities that will be idled through 2008 include our assembly plants in St. Louis, Atlanta, and Wixom, as well as the Batavia Transmission plant and the Windsor Casting plant. Production at St. Thomas Assembly also will be reduced to one shift.
And we will make a final determination on two additional vehicle assembly plants later this year.
As hard and as painful as it is to close plants and reduce our workforce, we know these sacrifices are critical to set the stage for a stronger future. Importantly, that future will include a new, low-cost manufacturing operation that we will build in North America at a location still to be determined.
Importantly, as Bill Ford and Jim Padilla outlined, we are embarking on this plan with a running start. Our plan is being launched by a profitable company – not one losing billions. And our plan is based on the already proven restructuring actions that have turned around other parts of Ford’s global business.
What’s more, our commitment to innovation is clear, and it will increasingly differentiate us in the marketplace. Our leadership in full-size pickup trucks, where the Ford F-Series has been No. 1 for 29 years, is unquestioned, and it will remain so. Our car business is growing. Were leading the growth in crossover vehicles – today’s fastest-growing segment. Ford Credit is strong and profitable. And our Ford and Lincoln-Mercury dealer network is the envy of the world.
These successes, coupled with a realistic view of our challenges, are what gives us so much confidence in our Way Forward plan. Its what gives us so much determination to get it right. We are doing this for our employees, retirees, customers, dealers, suppliers, and investors. We want them all to believe in Ford and to unlock the goodwill and the desire to see us win.
Literally hundreds of Ford employees have now had their hand in our Way Forward plan. And, for every one of us, success has become very personal. We don’t expect everyone to share our confidence after just one speech. The challenges we face are the result of decisions made – or not made – over many years. We understand this. And we won’t fix them overnight.
The comprehensive nature of our plan requires a long-term perspective. We know it will take time, and we know it will be tough. As I said when I started, the work of transforming Ford’s North American business is already underway, and it’s moving into high gear today.
It includes bold leadership, a “change or die” mentality – supported by a motivated, engaged workforce. It’s about changing our attitudes – and that changes everything.
It starts with a comprehensive strategy – one that begins with the customer – and leads to more powerful brands and an even stronger lineup of new products. It delivers quality, honest pricing, competitive costs, and the capacity that allows us to return Ford’s North American auto business to profitability no later than 2008.
Rest assured, our Way Forward is not a retrenchment. It’s about taking back our future. Cutting our own path. Having a clear point of view – and being bold, American, and innovative.