Hackett keeps details close in vision for Ford
Ford Motor Co. plans to eliminate vehicles, trim billions in operating costs and divert money from the development of passenger cars and internal combustion engines, investing that into trucks, SUVs and electric vehicles.
Ford Motor Co. CEO Jim Hackett on Tuesday gave the investment community a sweeping outline of how he’ll steer the automaker over the next five years. That vision included 13 new electric vehicles around the world over the next five years, and came the day after General Motors Co. said its future is in electric cars.
But the new head of Ford and his team kept many of the details to themselves, and that will delay a reaction on Wall Street, analysts said.
Hackett gave few specifics about what would be cut out or when that would happen. The company says it will eliminate $14 billion over the next five years from materials costs and engineering alone. It will cut the number of customizable options on vehicles, trim development times and turn to partnerships to drive foreign business and autonomous vehicles. And it still plans to make a $9 billion in pretax profit in 2017.
“In baseball, a double is still two bases from a run. I think Ford hit a double here,” said Dave Sullivan, analyst with research company AutoPacific. “It keeps them in the game, but it’s not enough to win — yet.
“I was expecting to get more concrete details other than cutting costs and reducing complexity. The complexity reduction is low-hanging fruit that others in the passenger car segment have been working on for years.”
But the big-picture outline Hackett and company gave Tuesday might be to their advantage in the long term.
“I think Hackett’s too smart to get caught up in the here and now,” said David Cole, chairman emeritus of the Ann Arbor-based Center for Automotive Research. “Maybe it’s better to really build this up over time.”
Hackett delivered the plan as investors and a board of directors look for magic from the “change agent” Executive Chairman Bill Ford and the company directors brought in to guide the company through a tumultuous change into a mobility company. Hackett, who took the helm of Ford in late May, says he feels a sense of urgency to give details to his plan and make the right moves.
Ford’s stock has stubbornly remained below $13. When Hackett was promoted in May, the stock price was about $11. It closed Tuesday at $12.35.
Hackett was joined in New York by Bob Shanks, executive vice president and chief financial officer; Jim Farley, executive vice president and president of global markets; Joe Hinrichs, executive vice president and president of global operations; and Marcy Klevorn, executive vice president and president of mobility.
He touched on Ford’s plan to invest heavily in electrification. The company in September announced a partnership with San Francisco-based Lyft to develop autonomous vehicles. Internally, “Team Edison” was formed to speed up the company’s work on electric vehicles.
That team has been told to think big and move fast to bring new electric vehicles to market as part of Ford’s $4.5 billion investment in the segment. Included in the 13 new electric vehicles are an F-150 hybrid, Mustang hybrid, a hybrid autonomous vehicle, hybrid police sedan and a fully electric small SUV.
GM announced Monday it will have at least 20 new electric vehicles by 2023. GM’s stock traded up and analysts praised the move. And Ford again looked like it was playing catch-up with competitors.
“I think Ford has been behind at least in communicating, maybe in action,” said Michelle Krebs, analyst with Autotrader. “What Hackett described today is exactly what other automakers are going through. They’re straddling the world of now and the future in a way that they’ve never really had to do.”
Financial fitness is a priority for Hackett’s team. That necessitates cost cuts, which could come from axing underperforming vehicles, streamlining operations and potentially cutting jobs. Ford did not say Tuesday that any job cuts are expected, but the company did not rule out the possibility.
That fitness will allow Ford to adjust as the market changes in coming years, Hackett said. The company is lean enough already in many mobility fields, but other segments might need to mirror some newer parts of Ford.
Hackett plans to trim cost growth by 50 percent through 2022. In addition, the company will reduce materials costs by $10 billion, and engineering costs by $4 billion over the next five years. The company will also transfer $7 billion from its car segment to SUVs and trucks. It will reduce capital expenditures on gas and diesel engines by one-third, and redeploy that money into electrification.
And like former CEO Alan Mulally did in the mid-2000s, Hackett and his team plan to reduce the number of orderable combinations customers can get for their vehicles. The company plans to move from nearly 35,000 combinations on the current Fusion sedan to just 96 combinations on the next generation. The company is also aiming to reduce new vehicle development time by 20 percent in the next five years.
Hackett has made a handful of moves already. Since Hackett became CEO, Ford has said it will move U.S. production of the next-generation Focus to China and announced a partnership with Mahindra in India to bolster Ford’s business there.
He realigned executive ranks during his first few weeks into a more rational flowchart. He reduced the frequency of former CEO Alan Mulally’s renowned business plan review meetings held on Thursdays. He also revised the company’s talking points on autonomous cars by taking a broader stance on how the company will bring those vehicles to market in 2021. They could be used for ride-hailing, or they could be used to transport goods.
Hackett said Tuesday that Ford has a good foundation, but every part of the company will need to be ready to adapt in a changing industry.
“We’ve got great facilities at Ford, they just have to be better in the future,” he said. “The company’s got to compete.”