Ford's plan for success: Fast track new models
Ford, the only member of Detroit's Big Three that did not enter bankruptcy protection this year and did not take government restructuring funds has managed so far to withstand the global economic recession and the slump in the car market. The key to its success has been preemptively restructuring its debt and downsizing. Beyond this, it has reaped the benefits of a focus on quality, safety and the shifting of customer demand to more fuel economy and smarter technology vehicles.
Ford hopes to maintain its position ahead of the curve by implementing the following four-point plan:
- It plans to accelerate global product introduction, meaning that by 2012 it would replace or refresh 70 to 90 percent of its vehicle lineups. By 2014, the automaker intends to replace 140 to 160 percent of its lineup "by volume" (presumably, some models will be replaced multiple times).
- It is on pace to reduce its structural costs by $14 billion to $15 billion compared with 2005 by the end of 2009.
- It wants to build 680,000 vehicles per core global platform within five years.
- It expects the rollout of these vehicles to improve its global product average age by 20 percent by 2014.
Lewis Booth, Ford's CFO, said today that "As we reduce costs, manage cash and increasingly leverage our 'One Ford' global product plan, our critical priority is protecting and enhancing our new vehicle pipeline. In the worst of economic times, we are taking the actions necessary not only to strengthen Ford's business but also to deliver world-class levels of product freshness globally."
Booth reiterated that Ford is on track to break even or show a profit on a pre-tax basis by 2011. Ford noted that it strengthened its balance sheet in the first half of 2009, slowed its operating-related cash outflow, renegotiated the U.S. labor agreements earlier this year, lowered new vehicle engineering costs by 60 percent and reduced new facility and tooling costs by 40 percent, improved average net revenue per unit in the U.S. by 9 percent and posted market share gains in all major regions in the second quarter of 2009. Ford's July sales in the United States actually increased.
Ford also emphasized that, while it restructured, it didn't lose sight of the business and investment in new products. In 2009, 45 percent of the automaker's U.S. vehicle lineup by volume is new or significantly freshened. It has reduced global vehicle nameplates from 97 in 2006 to 59 at the end of 2008, with further reductions planned.
Late Wednesday, Booth also told reporters that Ford is watching closely the developments with the cash-for-clunkers program to better manage inventories and production needs, which were already increased in the third quarter.
Ford, whose shares are actually down about 2.7 percent today after setting new 52-week highs the past few days, has not been resting and has not been satisfied to just manage to stay afloat. Its constant revamp of its product line, restructuring plans and overhaul of its business plan try to constantly answer to a dynamic environment.
Disclosure: At time of publication, Melly Alazraki was long Ford.