President wants deep cuts in component costs, updates of vehicle interiors, boost in morale
By Christine Tierney / The Detroit News
GENEVA — Ford Motor Co. will slash costs further in an effort to revive its European operations, which are coming off a year of financial losses and management turmoil.
Ford of Europe’s new president, Lewis Booth, said at the Geneva auto show that he would push to reduce component costs while enhancing the appeal of its vehicles. The overall goal, he said, is to shave an additional $700 million in expenses.
Ford of Europe, once the template for the Dearborn-based company’s North American turnaround plan, lost $1.1 billion last year excluding special charges in the brutal European market.
Management upheavel exacerbated the problems. Booth, formerly president of Ford’s Japanese affiliate Mazda Motor Corp., was tapped in August to replace Martin Leach as the head of Ford of Europe. Earlier this year, Leach won a federal lawsuit against Ford when a Detroit judge ruled the automaker improperly blocked him from taking a job with another automaker.
The trial, which examined Leach’s departure, provided a glimpse of the pressure Ford of Europe executives are under to stem the red ink.
Booth said he also hopes to boost sagging morale in the ranks.
Since 2000, Ford of Europe has eliminated thousands of jobs and cut its production capacity by 19 percent to streamline its operations.
But the turnaround plan came apart last year, as fierce competition, rising incentives and weaker sales battered the European car industry.
Its rival, GM Europe, also lost money in Europe, and market leader Volkswagen AG is slashing costs in the brutal environment.
Booth said he did not expect the business environment in Europe to improve this year, but was not drafting a new recovery program.
“It’s dangerous to have a new president, new plan,” Booth told reporters here. “We put in place the building blocks last year for our future. My strategy is to follow the same plan, but with greater urgency, greater speed and a greater focus on implementation,”
Last year’s capacity cuts, coupled with previous efforts make Ford’s European factories flexible, meaning they can assemble more than one model, will cut about $450 million in costs this year, Booth said.
Based on Ford of Europe’s performance in the second half of 2003, Booth said he needed to cut between $30 million and $130 million further in costs to reach his target for the year. Ford of Europe aims to limit its losses to between $100 million and $200 million, before special items.
“We have to work particularly on components,” Booth said, saying Ford’s component costs run 11 percent to 13 percent behind Europe’s best-in-class carmakers.
“We’re identifying cost gaps where we believe prices are higher than they should be, and we’re working with suppliers to see where we have waste,” he said.
If Ford’s processes are to blame for the higher costs, it will change them, and if the problem lies with suppliers, they will solve it jointly, he said.
“It’s different from a push-and-shove” strategy, Booth said, adding that he was not demanding outright reductions in component prices.
Ford of Europe will also try to use more parts from low-wage countries and re-use more components, as the leading Japanese automakers have managed to do without compromising their products.
Ford Executive Vice President David Thursfield, who oversees the European operations, said Ford aimed to re-use around 50 percent of components in subsequent-generation models.
He said he expected little growth this year in the European auto market, “which isn’t a disaster, but it’s not steaming.”
But Ford of Europe will benefit from the popularity of the new Focus C-MAX, a compact-sized minivan, and the new Focus, Booth said. At the end of 2004, it will launch a more powerful, 150-horsepower version of its Fiesta subcompact, the Fiesta ST.
“In quality and customer satisfaction, by our internal measures, we were close to best-in-class in 2003,” Booth said. “Our goal is to be best-in-class in 2004.”
Ford of Europe has already made strides in that direction, hiring away Opel’s design director Martin Smith last month.
Automotive analyst Guido Vildozo of Global Insight Inc. said betting on Ford’s current product lineup is “a tough call right now.”
“They’ve got the C-Max. They brought out Fiesta. They brought out the Fusion,” Vildozo said, referring to a Fiesta-based five-door hatchback designed for urban lifestyles. “I would just sit down and wait to see.”