TALK FROM THE TOP: Ford's Padilla laments 'souped-up' incentives
Automotive News / May 19, 2003
Jim Padilla, president of Ford North America, has a daunting challenge: deliver on Chairman Bill Ford's promise to revive the company with fresh products. He was interviewed on April 29 by Staff Reporter Amy Wilson and Editor Edward Lapham.
Have you moved the needle on quality?
Number one, the data says the 2002 models, the data that we have, J.D. Power and our own, shows improvements over 2001 by anywhere from 12 to 15 percent. Our warranty data would suggest we have improved substantially over the past couple of years, particularly on powertrains. Our recalls are down dramatically, like another 45 percent this year. That's on top of the 40 to 50 percent reduction we made 2000 to 2001. But you never do enough on quality in my view, and we're going to be challenged to get even more done as we go forward, and we are working aggressively on that.
Will you be happy with the Harbour Report numbers when they are released?
We'll see improvement year over year, but productivity is another arena where you can never be satisfied, and we have a lot of room for improvement in my view.
We're working on lean approaches in product development. For example, you can't just assume that you can take any design and make it a great Harbour-hours-per-unit number. You have to design a lot of that.
What kind of productivity improvement do you get from using the Mazda6 platform?
For every one of our new platforms, we have a target to improve our labor efficiency going into our plants. That target will begin in the design phase.
We have done several things on the F-150 that have improved our initial going-in position, relative to labor efficiency. Having said that, we're still going to have more labor on the new F-150. Every vehicle has four doors. You don't have to be rocket scientist with this stuff to know that if you add two doors to 30 percent of your mix, you've got more labor involved. And you've got more costs involved. And you've got more weight involved. We believe that's worth it for the customer, and over time we'll be working the cost down on the F-150. We've got some good ideas on how to go about that.
How will the end of the war help business?
It's going to be a gradual pull upward over time. The first quarter was 16.2 million units. The second quarter looks a little stronger than that, at least April does. If the money against the market stays as aggressive as it is, I think the second half of the year, it's probably going to be closer to 17 million units (including heavy-duty vehicles).
Will you have enough inventory of the current F-150 to carry you through launch?
Definitely. We're in pretty good shape there. We're on target to launch the F-150. We have a lot of very proactive teams making sure that product is right. I had a call from the parts and service guy who said we've never had this many new model parts in the depot already. That's a good sign.
How long will you hold those vehicles back to make sure the quality is right?
We'll hold them back until they're ready. Just like we won't ramp them up unless we're ready to ramp up. We're right on schedule. Do you have issues? Of course you have issues. Everybody has issues. But as we have issues, we'll fix them.
Are your goals for market share gain on target or ahead?
We improved in the first quarter by about a half point of market share, and we were pleased with that. We did that and spent less money per vehicle than our domestic competition, which was very satisfying to us.
Market share is a day-to-day challenge, especially when there's so much money against the market and so many end-of-month, souped-up specials out there that, frankly, make no economic sense. Anybody can get market share. You can give away anything. But what you need to do is figure out how to do that and still make the money and what it takes to be competitive. So we're selective on what we put all the juice on. And where we need to, we match. Where we don't, we don't. And we do pretty well with that.
Can this go on interminably?
No, it can't. It just simply can't. To say that because the factories are full, yet we're losing money per unit, that argument just doesn't succeed in my book, especially when you're talking about the investments that need to be made in new-model programs. Sooner or later, there will be some recognition that you can't keep doing that. And I think the first quarter results across the industry reflected some of that, if you analyze the data and take a look at how much money against the market and how much profit per unit was made.
How long before that reckoning comes?
We need to stay reasonably competitive with our approach. But I don't know how long it will be.
You will be sitting down with the UAW soon. Have you heard anything surprising coming from Ron Gettelfinger in terms of his reluctance to discuss certain issues, for example, health care costs?
We know the priorities (Gettelfinger) places on things, but I think there's a clear recognition on both of our parts that it's critical that we settle peacefully. There are some more difficult issues for him, just as there are some more difficult issues for us. And we'll work our way through those with him.
How will Visteon play into this year's negotiations?
Visteon is part of our settlement, our team, which is being led by Roman Krygier and Dennis Cirbes, with a lot of involvement from a lot of us, including Bill Ford. We are working with Visteon to understand our mutual issues and how they apply.
How will you adapt your manufacturing system, especially as you plan production of this new line of vehicles off the Mazda6?
We're launching two plants this year with flexible manufacturing, at Norfolk, Va., and Kansas City, Mo., to produce the new F-150. Next year, we'll launch the new Dearborn truck plant, the Chicago plant with the Five Hundred and the Freestyle, and the new Mustang at our Flat Rock plant with Mazda. Flexible manufacturing is key to all that. What it allows us to do is, number one, is quicker time to market because we'll be able to build not only derivative models, but we'll be able to build multiple platforms on the same assembly system. And we'll be doing that all in a very standardized manner.
What about more supplier parks in North America?
Supplier parks offer opportunities. In the Chicago case, they've proved to be advantageous. A lot depends on the geography and logistics of the setup of your supply base, and in the case of southeast Michigan the question about a supplier park becomes kind of a so-what. But in the case of Chicago, over 90 percent of the stampings will come from our Chicago stamping plant. For the present Taurus in that plant, probably only 20 percent of the stampings come from the Chicago stamping plant. So the logistics and everything will be much more advantageous for us. And that means less shipping cost, less racks and things like that. And then we'll have the supplier park adjacent to the plant where several suppliers will be doing a degree of manufacturing and subassembly and those types of things for us.
Ford of Europe goes a bit further as far as having suppliers more integrated into the actual assembly system. Chrysler is batting around this idea in Windsor about having suppliers own the factories and having them run it. Does that make any sense for Ford to go that far?
I've yet to see that work. VW, by the way, did that down in Brazil, in Resende, where they did that for trucks. It's certainly a challenge, because you need to have a robust infrastructure among the suppliers with manufacturing and the like, and that can be challenging. But it may offer some opportunities; it may not. I don't know. If Chrysler wants to experiment with that, God bless them. Volkswagen didn't make it work to my knowledge.
Are you looking at any kind of approach to that extreme?
It's conventional wisdom that the UAW would oppose that kind of supplier park philosophy with different wage systems and everything that's involved?
You'd have to talk to the UAW. In Chicago, we've reached an agreement on how we're going to do that. There is no loss of jobs for the UAW in the process, and in fact there could be opportunity if the UAW can work with the suppliers to represent (those workers).
How are relations with your dealers these days?
I personally spend a lot of time making sure I understand their circumstances. We put Jim O'Connor in charge of all of our North American sales operation. We have people who are well known to them running our divisions. Our relationships are still a little cloudy from some of the historical stuff we've done, but we're not in competition with our dealers. We stopped that. We got out of those businesses. Our quality is improving, and they know it. We worked well with them on Blue Oval Certified, and they say so today, despite their begrudging agreement to it. They'll not only tell you it's good for the customer, but it's good for their bottom line, so that works. Our dealings with our dealers are straight up. They understand where we're coming from, and we understand where they're coming from, and they are our partners.
What do they tell you about product?
They're very vocal about product. They are delighted with the new F-250 Power Stroke diesel unit. They like the new SUV lineup. They like the new F-150, because they know that's going to be a winner in the market place. Dealers want more, and they want it faster.
Have you analyzed the latest highway fatality numbers and the SUV flap that seems to be reigniting?
We keep an eye on the data. Frankly, SUVs inherently have susceptibilities that are well recognized. Our vehicles are as fundamentally safe as any of their competitors on the road, if not safer. We design them to be that way, and we're working on other technologies and the like that could further improve their performance. Roll stability control was developed in Dearborn; it happens to be applied in Sweden first.
Is it something that might be applied to your extensive line of SUVs?
Roll-stability control has some very good potential. What you have to understand is that in order to apply it, you need to have a baseline ABS braking and (stability control) capability. Roll-stability control comes on top of that. That's a big cost factor. But we're working at trying to get more cost-effective roll-stability control systems.
We find that our customers are very eager for improvements. But when it comes time to pay for it, they don't have the same kind of preference. So you try to make available things like side airbags, air curtains and things like that, but only a certain portion of the population picks it up.
Traditionally auto companies have said the problem is with the driver. But depending on which administration is in Washington, NHTSA can either say yes, it's a driver problem, or the industry needs to make adjustments for that dumb driver. What can you do to improve the safety of SUVs, if the government mandates that?
The technology is moving along. Fundamentally, if the vehicle is driven in a safe manner, it is a very safe vehicle. However, there are circumstances when the vehicle can be in a situation that would make it more susceptible, and there are some technologies that can be beneficial. Wear a seatbelt, get the air canopy. And do I think roll stability control is real? I do. Get the capability. It will be developed to be more cost effective over time. But first wear your seatbelts.
Are you on schedule with your program to realign the company?
We've made a lot of progress. We've got a lot more to do, but we've made progress in quality. We have a lot of new product coming out. Last year we introduced 12 new products. This year we're going to introduce about 10 new products. Next year is going to be the year of the car: we've got the Ford Five Hundred, the Freestyle, the Mustang. In volume, we'll have the hybrid Escape. The following year, we'll have the Futura and a whole flotilla of different derivatives.
So we're moving right along. Bill Ford has (promised) a product-led revitalization, and we are supporting that. A year ago, we put Lincoln Mercury back into North America, where it belongs. We're going to have four new products for Mercury within the next few years. We've got three for Lincoln. In terms of cost, we've made a lot of progress. In our first-quarter results, the data showed our total cost picture was improved by about $600 million from last year, for a lot of reasons. And we're going to continue to work on that.
Was part of that cost improvement against non-recurring costs?
There's some of that, but there's also a lot of returning cost improvements. It isn't any singular thing. There's been a lot of hard work by a lot of people. We've shown that we've improved our revenue situation year over year substantially, unlike some of our competitors. And that's by watching the money against the market that we spend on incentives and the like.
How is morale in the company?
Number one, there is a pretty good recognition that we've really got to move. We can't stand still. The good old days ain't going to be here for a while. And as a consequence, we have to do some things differently. For the first six months of last year, that was very hard for people to understand. But our people are on board. We've got a very strong and loyal work force from the shop floor.
Are you on plan with the cost-cutting target or slower than you wanted to be at this point?
Total cost improved by 600 million in the first quarter of the year, so we were very encouraged by that. We still have a lot more to do. Material costs: We're making progress. To give you an example, last year we took $600 out of the cost of the Explorer, and at the same time our quality got better on the Explorer. We've got an aggressive program on that. Frankly, we've got an aggressive program on every aspect of the business.
We've been deploying a process that's been in place for about two years in Europe, called team value management. It's a concept that works on the total value stream, and the goal is to eliminate waste. And we have put together in North America, over 60 TVM teams that deal with different commodities. We do an in-depth series of benchmarking by commodity, by supplier. We identify gaps, and then we work with the suppliers to address issues that might be related to manufacturing processes or design or wherever waste is. You have to eliminate the waste. We also have over 50 TVM teams working on fixed costs. And fixed costs come in many different ways - they come in marketing costs, they come in tooling costs.
Some suppliers like the process and see it offering solutions to cut their own costs, but other suppliers look at it at yet another way to take price down.
Well, you know, gang, when you're running money against the market in the range of anywhere from 15 to 20 plus percent of the cost of the vehicle, somewhere or another, you've got to get the costs down. Our margins are razor thin across the industry, and we're far better off trying to work collectively to eliminate the waste and working with the supplier, than just coming out and doing it by edict. So that's the approach we're (taking).
Are the Freestar and Monterey going to be minivans or crossover sport vans (as General Motors calls them)? Are you sorry you didn't think of that first?
They will be people movers. That's all smoke. The product to me is really a significant upgrade from what we have today in terms of interior appearance, comfort and flexibility. That's going to be a big step forward, and it's going to allow a lot of people with varying lifestyles to satisfy their requirements.
Do I think minivans are going to be where they used to be four or five or 10 years ago? No. There are too many alternatives out there. But do I think there is a position for them in the market? Yes, I do. We'll see how that goes. The Freestar and the Monterey are very well situated for that. The third-row seat is very accessible, very comfortable. The flexibility with the fold-flat floor and all the storage stuff is very accommodating, so I'm pretty pleased with the progress we've made on that.
Are dealers happy with the redesigned minivan, or do they think they are too conservative?
When you look at the silhouette of any minivan, you can't tell 'em. You cannot tell 'em unless you're an expert. If we clouded out the grill, you couldn't tell 'em. Go across 10 of them, if you got four of them right, you're pretty damn good. So what's the answer? The answer's on the inside. And that's where we concentrated. I mean, you've got the greenhouse, and that's about it. The body style is the body style. They all look the same. Just about all of them have the same proportion of glass to body. They're all the same. It's the inside.
Some dealers are a little anxious about the Lincoln product lineup. It sounds like the three new vehicles will come toward the latter part of that three-year period, even as competitors such as Cadillac are rolling out new vehicles now. How are you responding to that?
If you take a look at the Lincoln lineup last year, it's virtually all new. We did the interior, the chassis, big improvements on the Town Car. The LS has substantial upgrades. The engine output improved substantially, and ride and handling characteristics (were) refined for the new one; the interior is all new. We've got an all-new Navigator. We've got an all-new Aviator. Having said that, we just have more work to do. Remember, it's a Lincoln Mercury showroom. We'll have the Mercurys rolling out. We've reviewed that with them. They're encouraged by it. They want more, obviously. And if there were a way we could get the Lincolns out any faster, we will try to do that. But we think we have a good plan, and we're going to be as aggressive as we can to get them new product.
What has happened with the goal to improve SUV fuel economy?
We're going across all our product lines and working hard on improving the fuel efficiency. Frankly, the time frame we had pegged for the fuel economy was a little too aggressive, and we're still shooting for 25 percent. It's going to take a little longer, but that's what we're going to do.
If you want to get 25 percent fuel economy, you could downsize all your engines. You could go to six-speed transmissions and all that stuff. The question is could you sell any of them and could you make any money? So it kind of boils down to what is sensible to do and what will the marketplace accept and demand.
We have some discussions about hybrids, and some competitors have said they can have a million hybrids. Well, that's interesting. What is a hybrid? Is it a golf cart system that has stop and go? We think a hybrid is one that has both electric- and gas-engine capabilities. Do you think you can sell a million of those? I suspect not. You certainly can't sell them in volume, given the inherent costs. Guys, when your money against the market is approaching 18-plus percent for some people, what have you got left to give away?
What does your research say is the natural demand for hybrids?
We've said we will be in the range of 20,000-plus Escapes. That will be a good point, a natural break point that might approach 10 percent of the volume of the Escape. There will be a price associated with that. But we're going to supplement some of that, and we'll see how that goes.
(Photo) Jim Padilla
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....