US:Interview with Ford's CEO and CFO
Interview with Ford's CEO and CFO
Way Forward may need tweaking but won't need partner
By AMY WILSON | AUTOMOTIVE NEWS
Ford Motor Co.'s new CEO, Alan Mulally, rules out an immediate alliance with another automaker and says the Way Forward restructuring plan will require more revision down the road.
Mulally and Ford CFO Don Leclair spoke with Staff Reporter Amy Wilson after Ford reported a third-quarter net loss of $5.8 billion on Monday, Oct. 23. Here are excerpts of that interview.
I want to ask you about possible alliances. Nissan-Renault left the door open to a North American partner. Do you have any interest in talking to them about that?
Mulally: We are really focused on restructuring our wonderful Ford company. That has got to be our highest priority. Of course, we also answer the phone when somebody calls, but it just seems to us that the most important thing we can do is focus on transforming our Ford.
Has anyone called yet?
Have you had any contact yet with Carlos Ghosn?
Is there a situation where you could envision a day where you would reach out if the Way Forward plan falters?
Mulally: I sure can't imagine it now. I think the most important thing we need to do is remove complexity and complication and enhance focus and clear visibility on the plan and the status against the plan. And, boy, linking up with somebody, just to me, would take us in the awfully wrong direction.
But it's the kind of thing where maybe you never say never?
Mulally: Oh, absolutely. The world can change. But right now, I like our focus.
Alan, now that you've had a few weeks to work with the executive team, how do you feel about the people you have in place that you're working with?
Mulally: I really think they're terrific. In each position we have a true professional that really knows the business here and really cares. The opportunity we have all come to appreciate is that we could really work together more closely as a team. Ford over the years grew up very independent: the different Ford divisions, the different Fords around the world, different members of the product family.
So we've started (meeting) every Thursday. We have to come together on one plan for Ford and help each other and help get the synergy out of our Ford.
So we've started those meetings. We've had three of them. Every one gets better and better: the visibility, the helping each other. That's probably the most exciting thing we've all come to appreciate: that we could take that performance to a whole different level by working more closely together.
Are there any particular actions in place or that you're about to implement outside of the Thursday meetings that would get the team working more closely together?
Mulally: There are a couple of things.
One is getting really focused on our product strategy. It's such an important part of our business going forward that we are going to increase the cadence and the review and the thoughtfulness on that, on what the family (product) plan really ought to be going forward, the existing product line, how we transform that product line to deliver the products that people want.
And then (we'll work on) tying that to the production plan and especially the flexibility of the production plan, where we can marry the product plan with the production plan so we can be making more vehicles on longer runs with more commonality and more flexibility in each of the plants and deliver the variation and the uniqueness that customers really want. But (we must) be able to do that much more cost-effectively.
In terms of the team itself, do you envision at this point needing to bring in anyone of your own choosing?
Mulally: Oh, no, I don't see that at this time. The most important thing that we do is what we're doing: to get really tight as a team and hold ourselves accountable for each piece of the business that we're managing and really help each other.
Don, during the earnings conference call you said operating results would be worse in the fourth quarter than the third. Is that the absolute number in the fourth quarter that we can expect to be worse than the number in the third quarter?
Leclair: That conversation came up in context of cash. Someone was trying to ask what causes the reduction in cash from $23.6 billion down to $20 billion. And he was making some assertions. And I said, well, it really isn't that, it's really more to do with the profit. And the profit that was referred to then is the automotive results, excluding special charges.
So we should expect the fourth-quarter operating results from automotive would be a loss greater than the $1.8 billion posted in the third quarter?
Leclair: That's right.
And would the total pretax loss be greater than the $1.4 billion posted in the third quarter?
Leclair: Well, specifically what I was referring to was the automotive loss greater than the $1.8 billion. We didn't talk about the other side of the company, the financial services.
Alan, earlier you said the next three quarters will get worse on a year-over-year comparison.
Mulally: Yes. It's coming down in the production, of course. And then with the inventories coming down, it takes a little bit of time for our cost-reduction efforts to kick in. So it's us resizing the business and coming down in volume.
Alan, you also said you're going to continue to look for a better plan. So how much change should we reasonably expect in the Way Forward plan?
Mulally: It will be more of an incremental continuous improvement. The reason I said that is it's the way we will operate here at Ford. The only way I know to keep everybody focused on accomplishment is to put a firm plan in place and measure our progress against that plan and then help each other deliver that plan.
So the plan we have put in place and have described to everybody inside and outside, with all the numbers we showed you today, is the plan.
Now, having said that, led by the leadership team, we are going to continue to look for opportunities to improve that plan. The way we'll do that is that each quarter we'll identify our thoughts and actions, mature them. Each time we have a quarterly review or the year-end review, as we mature those ideas, we will include that in the plan. So it allows you to keep everybody on plan. But also we know that over the long term that we need to do even more than what we have in this plan. So we're going to continue to work on that better plan.
But I think of it more as a very reliable continuous improvement process to our plan.
And you'll continue to update us publicly about those incremental changes as they come?
Mulally: Exactly. Because the idea is that we have everybody inside Ford, all of our partners and suppliers, everybody is on the same kind of operating rhythm. So we want everybody to know where we are on the current plan, and we want everybody to know when we're going to enhance the plan.
Do you have any early gut feelings on what areas of the business will need enhancement beyond the current plan?
Mulally: Clearly (among) the top two will be our product development plan going forward. It is what it is today, but with the shifts in customer demand, we know we're going to end up with changes to that plan across the entire portfolio.
The second one will be how do we take the next step to move to even more flexibility and even more robustness in our factories where they can handle even more of our models, keep the scale up and keep improving the quality, keep improving the productivity.
The product strategy and the production strategy will be the two areas we'll really focus on.
On the production side, does that mean that even more manufacturing plants, more assembly plants could be closed going forward than what's already been mentioned in the plan?
Mulally: Well, it certainly could be.
The more likely outcome would be that we'll have more flexibility for more models with the capability that we have.
We are dramatically downsizing our manufacturing capability to this lower demand. Ideally, what we want to do is get to the place where we hit the bottom (and) we're sized for that. And then, as we bring on new products, then we move into a more flexible manufacturing, more utilization of the facilities. And then we get better quality, better productivity out of the entire system.
So you're not exactly sure yet whether the current plan will size Ford to get to that bottom?
Mulally: With what we know right now, by 2008 to 2010, our best estimate is we're going to (get to) about 100 percent utilization. So we think we're sizing the place correctly. The next thing we have to decide is with the new products and services coming and the runs that they'll have, how do we integrate that into the production capability and get even more productivity out of our operation and then profitably grow.
Don, I want to get a better understanding of the secured financing initiative you talked about this morning. First, has Ford ever had to do this before? What does that say about the depths of your trouble? What type of assets would be used to secure the financing?
Leclair: We do secured financing in a sense in the credit company, as do most of the financial institutions. And we've done it for years. So it isn't the first time we've done it.
Up to this time, we haven't done secured financing of this nature in the auto company. So we are looking at secured financing and the options we have. Given the cash outflow that we discussed this morning, it makes sense for us to do that.
The types of things we're looking at are kind of a wide range of options now. When we get more information on that, we'll update you.
And what does it say about the depths of your troubles?
Leclair: What it says is we have a really good plan, and we want to make sure we have the liquidity and the resources to execute that plan. We're looking forward to having that. And, as Alan mentioned, we'll also make sure we have a cushion in case there are any bumps in the road in the economy. So we look at it as an opportunity.
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