World : Ford hits bump in road 100 years after starting journey
The Daily Yomiuri
Ryan Lawler / Yomiuri Shimbun New York Bureau
Ford Motor Co. will celebrate its 100th anniversary Monday at one of the most precarious moments in the company's history.
After losing 6.4 billion dollars and a large share of the North American auto market over the previous two years due to a widespread tire recall, weaker-than-expected sales and inefficient manufacturing processes, Ford will enter its second century amid an aggressive restructuring program aimed at cutting costs and improving the company's bottom line.
Things were not always this way. In the 1990s, Ford rode the success of its light truck and sport utility vehicle products to record profits and greatly improved its market share. In 1999, Ford posted a net income of 7.2 billion dollars, which at the time was the largest profit ever reported by a U.S. automaker. With those results, the company seemed almost invincible.
A CBS News poll at the time showed 85 percent of Americans believed Ford still would be operating at the end of the 21st century, ahead of Microsoft (79 percent) and General Electric (78 percent), and lagging only behind Coca-Cola (94 percent).
However, Ford's sustainability has now been cast into doubt. Several quarters of disappointing results, as well as a quickly changing and highly competitive marketplace, have caused some analysts to question Ford's ability to once again catch up with its competitors. Citing inefficient and outdated manufacturing and design processes and subsequently shrinking margins, some wonder if Ford can return to profitability, while maintaining its current sales volume.
Merrill Lynch analyst Saul Rubin has even suggested that Ford or General Motors could eventually file for bankruptcy due to fragmentation in the market and greater pressure from foreign competitors. "Part of (Ford's) problem was a hubris issue--they got carried away with their own success and lost sight of costs," said David Bradley, an auto analyst at JP Morgan Chase.
Bradley cites Ford's inability to quickly adopt lean manufacturing processes that have become an industry standard, a fault that he says "has hampered their margins and their growth."
The company is now playing catch-up in the race to install more efficient flexible manufacturing processes, with plans to update five plants and half of its facilities by mid-decade.
Another issue over the last several years has been Ford's over-reliance on old or aging models, such as the F-150 or Taurus. Domenic Martilotti, auto analyst for Bear Sterns said, "A lot of their product is old, and the market is so competitive that it's difficult to stay on top in terms of product segment for more than two years."
Since the company's restructuring plan was announced in January 2002, Ford executives have stressed that the company's recovery would be product-driven. As such, Ford is introducing 164 new or refreshed products over the next five years, including 65 new autos in North America. But these upgrades come at a price, both in terms of adding new content and reducing architecture synergies.
In the 1990s, the company's many design and manufacturing crews worked largely independently, a move that has cost it as new products have been introduced. At the same time, Ford made upgrades that have squeezed its profit margins in an incentive market.
One way other manufacturers have limited costs is by adopting design-for-manufacture (DFM), "a Toyota process technology where you design the product to make it cheap and easy to manufacture," Bradley said.
"It's one of the process technology disciplines that Ford has not mastered as well as they should, and for that to happen, the manufacturing, design, and engineering people have to work collaboratively in the early stages of product development," he said.
With several of Ford's designers and engineers working separately, the company lost opportunities to reduce costs by sharing parts across several different vehicle platforms, a mistake the company is now looking to correct.
In a meeting with analysts last month, Ford said it would increase the commonality of its products, reducing global architectures 25 percent by mid-decade and allowing the company to focus on fewer product platforms.
Furthermore, Ford's attempt to move its products up-scale is hurting its bottom line. The automaker has noticeably improved the quality of its products, a move reflected in a 12 percent rise in J.D. Power and Associates' Initial Quality Study. In J.D. Power's APEAL survey, which measures customer satisfaction, Ford won the most awards of any manufacturer and had five segment-leading products.
However, while some say the upgrades have helped reenergize the brand and provide incentive for higher sales volume, the brutal nature of the pricing market is undercutting the premium Ford pays for upgraded interiors or better brakes. "One of the challenges they have is that they're trying to create a better product by adding more content and offering more features, but that costs more, and the market won't necessarily let you charge for it," Martilotti said.
Despite the difficulties of operating in such a competitive industry, Ford has set high goals for itself over the next several years. The automaker hopes to realize 7 billion dollars in profits by mid-decade, due mainly to cost cutting and improved operations.
Ford executives expect that cost-cutting outlined in the restructuring program will eventually help offset past missteps that the company has suffered and drive profits once again. They cite improved sales, revenues and earnings in the first quarter of this year as proof that the restructuring plan is already working.
"Our first quarter performance demonstrates that the acceleration of our cost-cutting actions and the management team's focus on improving our core business are making a difference," said Bill Ford. Some analysts remain skeptical. "They're probably being a bit aggressive in their profitability assumptions, just because I don't think anyone thought the pricing game would get as ugly as it is right now," Martilotti said.
Whether or not Ford is able to right itself and remain competitive, one thing is certain--the company now stands at a major turning point in its history. How it fares over the next decade could determine whether or not it will celebrate a bicentennial in 2103.
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.....