Ford Unveils Its Hopes But Also Its Plans
December 2nd, 2008 . by economistmomI think today is the due date on the assignments the Big Three automakers were given by Congress to come up with a “plan” for how they will use any federal money to get themselves back on sound financial footing and a sustainable longer-term business outlook. Ford, the best off of the three companies right now (the “goody two shoes” of the big Three?), has turned in their assignment first. The Washington Post reports that Ford is hoping to receive a federal loan of up to $9 billion, but that they have a plan to get back into the black to have the means to pay it back:
[Ford] expects to break even or become profitable in 2011.
The company also said it would invest about $14 billion in the United States on advanced technologies and products to improve vehicle fuel efficiency over the next seven years. And it provided initial details of a plan to build a family of hybrids, plug-in hybrids and battery electric vehicles. It said the latter, known as BEVs, would include a van for commercial fleet use in 2010 and a sedan in 2011.
In addition, Ford said it would cut costs further by selling its five corporate aircraft and would explore the possible sale of its Sweden-based Volvo brand. If the company needed to draw on a government bridge loan, Ford President Alan R. Mulally said, he would work for a salary of $1 a year…
Ford vowed to improve the fuel economy of its vehicles — compared to its 2005 fleet — by an average of 14 percent for 2009 models, 26 percent for 2012 models and 36 percent for 2015 models.
It said it would also seek greater efficiency by reducing its dealer and supplier base. By the end of the year, the company estimated, it will have 3,790 U.S. dealers, 14 percent fewer than it had at the end of 2005.
Hey, at least that’s a plan with some specifics, which at the moment (as the Washington Post’s editorial last week pointed out) is quite a contrast to the (lack of) specificity of the plans the government has for getting the federal budget back into the black (at least eventually?) in exchange for all the money future taxpayers are lending them…
And more good news: the execs aren’t coming in their company jets this time, although Chrysler’s CEO is keeping his mode of transportation a secret:
This time, [Ford CEO] Mulally and [GM CEO] Wagoner were making the more than 500-mile drive from Detroit to Washington in company cars, their firms announced. Chrysler said Nardelli would not travel by corporate jet but declined to specify his plans, citing security considerations.
Well, I think I know what some of the first questions to Nardelli in his testimony before Congress might be…
Yet CNN-Money (Chris Isidore) is somewhat critical of the Ford plan for its lack of detail:
[T]he Ford plan is perhaps most notable for what it did not include. The company did not mention that it would be dropping any brand or unprofitable models, beyond Monday’s announcement that Ford again looking at possibly selling Volvo. Ford had previously sold the Jaguar, Aston-Martin and Land Rover brands and sold a controlling interest in Mazda last month.
There was also no announcement of additional plants being closed or capacity being eliminated. Ford said it continues to work with its unions and dealers to achieve additional savings, but it did not set any cost savings targets for those discussions.
Ford highlighted many of the cuts it has already made, including closing 14 plants and reducing salaried personnel by 36% over the past three years. The company also touted labor cost savings that would bring the cost of factory workers’ pay and benefits close to those of the nonunion U.S. plants operated by Asian automakers.
Ford spokesman Mike Moran said that the lack of new cost cutting plans is a reflection of the work that has been done to cut costs at Ford in recent years, especially since Mulally became CEO in 2006.
(Still, just being able to point to the actions they’ve already taken to turn things around already puts Ford ahead of the federal government.)
‘[Ford] expects to break even or become profitable in 2011.
‘The company also said it would invest about $14 billion in the United States on advanced technologies and products to improve vehicle fuel efficiency over the next seven years. And it provided initial details of a plan to build a family of hybrids, plug-in hybrids and battery electric vehicles. It said the latter, known as BEVs, would include a van for commercial fleet use in 2010 and a sedan in 2011.’
Beautiful non-sequitur.
Every time I hear Congressmen demanding that the Big Three automakers invest heavily and move quickly toward more fuel-efficient vehicles, I ask myself the same question: Are they making this demand because they think meeting their particular demands will maximize the chance of these companies’ medium and long-term survival and repayment of loans from taxpayers, or is Congress demanding that the automakers provide some public benefit at the expense of such optimization of prospects?
If the former, does Congress fancy itself as the new McKinsey & Co. but with a lot more leverage to accept and implement its “recommendations”? Do our Congressman, of whom I assume many more are former lawyers than former businessmen, presume that they are more competent in developing strategy for these companies than are the automaker executives, or that the latter are somehow insufficiently motivated to develop smart strategy or that they are unable to execute the right strategy within their own organizations without a Congressional mandate? If none of the above, then these executives need no orders from Congress to craft and implement the best strategy possible to the extent that they can determine it. But if our Congressmen are under the false impression that they are the wise men and women of the auto industry, of strategy generally, and of the intersection (pardon the pun) between the two, then they could be making it harder and less likely that the automakers will recover (and will pay back our money) to the extent that any demands it places on these companies conflict with what they would want to do anyway.
If the answer to my initial question is the latter — a compromise between maximization of the prospects of these companies (and loan repayment) and some public good (lower gasoline consumption and prices, and lower greenhouse emissions) — then this point should be acknowledged and the trade-off (and optimal degree of trade-off in one direction or the other) discussed.
To be clear, I would love to see the best of both worlds: recovered and thriving domestic automakers, repayment of all taxpayer loans, and highly fuel efficient vehicles populating our highways and streets. I’m just asking if pursuit of the latter objective — to the extent, at the pace, and in the form that Congress may demand that the automakers pursue it — conflicts with the other objectives or not, and if so, I would like to see more consideration and discussion of such a trade-off.
I haven’t read the text of Ford’s plan but I have skimmed the GM plan. The notion that GM will increase its market share from 22% to 29% in the near term is fantasy not planning.
I think highly of Brooks comment. McKinsey & Co., indeed. Very well put.
PS - I’d love to see the best of both worlds as well.
Thanks Jason. By the way, to continue the “McKinsey” metaphor, apparently the NYT editorial board now fancies itself The Boston Consulting Group http://www.nytimes.com/2008/12/05/opinion/05fri1.html?_r=1&ref=opinion