The following is a transcript of remarks delivered by Mark Fields, Ford Motor Company Executive Vice President and President of The Americas, on Wednesday, Aug. 9, 2006 at the Center for Automotive Research’s 41st annual Management Briefing Seminars in Traverse City, Mich.
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Thank you, and good morning.
It’s a pleasure to be here today and to share the podium with so many leaders of our industry and government. I’m always energized by spending time with people who share a passion for this business and who truly believe in and advocate for its future.
Today, I’d like to share with you what Ford Motor Company is doing to advocate for our collective future and to give you my perspective on why the auto business here in our own back yard is so important to America. I’ll also share a few of the customer trends we’re spotting that will dramatically affect our future products, including a few new Ford products that we’ll discuss later.
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By GlobalDataAs many of you know, I’ve spent most of my career living outside of the U.S. In doing so, I’ve seen a stark contrast to the way the auto industry is viewed in Asia, in Europe and here in the U.S. – particularly in Detroit.
In the Western world, the lack of a strong manufacturing policy, inconsistent industry-government cooperation and the rising cost of regulations and social issues have resulted in a steady exodus of auto jobs from the longtime players, including Ford.
In Asia, the approach is vastly different. Governments and consumers see the auto industry as strategically important, vital to national interests and deserving of full support at every level of their national economies. Asian nations value their established automakers, and they root them on to success.
Just look at the headlines and the literature on the auto industry.
Books like “The End of Detroit” and “The Reckoning” are what we tend to focus on locally. But headlines like those you see here are what consumers are reading in Asia.
This dismissal portrayal of “ Detroit” and the cynicism we sometimes have for the home team is like nothing I’ve ever seen before.
I believe it’s time for an attitude adjustment, starting with everyone in this room. It’s time to believe in ourselves again – so that the consumers around us can do the same.
Don’t get me wrong. I’m not asking for a free ride or to not be held accountable for results. We know as a company and as an industry that we need to deliver on our commitments and our results.
But the health of the U.S. auto industry needs to be important to everyone – even if you don’t work for a U.S. auto company or drive an American car.
Today, the auto industry represents the single greatest engine of economic activity in the world. And no where is the impact more profound than here in our back yard.
Autos represent the largest source of corporate research and development in America – more than semiconductors, more than software, more than pharmaceuticals. In the last three years, Ford alone spent nearly $23 billion on research and development worldwide. And the vast majority of it has been here in our back yard.
And, when it comes to new plants and technology, Ford, GM and Daimler-Chrysler combined have invested nearly $39 billion in America over the past four years. That’s more than the all the transplant automakers have invested here during the past 25 years combined.
For those of us running the auto companies, we know we face many challenges, and we know the pace of change has never been faster.
That’s why I think “The Auto World Future: Round or Flat” is a great theme for this conference. It’s precisely the challenge we’re facing in a world where information flows nearly at the speed of light and where consumer perceptions and attitudes are changing at warp speed.
But I am reminded of one automotive visionary who dealt with similar times. Henry Ford commented: “ When everything seems to be going against you, remember that the airplane takes off against the wind, not with it.”
Change and challenge are nothing new to this industry. We’ve been dealing with it for 100 years, and the pace of change will only intensify.
Just think of what’s happened since you were here last year. Gas prices are up 30 percent – and now topping $3 a gallon.
Steel prices are up 35 percent. Copper and rhodium prices have skyrocketed – up more than 100 percent.
Then there are the segment shifts. I was shocked recently by a question from a reporter who suggested that we might be exaggerating the impact of segment shifts on our industry.
Let’s put things into perspective.
During the second quarter, pickups were 12.7 percent of the industry compared with 14.5 percent for all of last year. That nearly 2 point decline coincides with the surge in gas prices, beginning in April. On an annual basis, it equates to roughly 300,000 fewer industry-wide truck sales.
Or, put another way, a 2 point shift away from trucks in the U.S. has an annual industry-wide price tag of about $8 billion in lost revenue, and the shift to more cars won’t fully make up the difference.
The lesson we take from this tectonic shift is that listening to our customers has never been more important. We as an industry can’t sit back and complain about these changes. We have to act on them and quickly.
The old saying “if you build it, they will buy it” needs to be put to rest.
“If they will buy it, we will build it” is the way we need to approach the future.
So, what is this customer mindset teaching us at Ford? Already, we see two very significant trends with long-term implications for the entire industry.
The first trend is a growing, worldwide demand for sustainability and a smart energy policy.
You don’t have to look beyond the major news and business magazines to understand what I’m talking about. A few weeks ago, Newsweek had a cover on “The Greening of America.” And the current cover of Fortune is on Wal-Mart’s “green campaign.”
Sustainability has moved from a fringe issue a few years ago to a mainstream issue today.
Consider some of the proof points:
Membership in environmental organizations like the Sierra Club is up significantly.
Al Gore is known as much today for his documentary on climate change as his political career.
A new environmental consciousness is growing among Christian evangelicals.
And more and more individuals are making the choice to buy and live as “green” as possible.
Consumers are speaking loud and clear. They’re telling us that the social and environmental trade-offs associated with automobiles are increasingly unacceptable. They want cleaner, safer, more efficient vehicles that don’t compromise on function or value – and lessen America’s dependence on foreign oil.
The percentage of Americans who say they are very concerned about the environment is approximately 70 percent – up nearly 10 points in the last five years, according to Ford research. Fuel efficiency is now among the top three purchase drivers, along with quality and safety.
The auto companies best able to deliver vehicles that meet these needs will reap the rewards of increased market share and the financial rewards of technology innovation and leadership.
That is why we at Ford remain absolutely committed to driving American innovation throughout our company. It’s why we continue to invest in E85 ethanol vehicles, hybrids, hydrogen and diesel. Even as we forge ahead with the tough tasks related to our turnaround, we are unwavering in our commitment to be a leader in delivering innovative products with technologies that use new fuels, reduce dependency on foreign oil and save our customers money through improved fuel economy.
The second trend we see is a set of profound demographic changes that are already affecting the auto industry, and that will accelerate over the next decade and dramatically affect the types of vehicles we produce.
The trend begins with the aging of the Baby Boomer generation.
Between now and 2015, Americans aged 50 and over will grow from a third of the driving population to more than 40 percent. That’s significant because Baby Boomers’ buying patterns have a massive impact on the entire economy.
Just as Baby Boomers are downsizing every other aspect of their lives – including their homes– they are moving to smaller cars, crossovers, small SUVs and small premium utilities.
That means they’re buying fewer medium and large SUVs – a trend that actually started in 2003 and accelerated last year, when gas prices increased.
At the same time, the influence of 30-50 year olds will diminish as GenX-ers replace Boomers in this life stage. The 30-50 year olds will make up only about a third of the driving age population in 2015 – a sizeable drop from the late 1990s.
The family-oriented GenX-ers will still need people haulers and larger vehicles for their lifestyles. But, as a group, they are smaller, and they purchase too few vehicles to replace what their aging parents had been driving.
The net result? This chart sums up where we think the industry is headed within the next 10 years. As you can see, the winners include crossover and small-cars, which we expect to post strong growth in the next 10 years, as well as small premium utilities.
Hit the hardest are the people-movers, including medium and large SUVs, as well as minivans.
As for pickups, I already mentioned the big shift we’ve seen this year – caused, we believe, by personal-use buyers moving to cars and other smaller vehicles due to gas prices.
Long term, we expect small and full-size pickups to stabilize at about this year’s level and remain there for the foreseeable future.
So, what do we do about it? Well, at Ford, we’re not standing still.
You’re familiar with our Way Forward plan and our commitment to return our North American auto business to profitability no later than 2008.
You’ve also no doubt read that we’re speeding up our plan and looking to go further and faster … as we respond to the changing marketplace and economics.
We’ll have more to say on the specifics of what we’re accelerating in September. But I can confirm that our plans do include more new products and sooner, quicker and deeper cost-cutting and more metrics to measure us by.
I also can confirm that the Way Forward plan we announced in January is the same roadmap that will drive us forward.
Acceleration doesn’t mean a new plan. It means a new timetable.
I’m often asked by the media if I’m frustrated or disappointed by the reaction to the Way Forward plan to date. My answer is simple: I’m not frustrated. I’m motivated more than ever to turn this business around.
And I’ve seen this before, as have you.
At Mazda, after we announced the Millennium turnaround plan, we saw the same headlines and the same skepticism that we’re seeing today. In fact, it took 12 to 18 months before outsiders began to appreciate the dramatic results that we were achieving inside.
Go back and look at the headlines not that long ago regarding Nissan, Apple, Motorola and Hewlett Packard – to name a few. All of these companies had been written off by the same critics that worry about us today.
Carlos Ghosn remarks in his book that, when you launch a difficult operation, you always get criticized. And, then, when the positive results start coming in, the same people applaud and say it was a remarkable accomplishment.
We said in January that 2006 would be a transitional year as we rebuilt the foundation of our North American auto business. We said the bottom-line results would not be linear or smooth.
We also said that we don’t expect everyone to share our confidence at the start. The challenges we face are the result of decisions made – or not made – over many years.
But, critics or no critics, there are many positive signs of early progress on our Way Forward plan.
First and foremost, we have made progress in slowing the rate of our market share decline during the first half of the year.
If you take a look at this slide, you can see the progression. Through the first quarter, our U.S. market share was six-tenths of a point lower than last year – half of the more than 1 point decline we had experienced during each of the previous five years.
In the second quarter, our share was equal to a year ago.
We promised brand clarity, and we’re delivering.
Our Bold Moves marketing platform is being well received by consumers and dealers alike. Our brand favorability is up, and we were the only domestic automaker ranked in the top 10 best brands in the latest Harris poll on brand favorability.
Our new Bold Moves documentary, in particular, is getting noticed. To date, we’ve had 200,000 unique visitors to our web site, and the average time spent on the site is 10 minutes. That’s an eternity on the Internet.
Our clear pricing strategy is being introduced with each new vehicle, and the new Ford Expedition is the latest example. Our new pricing is resonating with customers, and it’s part of the reason for dramatic improvements in our residual values.
For example, the 2007-model Fusion SE I-4 has improved 2 percent on ALG’s residual values … even with a strong rating last year. The improvement is a reflection of the strong market demand for the Fusion and its better pricing position.
Similarly, we are expecting a 9 percent improvement for the new 2007 Ford Expedition and a 7 percent improvement for the Lincoln Navigator – based on the major product improvements this year and our clear pricing strategy.
Our quality is another success story. Several of our nameplates, including Mustang, Fusion, Five Hundred and F-150, now are performing better than average on J.D. Power’s Initial Quality Study.
On top of that, Fusion and Mustang both ranked best in their segments on J.D. Power’s APEAL survey.
It is this quality momentum that is allowing us to offer the best warranty package of any full-line auto company.
In costs and capacity, we’re on schedule with plant idlings, and we’re making faster-than-expected progress on our hourly reductions.
Our cost performance during the first half of the year improved significantly compared with last year, and we’ve only just recently put our full team in place to achieve more dramatic savings going forward.
And, importantly, we’re changing our culture and adopting a “change or die” mentality that is rejecting business as usual.
To that end, we’re pushing decision making down to lower levels, and we’re making product decisions based on our brands and customers.
One example is a wholesale change in the way we do customer research. Our designers and engineers are now spending entire weekends with willing customers – observing how they live, how they connect with their family members – and how they use their vehicles. We’re also embedding target customers within each vehicle program, and they serve as a sounding board from vehicle conception right through to production.
At the end of the day, of course, all of this leads to the products.
Let there be no mistake: Ford’s turnaround is product-led, and you’ll see more and more evidence of that in the weeks and months to come.
Some of the evidence is already here today.
Consider trucks. Despite the tough market, we’re not only holding our own, we’re gaining share. For the first seven months this year, our trucks had a market share of more than 35 percent – up 2 points over last year.
At the same time, we’re on track to improve our car share for the second year in a row.
In July, we delivered 20,000 Ford Fusions, Mercury Milans and Lincoln Zephyrs to retail customers – 18 percent higher than June. To date, more than 100,000 Fusions have been sold.
And, even as we’re building momentum in the mainstream car market, we’re going to keep the pedal to the floor on performance cars.
The Mustang coupe and convertible remain hot, and I don’t think there’s a Ford dealer in the land who doesn’t have a waiting list for the new Ford Shelby GT500 – the fastest production Mustang ever.
But we’re not stopping there.
We know the combination of Mustang and Shelby is magic, and we proved it again at the New York Auto Show. That’s where we revealed the Shelby and Ford Racing-prepared Ford Shelby GT-H built exclusively for Hertz. It received rave reviews, and many dealers and customers asked: “Hey what about us?”
Good point. And we’re listening.
Working together with Carroll Shelby, we have developed a retail version of the GT-H, which we call the Shelby GT. We will unveil full details to the public in our Bold Moves documentary this Sunday.
The Shelby GT will occupy a niche between the Mustang GT and the Shelby GT500 – both in terms of performance and appearance.
Another segment where we’re going to muscle our way to the front of the pack is crossovers.
Come November, the new Ford Edge and Lincoln MKX will show the world once again what Ford can do with a vehicle that is bold, American and innovative.
The design of the Edge is athletic, it shares cues with the Fusion, and it won’t be mistaken for anything other than a Ford.
The Lincoln is more refined and elegant, and it fits our vision for the brand’s future.
We’re also introducing new features and technologies, such as standard jacks for iPods in half of our vehicles, doubling the number of our vehicles that have navigation systems and offering more of our cars with all-wheel drive than any other major automaker.
Now, this is just the start. We haven’t talked a lot about all of the new products coming. But we are rebuilding our business with new product – and far more new product than our competitors, and some analysts, can yet comprehend.
Near term, count on nine new Ford, Lincoln and Mercury products going on sale in the next six months alone.
Longer term, the product onslaught will accelerate even further.
I’m pleased to confirm today that we will build a vehicle based on the Lincoln MKS concept that we previewed at the Detroit auto show in January.
It will be on the road in 2008 as Lincoln’s full-size flagship sedan with a design communicating power, motion and speed. It will take Lincoln craftsmanship and comfort beyond anything we’ve built before. And it will be packed with more technology and features than any Lincoln before it.
One technology on the new Lincoln comes straight from Ford racing and the Ford GT. It’s a capless fuel filler. It eliminates the inconvenience of forgetting to put your gas cap back on after refueling. It’s also better for the environment because no gas fumes escape.
Capless fuel filling will make its way throughout our lineup going forward, and it’s the direct result of listening to our customers … as we know that even small innovations deliver big customer benefits.
We’ll have more to say on new products next month when we discuss our accelerated Way Forward efforts. When we say everything is on the table, everything includes both revenue and costs. And new product remains king.
As one of my predecessors once said: “We will sell the furniture if it helps fund new products” … and I share that view passionately.
Now, with new products comes an investment in the infrastructure to develop and to build them.
Even as we reduce our overall capacity in line with demand, and even as we make the tough but necessary cutbacks throughout our business to secure our future, we are not retreating one bit from the necessary investments to bring out more products – and faster – for our customers. The competitive landscape and our future demand it.
That’s why, when we at Ford talk about believing in and advocating for the home team, we intend to put our money where our mouth is.
Just as we’re asking the people in the state of Michigan to believe in Ford, we want to make it very clear that the Ford Motor Company believes in the future of Michigan.
Today, I’m happy to announce that we are working with the state on a new partnership to try to ensure that a good portion of our investments in future products remain right here in our back yard.
Ford is considering investments of up to $1 billion in several Michigan facilities as part of our Way Forward and our product-led turnaround.
The investments would be dedicated to expanding flexible manufacturing at several of our facilities here in Michigan and be used for the research and development of future products, advanced powertrain technologies and hybrid vehicles.
To be fair, these new investments are not yet finalized, but we will continue to work with the state and our various facilities, and make decisions as part of our Way Forward plans.
Our work with the state is an outstanding example of industry and government working together to secure our mutual futures. We at Ford are thrilled to see it happening, and I know Governor Granholm shares those views. Governor …
Again, thank you, Gov. Granholm, and thank you to the people of the state of Michigan for your support of the home team and for believing in the importance of American auto companies.
Ladies and gentlemen, our destinies are in our own hands – and we will have no one to blame but ourselves if we do not seize the day. The first step is to believe in ourselves so that more customers around us can share our confidence.
Our industry will continue to go through enormous transformations in the next decade as we determine the future of personal transportation.
Growth will come from listening better to customers. The pressure to build cleaner more fuel efficient cars that reduce our dependence on foreign oil and other non-renewable resources will be intense.
And demographic changes will test our product plans.
But that all makes it an exhilarating time to be in the auto business – and that’s what drives us at Ford as we face our challenges and execute our Way Forward plan.
We at Ford see that future, and we are a part of it.
Thank you.
