In a speech aimed squarely at investors, Ford CEO Jim Hackett has set out a strategy for the company that delivers cost cuts as well as a tilt to new business opportunities and emerging technologies.

The aggressive cost cuts – including US$10bn in materials over five years – are designed to make room to fund the development of electric and autonomous vehicles. They are also designed to appeal to investors who were unhappy with Ford’s depressed share price and warnings of lower profits under Hackett’s predecessor Mark Fields.

Ford also plans to reallocate some US$7bn that has been allocated to cars to spend instead on SUVs and trucks. Another part of the plan is to be more active in partnering with external companies and pursuing M&A opportunities to achieve business goals.

Hackett’s strategic direction was described by Ford as a ‘fitness’ push, re-basing revenue growth assumptions and attacking costs, while redesigning company operations for long-term success.

Hackett’s investor presentation in New York follows a four-month deep dive into Ford’s strategy and business operations led by Hackett and Ford’s senior leadership team.

“Ford was built on the belief that freedom of movement drives human progress,” said Hackett, who became Ford president and CEO on May 22. “It’s a belief that has always fuelled our passion to create great cars and trucks. And today, it drives our commitment to become the world’s most trusted mobility company, designing smart vehicles for a smart world that help people move more safely, confidently and freely.”

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Ford also reaffirmed its 2017 full-year financial guidance and said its 2018 outlook will be provided in January.

Ford said it is accelerating the introduction of connected, smart vehicles and services customers want and value. By 2019, all of Ford’s new US vehicles will be built with connectivity. The company has similarly aggressive plans for China and other markets, as 90% of Ford’s new global vehicles will feature connectivity by 2020.

US$14bn cost cuts

Ford is aggressively attacking cost, reducing automotive cost growth by 50% through 2022. As part of this, the company is targeting US$10bn in ‘incremental material cost reductions’. Engineering costs will be reduced by a planned US$4bn from previously planned levels over the next five years by “increasing use of common parts across its full line of vehicles, reducing order complexity and building fewer prototypes”.

Reallocated investment to SUVs; China becomes source for next NA Focus; electrification boost

And Ford said it will allocate capital to SUVs and trucks and away from cars. This starts with the company reallocating $7 billion of capital from cars to SUVs and trucks, including the Ranger and EcoSport in North America and the Bronco globally.

Ford also has plans to build the next-generation Focus for North America in China, saving capital investment and ongoing costs (how will that go down in the White House?). Further, Ford is reducing internal combustion engine capital expenditures by one-third and redeploying that capital into electrification – on top of the previously announced $4.5 billion investment.

‘Embracing partnerships’

Ford said it will ‘continue to leverage partnerships, remain active in M&A and collaborate to accelerate R&D’. It also pointed to recent announcements such as a possible strategic alliance with Mahindra Group in India and the agreement with Zotye for developing a new line of electric passenger vehicles in China. The company also recently announced a relationship with Lyft to work toward commercialisation and a ‘collaboration with Domino’s Pizza to research the customer experience of delivery services’.

Expanding in electric vehicles and services

This is an area where many feel Ford is playing catch-up with General Motors (which stepped up its electrification plans this week). Ford recently announced a dedicated electrification team within Ford, focused exclusively on creating an ecosystem of products and services for electric vehicles and the unique opportunities they provide. This builds on Ford’s earlier commitment to deliver 13 new electric vehicles in the next five years, including F-150 Hybrid, Mustang Hybrid, Transit Custom plug-in hybrid, an autonomous vehicle hybrid, Ford Police Responder Hybrid Sedan, and a fully electric small SUV.

‘Change not easy’

“When you’re a long-lived company that has had success over multiple decades the decision to change is not easy – culturally or operationally.”

“When you’re a long-lived company that has had success over multiple decades the decision to change is not easy – culturally or operationally,” Hackett said. “Ultimately, though, we must accept the virtues that brought us success over the past century are really no guarantee of future success.”

Revamping product development, modernising factories

Ford also says it is redesigning its operations to ‘better compete in this disruptive era’. Hackett cites as a template the example of how the company ‘re-imagined’ the 2015 F-150. Since then, the F-Series has gained market share and the average transaction price has increased 16%, Ford says. It has improved fuel economy and increased capability for customers, thanks in part to a 700-pound weight reduction that ‘helped make the F-150 the company’s most positive contributor to CAFE standards for model year 2018’. Additionally, 90 percent of the manufacturing equipment can be reused for the next-generation F-150, reducing future capital requirements, it is claimed. And Ford says the innovation on aluminium and light weighting will pay off across a range of Ford trucks and SUVs.

Other areas outlined:

  • Reducing orderable combinations of many nameplates, focusing on what customers value most. Already the team has identified a ten-fold reduction of orderable combinations in the next-generation Escape and is moving from approximately 35,000 combinations in the current generation of Fusion to 96 in the next generation.
  • Rethinking product development processes and incorporating new technology. In the next five years, Ford is aiming to reduce new vehicle development time by 20%, with new tools and fewer orderable combinations. Through the use of virtual assembly lines, the company has been able to reduce new model changeover time by 25%.
  • Redesigning the company’s factories of the future. Accelerating and scaling 3D printing, robotics, virtual reality tools and big data will improve logistics and enable a more efficient manufacturing footprint.

“We believe Ford will achieve its competitive advantage by focusing deeply on our customers – whether they’re drivers, riders or cities – and that’s where we are playing to win,” Hackett said.