Interviews that Ford CEO Alan Mulally last week gave to US media after six weeks on the job suggest he understands the problems that the company is facing, and is now starting to talk about the specifics of what needs to change, when it needs to change, and how to effect those changes, Global Insight analyst Aaron Bragman.
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“Some points culled from these interviews lead to conclusions about how Ford will be changing in the days ahead. Mulally was candid about the difficulties that the company currently faces,” he said in a research note.
There is too much regionalisation; the autonomy of the Ford companies working in the disparate parts of the world has created a “Balkanised” corporate structure that does not operate as one cohesive company.
Ford currently faces a roughly US$3,400 per vehicle cost disadvantage, a large portion of which revolves around union wages, benefits, and legacy costs.
The current product portfolio does not represent where the market is going, and the plans inherited when Mulally took control at the company did not provide a solution for getting to a new structure. Many plans were in place, but no cohesive strategy.
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By GlobalDataThe distribution network for Ford vehicles is too large and unhealthy. Too many dealers are selling fewer cars; the network for a company at 16% market share does not need to be as large as Ford’s current network.
In response to the challenges, Mulally has outlined a number of items that will become part of the turnaround plan in future.
Adjustments to the 2007 United Auto Workers (UAW) union contract will be needed in order to help make Ford more competitive. On the table will be wages, benefits, and the continued existence of the controversial ‘jobs bank, which Ford would like to see eliminated.
Platform sharing and consolidation will take dramatic turns, but globally, as the company begins to shift away from regional fiefdoms and towards a more global structure.
A renewed focus on product development will occur, with a strategy for product and brand management evolving. Mulally strongly suggested that there would be ‘global czars’ named for product development and manufacturing.
The Toyota Production System is likely to be used as a benchmark for revamping the Ford production development and manufacturing procedures. The pervasive focus on continual improvement in all areas and agility to respond to consumer demands are areas that Mulally greatly admires in Toyota’s abilities, has emulated at Boeing, and will likely implement at Ford.
“This is the most candid talk yet from the new Ford CEO, who has now evidently had time to review all of the far reaching corners of the company, the product plans, the manufacturing difficulties, and has come up with where he believes the company needs to head,” Bragman said in the note.
“He has stated that the company will not return to profitability now until 2009, which is a long way off, and will show that perhaps the greater challenge will be to keep Wall Street and analysts at bay until the profits begin to return. That will be very difficult, given that Ford expects to burn through billions of dollars in cash while funding employee buyouts, plant closings, and expedited product development that the turnaround will require.”
Bragman noted that Ford has recognised that in many areas, overall, it does not have the right product for the current market, and consumers are staying away in ever-increasing numbers.
“The renewed focus Mulally has shown on product as well as improvements to Ford’s corporate infrastructure begins to instil some confidence among the industry community that Ford may be starting to look down the right paths for its solutions. The hints that there may be appointments for product development and manufacturing czars, along with news that Ford is putting together ambitious financing in order to fund big product development plans, address the two main areas that Global Insight has been calling attention to for some time: cash, and a product guru.
“If Mulally can deliver on all he has outlined above, Ford’s future may begin to brighten as solid plans begin to materialise.”
