| By
Mark Emond Executive Editor
Start Magazine, March 2002
http://www.startmag.com/printresources/viewarticle2.asp
A family comes together in troubling times, and Ford
Motor Co. is certainly currently seeing its share of
trouble. But Ford founder Henry Ford's great-grandson
is now in the proverbial driver's seat-the first time
a Ford has been there in more than 20 years-and already
has made some hard deci- sions to bring the No. 2 auto
manufacturer back to profitability.
Automotive manufacturer Ford Motor Co. ranked fourth
on Start's list of 1,000 admired manufacturers last
year, with revenues of $170 billion in 2000. That was
in CEO and President Jacques Nasser's era. Ford, however,
suffered major setbacks in 2001 as Nasser was ousted,
and the company was facing its first annual loss since
1992.
Ford reported on January 17 a net loss of $5.45 billion,
or $3.02 per share, for full-year 2001, compared with
net income of $3.47 billion, or $2.30 per diluted share,
in 2000. Revenues for 2001 were $162.4 billion, down
5% from $170.1 billion a year earlier. Vehicle unit
sales were 6,991,000, a 6% decline from 7,424,000.
Ford, Dearborn, Mich., founded in 1903 by the now historically
famous Henry Ford, built the first automobile for the
masses in 1908, the Model T, which came only in black,
but was affordable. It was an immediate success. Of
course, Ford is much more complex than that now.
Everybody knows Ford is also Lincoln and Mercury, but
not too many know it is also Volvo, Mazda, Jaguar, Aston
Martin, Land Rover, Hertz, and Kwik-Fit, a chain of
automotive repair shops in the United Kingdom.
Everybody in the United States knows that the Ford Explorer,
the best-selling of the very popular sports utility
vehicles (SUVs), had Firestone tires, many of which
failed on 1999, 2000, and 2001 models.
The government hasn't blamed the Explorer for the 271
deaths and 800 injuries attributed to tire-related rollover
deaths in Explorers, but Ford has paid out millions
to settle lawsuits and spent about $3.5 billion replacing
13 million Firestone tires last year.
That was only part of the problem as Ford began to suffer
financial losses. Ford has terminated ownership it acquired
in U.S. auto dealers and certain electronic-commerce
ventures, including a stake in Internet Capital Group
Inc. Wayne, Pa., on which it lost nearly $50 million.
Loan losses by Ford Motor Credit have been rising dangerously.
All of this occurred despite the fact that U.S. auto
sales in 2001 were the second highest ever, 17.2 million
vehicles compared with a record of 17.4 million in 2000.
Each of the big-three U.S. automakers reported sales
gains in December, with Ford selling 281,158 cars and
trucks, a 2% increase. The gains were substantially
due to post-September 11 offerings of 0% financing that
knocked thousands of dollars off the price of a vehicle.
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Nasser set out as chief executive officer in 1999 to
transform Ford from the ground up. Deeply committed
to change, he said, "Five years from now we will
be a different company, and five years from then we'll
be another different company."
Ford did become different, and in the process, executives,
employees, dealers, and suppliers anguished, resulting
in serious morale problems and even lawsuits filed by
employees who challenged as discriminatory Nasser's
review policy for employees.
Ford's board of directors and key members of the Ford
family, which owns 40% of the company's voting stock,
decided in October to let Nasser go, and Henry Ford's
44-year-old great-grandson William Clay Ford Jr. took
over the helm.
He's the first Ford to take over the company since his
uncle Henry Ford II retired in 1979, and only the fourth
Ford to do so, preceded by Edsel, 1919-1943, and Henry
Ford II, 1945-1980. The founding Henry died in 1974
at age 83.
Nasser, of Lebanese descent, started with Ford 33 years
ago at Ford of Australia, gaining a reputation during
the 1990s as a stern cost-cutter and masterful judge
of product strategy. But his policy of overhauling Ford's
bureaucracy and trying to get everybody in manufacturing
and distribution to reshape their thinking to nonautomotive
ways was upsetting.
In less than 15 months, Ford was transformed from a
company with abundant cash surpluses to one with a serious
cash-flow problem. In an effort to increase available
cash, Ford recently made a Securities and Exchange Commission
(SEC) filing for clearance to sell as much as $10 billion
through debt securities, preferred stock, common stock,
and other securities.
Ford cut its dividend in half last October and was preparing
to eliminate thousands of jobs, 5,000 of them salaried,
and get rid of some manufacturing operations as part
of a broad restructuring plan led by Nick Scheele, 58,
named chief operation officer and president of Ford's
global auto operation.
When Bill Ford, who unlike Nasser enjoys a plenitude
of good will within the company, took the stage at an
employee gathering at the company's headquarters to
formally announce Nasser's departure, he was given a
standing ovation.
Ford said in an interview that he and Nasser had come
to the same conclusion: "We were passing the point
of distraction and entering into paralysis." He
told employees it was back to basics for Ford, with
"everything up for review."
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Revitalization announced
Ford
formally announced its revitalization plans January
11, cutting 22,000 jobs in North America, closing five
plants, and reducing production runs by 16%-all taking
place between 2001 and mid-decade. Other actions planned
by Ford during this period include:
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Introduce 20 new or freshened
products in the U.S. annually. |
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Of the job cuts, 3,500 salaried
workers were dropped in 2001 and another 1,500 are
planned to go in the next year or two. |
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Globally, about 35,000 employees
will be or already have been terminated. |
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Cost-reduction efforts expected
to improve ongoing annual profits before taxes of
$3 billion. |
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Discontinue low-margin models:
Mercury Cougar, Mercury Villager, Lincoln Continental,
and the Escort. |
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Sale of noncore assets and businesses
to recover $1 billion in 2002. |
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Reduce stock dividend to 40
cents from 60 cents. |
These actions and those already
taken are expected to improve pretax operating results
to $7 billion annually, an improvement of $9 billion
by the middle of the decade. As part of the restructuring,
the company will take an aftertax charge to fourth-quarter
earnings of $4.1 billion.
Ford CEO William Ford Jr. said if the company goals
aren't met, "I won't get paid."
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Automotive goals
Ford Motor Co. has long been environmentally
oriented, and William Clay Ford Jr. is outspokenly devoted
to the subject. Ford was instrumental in the formation
of the Partnership for a New Generation of Vehicles
(PNGV) in 1993, representing a historic and unprecedented
collaboration among the U.S. auto industry, the federal
government, and academia.
The goals of the partnership include improving America's
manufacturing expertise, developing technologies for
high fuel economy and low emissions, and eventually
demonstrating a preproduction midsize sedan capable
of up to 80 miles per gallon with no sacrifice in performance,
safety, or affordability.
Under PNGV, Ford, DaimlerChrysler, and General Motors
have been working with teams of scientists and engineers
from 19 federal government labs, automotive suppliers,
and universities to develop a portfolio of research
projects in four key areas: hybrid electric vehicle
(HEV), direct-injection engines, fuel cells, and lightweight
materials.
Hybrid electric vehicles have internal-combustion engines
and electric motors able to run side-by-side on and
off as selected.
PNGV researchers believe direct-injection engines are
highly fuel-efficient, particularly useful in a hybrid
vehicle, increasing mileage and reducing emissions.
Hydrogen fuel cells in the future could offer the auto
industry near-zero-emission vehicles.
Researchers are working with lightweight materials to
achieve up to 80 miles per gallon, reducing vehicle
weight 40% to 2,000 pounds. In 1998 Ford delivered a
lightweight prototype vehicle, the P2000, weighing in
at only 2,000 pounds. It achieved 63 miles per gallon
when coupled with a direct-injection, aluminum, through-bolt-assembly
diesel engine, and manual transmission.
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Environmental goals
Ford's
environmental achievements are too numerous to detail
here, but they include fundamentally refurbishing factories
to minimize any adverse environmental conditions and
actually contribute to environmental improvement.
For example, in 1999 Bill Ford Jr., then Ford board
chairman, proposed to overhaul the entire revolutionary
manufacturing complex on Rouge River, Dearborn, Mich.,
re-establishing the environmental spirit his great-grandfather
Henry had instilled in the company.
His goal was to "lay the groundwork to transform
a 20th-century industrial icon into a model of 21st-century
sustainable manufacturing."
Construction on the $2 billion project began in November
2000 and is scheduled for completion in 2004. A similar
program is underway at Ford's Dagenham complex in England.
Assembling a dream team of environmental, development,
and manufacturing specialists and recruiting notable
sustainability architect William McDonough, the redevelopment
plan includes a number of lean manufacturing and environmental
features to make Rouge a healthy, productive, supportive
work environment.
The new assembly plant features world-class flexibility,
with assembly lines capable of handling three different
vehicle platforms and nine different models. Finished
vehicle storage space will be reduced by 50% inside
and outside the plant, and 90% of the vehicles produced
will be shipped the same day.
Advanced environmental concepts applied and tested at
the complex include:
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The world's largest ecologically
inspired living, planted roof (about 500,000 square
feet), that will dramatically affect the Rouge area
watershed by holding several inches of rainfall
in its soil. |
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Phytoremediation-the use of
natural plants throughout the grounds that rid soil
of contaminants. |
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Swales-shallow green ditches
seeded with indigenous plants that will improve
storm-water management. |
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Porous paving that filters water
through retention beds with two to three feet of
compacted stones, helping manage storm-water runoff. |
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Trellises for flowering vines
and other plants to shade and help cool the Rouge
office building and the new assembly plant. |
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Renewable energy sources such
as solar cells and fuel cells. |
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Planting more than 1,500 trees
and thousands of other plantings to attract songbirds
and create habitats. |
The everyday life of employees
will be enhanced with overhead safety walkways, natural
lighting throughout the facility, team rooms, and relaxing
places to congregate.
Bill Ford Jr. said, "This is not environmental
philanthropy; it is sound business which for the first
time balances the business needs of auto manufacturing
with ecological and social concerns in the redesign
of a brownfield site.
"While most companies would rather move than invest
in a 83-year-old site, we view this as an important
reinvestment in our employees, our hometown, and an
American icon of the 20th century."
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Partnerships, alliances
Ford is dedicated to customers and is constantly seeking
better connections with them. To this end, it forges
partnerships and alliances to offer digitally a broad
range of innovative products and services. Here are
some alliance offerings:
Percepta-A partnership with TeleTech, this alliance
develops individualized relationships with Ford customers
through worldwide customer-relationship centers.
Based in Englewood, Colo., Percepta manages new-product
launch communications, customer-satisfaction analysis,
concern resolution, dealer assistance, customer-relationship
management (CRM) programs, and Web-based sales on behalf
of various automotive clients.
CarPoint-Microsoft Corp., Redmond, Wash., and Ford Motor
Co. created the world's first online built-to-order
system for buying cars.
Wingcast-Partnering with Qualcomm, San Diego, Calif.,
Ford is devoting itself to the convergence of wireless
mobility and information services that bring voice,
entertainment, Internet access, and safety services
into cars and trucks.
Ford partnered with Maytag, Newton, Iowa, in this venture,
providing convenience and time-saving appliances for
on-the-go customers and incorporating technology that
links consumers and incorporates technology that links
consumers to their homes via "Home Connection."
This endeavor contains many features that won't be described
here, except to say it offers safety and security, "infotainment,"
phone features, and future Telematics services.
TopDriver-Not only does Ford build safer vehicles, it
educates drivers for greater safety. Its equity stake
in this driver-education company furthers its commitment
to safety.
Proud Partners of America's National Parks-This partnership
uses the resources of Ford Motor Co. to help Americans
learn about, experience, and connect to America's National
Parks.
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In addition, Ford collaborates with others to revolutionize
its core business processes and to stay ahead of its
rapidly changing industry. Here are some:
Covisint-A partnership with four other auto manufacturers-DaimlerChrysler,
General Motors, Nissan, Renault, and later PSA Peugeot
Citroen-Covisint maintains an online global supply-chain
network. It is also a partnership with technology providers
Commerce One, Pleasanton, Calif., and Oracle, Redwood
Shores, Calif.
ZoneTrader-Under this partnership, ZoneTrader manages
the auditing of Ford Motor Co. surplus goods, then tests,
refurbishes, and auctions them online.
UPS Logistics-Joining forces with a division of UPS
Inc., Atlanta, Ga., Ford Motor Co. can greatly reduce
the time required to deliver vehicles from plant to
dealer to customer.
e-Steel-Ford chose e-Steel (renamed
Newview Technologies, New York, N.Y.) to help launch
a steel-e-commerce procurement system that maximizes
efficiency and operational savings.
The Beanstalk Group-By partnering with The Beanstalk
Group, New York, N.Y., for management of its trademark
licensing programs, Ford is maximizing the value of
its brands worldwide while offering Beanstalk access
to its worldwide network of offices and relationships.
On top of all that, Ford has a marketing alliance with
Yahoo! Autos, a groundbreaking site developed by Yahoo!
Inc., Sunnyvale, Calif., and Ford Motor Co. designed
to move the entire vehicle-ownership experience online.
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About Covisint
Covisint, Southfield, Mich., with offices in Amsterdam
and Tokyo, is the central hub where original-equipment
manufacturers (OEMs) and suppliers of all sizes come
together to do business in a single business environment
using the same tools and user interface, plus one user
ID and password.
Covisint has been designed with an emphasis on making
information accessible and visible in a secure online
environment. Information is secure within Covisint,
and members remain in control of who sees and accesses
the information.
Covisint's online tools enable companies to compress
planning cycles and enhance supply-chain planning. In
doing this, it allows companies to directly increase
efficiency and asset utilization while ultimately realizing
greater profits and shareholder valuations.
Last June Covisint selected webMethods Inc., Fairfax,
Va., as a provider of the integration framework for
the automotive exchange and integration platform for
its customers. Under terms of the agreement, webMethods
is providing software licensing and professional services
to Covisint.
Last September Covisint selected MatrixOne, Westford,
Mass., for its family of best-of-breed technology providers.
Covisint's collaboration platform, Covisint Virtual
Project Workspace (VPW) v3.0, as well as extended future
offerings, will feature MarixOne Value Chain Portfolio
of applications for collaborative commerce.
MatrixOne was chosen for its significant penetration
in the automotive industry and its broad solutions for
each stage of the collaborative process.
In July, Ford said it had already recouped its initial
investment in Covisint through savings made by online
tendering. Though Ford has never disclosed how much
cash it invested in Covisint, it estimated it made $70
million worth of savings from using it in 2000, which
it said "easily" covers its investments.
Ford then estimated it would make a further $350 million
in savings in 2001 by using the exchange.
Savings came from lowered process costs and supplier
prices rather than by reducing the number of purchasing
teams Ford employs or the number of its suppliers.
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Ford's fate
Nasser is gone now, so part of Ford's cash problem is
no more. At the outset of 1999, when Nasser took over,
Ford had $14 billion in net cash. At the end of the
third quarter 2001, it had just $915 million.
How did that happen? Nasser, with board approval, made
big acquisitions-Volvo Cars and Land Rover, to name
two. Ford also made rich recapitalization payouts to
shareholders-$5.7 billion in shares or cash to stockholders.
It also bought $2 billion of its stock since late 2000.
The other big three U.S. auto manufacturers, DaimlerChrysler
and General Motors, are also having cash problems, but
not in the range of Ford's. High operating costs and
sales incentives to maintain marketshare are big cost
items, and they're for the most part continuing for
now.
Ford's powerful cutbacks in employees and plants have
been announced, and if they are achieved in the next
few years, Ford will return to its cushy past. Obviously,
it remains to be seen, but the new dies are being cast.
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