Ford says it has found billions more in cost efficiencies than promised earlier, including plans to cut all but two car models in North America as it moves to become leaner to compete in a fast-changing global marketplace.
Due to declining customer demand and profitability, Ford will shed all but the Mustang and a Focus compact crossover vehicle in the US, Canada and Mexico during the next two years, CEO Jim Hackett told analysts on Ford’s first-quarter earnings conference call this week.
That means the company will no longer sell the Fusion midsize car, Taurus large car, Focus compact and Fiesta subcompact in the region as the market continues a dramatic shift toward trucks and SUVs. It could also exit or restructure low-performing areas of its business, executives said.
Ford said it has found another US$11.5 billion in cost cuts and efficiencies, bringing the total to US$25.5b expected by 2022. Savings will come from engineering, product development, marketing, materials and manufacturing. The company previously predicted US$14b in cuts by 2022.
One-third of Ford’s efficiencies will come by the end of 2020, Chief Financial Officer Bob Shanks told reporters.
“We’re starting to understand what we need to do and making clear decisions there,” Hackett said.
Ford also promised to raise its operating profit margin from 5.2 percent to 8 percent by 2020, two years earlier than a previous forecast.
The company said its net income for the quarter rose 9 percent due largely to a lower income tax rate, as the automaker promised additional efficiencies in the coming years.
The automaker says it made US$1.74b, or 43 cents per share, compared with US$1.59b, or 40 cents per share a year ago. Revenue rose 7 percent to US$41.96b.
Earnings and revenue beat Wall Street estimates. Analysts polled by FactSet expected 41 cents per share and revenue of US$36.78b.
The cost savings will come by optimising digital marketing and discounts on vehicles, as well as putting multiple vehicles on one architecture. The company also plans to redesign its manufacturing freight network.
Shanks said Ford is “unleashing the creativity of the teams to challenge norms, challenge conventions. We’re not afraid to copy good results and good performance. I don’t think they’re done yet. There’s more work under way”.
He said the company will cut US$5b from capital spending from 2019 to 2022, reducing it from US$34b to US$29b. The company will spend less on low-performing areas such as cars. The company identified Lincoln as a low-performing area but said sales are growing and the brand is not in jeopardy. More capital will be allocated to higher performing areas such as trucks and sport utilities, he said.
Lower-performing areas will be targeted for restructuring and some areas could be targeted for “disposition,” Shanks said.
He defined disposition as a different business model, efficiency improvements, exiting or downsizing. “Whatever it takes,” he said.