Corp. President John F. (Jack) Smith Jr. can afford to smile just a little these days. After his three grueling years as president, GM finally is mounting a comeback. While Motor Co. and Corp. earnings dropped sharply in the third quarter, GM showed a 16.4% gain from the prior year -- this despite a loss on North American Operations and a halving of profits on International Operations. Mr. Smith discussed where GM is heading in 1996 in Editor-in-Chief David C. Smith and Executive Editor Drew Winter during November in his office at GM's headquarters in Detroit. An interview with Louis R. Hughes, GM executive vice president and president-International Operations, in Dearborn, MI, follows.
I don't think 1996 is going to blow the roof off the place, but our judgment is it's going to be a pretty good year," saysCorp. President John F. (Jack) Smith Jr.
With interest rates stable and inflation easing as a threat to the economy, "it's a slow-growth mode," he says. And clearly, in his view, that's not all bad. Indeed, he and other automotive executives now speculate that the slower--but still high --sales rate may stave off the next industry down-cycle until 1998 by smoothing out sales blips. Earlier thinking indicated the current up-cycle would end in 1997.
For GM, '96 marks an opportunity to recapture lost market share after seeing its cut of the pie shrink from 36% in 1990 to 33% so far this year. That's down from 32.7% a year earlier. A GM official hinted last summer that 35% is not unreachable in the near future. Mr. Smith won't go out on that limb, but he does allow that things are looking up now that GM truck-production capacity is rising. An auto hauler's strike this fall also cost GM market share, he says.
"I don't know about 35%, but we're pretty pleased with it (market share). "We've taken 450,000 cars out of our business (low-margin daily rentals). That's two assembly plants worth, and we didn't do it because we're good guys. We took it because it was bad business for us. Obviously that hurts your market share, so we had to eat that along the way. We've lost it on daily rental."
GM enters 1996 armed with a bevy of new model launches. "We've got the plus of a heavy new-model load, and then we've got the minus of changing the plants" to build them, a process that takes out production during changeover and, based on precedence, can be filled with glitches. "1996 is a year when we've got to execute. We've got a lot of plants starting up with a new product," including Oklahoma City "where you're talking about a sea-change in terms of processing."
The new models include revamped fullsize cars, the Cadillac Catera entry-level luxury car from GM of Europe, and spinoffs of the new-generation W-body midsize models, including Pontiac Grand Prix, Buick Century and Oldsmobile Allure. GM's new APV minivan, also off the new W platform, likewise debuts in '96. It'll be exported to Europe to offset currency losses on Catera, whose content is based on the strong German Deutschmark against the weak U.S. dollar.
GM is determined to smooth out start-up glitches that are blamed for the excruciatingly slow start-up of the badly needed J-body models, the new-generation Chevrolet Cavalier and Pontiac Sunfire at Lordstown, OH, which began in late 1994 (see WAW cover story, April 1995) and only very recently reached rated capacity levels.
"If we didn't learn any lessons from Lordstown, shame on us," he says. "The problem is we wanted to drive change so it would take less time to build the car. We tore up the whole plant, and we were very aggressive in what could get done and when we could get it done," he says. "We didn't do as well as expected, and you have to take a hard look at what happened. We've done that. But when you're building some really aggressive goals, you've got to step back and say, 'Hey, what went wrong, and what do we do during the next major change to avoid some of the things we got into?'"
Still, revamping plants and processes is vital to GM to squeeze down its costs, he emphasizes. And on that score, GM is doing better than some may think, he adds, grabbing a sheet that indicates GM's worldwide profit margin on sales through the first nine months this year stood at 3% vs.Motor Co.'s 2.5% and Corp.'s 3.6% GM's "stretch target" is a 5% return on revenues, he says.
Driving out cost is also vital to GM's strategy of keeping prices within reach--it's so-called "value" scheme. "I think affordability is an issue in the industry, although some of our competitors don't agree with me," he says.
Notorious for postponing product programs in recent years, GM under its new vehicle line executive (VLE)/brand manager product development and marketing strategy unveiled in October is committed to timely new-model launches. Asked if the days of delay are ending, Mr. Smith replies: "I think it's fair to say we've had a pretty good run now, and we're going to work like hell so that we're not put in that situation again."
A chief aim of the VLE structure is to adopt common practices throughout GM's product development organization to bring out vehicles faster at lower costs. GM of Europe also is moving toward VLEs as part of Mr. Smith's overall global strategy, which meshes both North American and European resources to meet specific product targets.
Mr. Smith says he's not concerned that product programs already in place will fall through the cracks as the VLEs take over because "we're not changing the basic organization structure." Nor is he worried that those who didn't win one of the coveted VLE and brand manager posts might exit, creating a brain drain.
"We had a very healthy process," he says. "We went through an extensive testing program of those who wanted to be considered, and we've talked to all of those" who sought, but didn't get, the new positions. "I don't know why it would cause" any problems.
He discounts an earlier report by a high-ranking GM executive that by the end of the century the VLE process will eliminate 5,000 jobs in GM and its outside engineering and component suppliers. The VLEs were established "to improve efficiencies so we can do more cars," says Mr. Smith. "That's always been the plan, and to get hung up on the head-count thing is not what we want to do."
GM's new-product delays in recent years are traceable largely to red ink and lack of a sufficient cash cushion. Looking ahead to the next downturn, Mr. Smith says GM wants to have $12 billion to $13 billion on hand. As of Sept. 30, the corporation's cash and marketable securities stood at $8,8 billion. "You lean up going into a recession, obviously, but you don't want to be postponing good programs. It's bad business, and we did it," he concedes.
It will help that GM has taken a big whack out of its health-care and pension liabilities. During the third quarter it contributed $800 million to the pot, bringing the total paid in since early 1994 -- when it stood at $22.3 billion -- to a huge $18 billion. Mr. Smith now says "We'd like to have that issue off the table (fully funded) by the end of 1996."
With United Auto Workers union negotiations toward a new three-year contract coming up next summer, GM's growing largess can't help but become a big issue.
"They haven't really said" what'll be on the bargaining table, says Mr. Smith, adding that "the union has to pay attention to how competitive we are versus the transplants. Those issues are clearly front and center, so hopefully it will be a reasonable contract year." Would GM welcome becoming the UAW's strike target? "Why not?" Mr. Smith asks.
Turning to GM's operation outside the U.S., Mr. Smith says he remains "a strong believer" in the North American Free Trade Agreement (NAFTA) despite the "serious setback" in Mexico, where the economy is in shambles. "The whole country took a hit, and the local Mexican car business is dead; its down 70% from last year. But I think Mexico (eventually) will be a very strong growth country. We saw that happen in Europe when Spain and Portugal joined the Common Market, and I think that will happen in Mexico.
But I didn't expect what we have now in Mexico to happen," As one result, "We've refocused our efforts on areas like Central America," he says.
GM's outlook is far brighter in the Asia/ Pacific region, where in November it bested Ford in winning a 50/50 joint venture with the Shanghai Automotive Industry Corp. () to produce Buick Regals starting in 1997 with annual capacity of 100,000-plus. Most of the cars will go to commercial and government fleets, he says.
The $1 billion project could lead to other ventures with, possibly including the new APV that's built on the same platform as Regal. A minivan was part of the original discussions with SAIC, says Mr. Smith, but the deal cut by Mercedes-Benz and Naffany South Chona Motor Corp. earlier this year to produce minivans in China put SAIC's plan on the back burner. "They didn't want to do two vans. Maybe some day that will get squared away," he says.
Mr. Smith isn't concerned that GM might lose proprietary technology by teaming up with the Chinese. "One thing we told them early-on is that it(the GM deal) would give them technology," he says. "For example, they don't make any tooling in China to build the dies and stamp the metal. That's really part and parcel of the automobile business."
GM initially will export major components such as engines and transmissions from North America, but some components will come from itsAutomotive Systems, which has established 13 ventures in China with several more in the works. Local content is targeted to start at 50%.
As for GM's aborted attempt to build S-series compact pickups in China with First Auto Works, Mr. Smith allows that "The market kind of dried up, but frankly I think we missed the market a little bit; the vehicle was too expensive. We're hoping to work out something that makes sense. We've got to try a new product in there to make it go."
Mr. Smith confirms GM is working on a small, low-cost vehicle for emerging markets, including Eastern Europe. "It's not a tiny car, necessarily. They want a low-priced car, but they don't want a little bitty box. They want something to carry their family."
He adds, "There will be a big opportunity for low-priced cars in China when the personal market opens up, but I don't know when that happens."
To be sure, it won't be in 1996.
Chrysler Corp. Chairman Robert J.says he'll be driving the first Jeep Wrangler that goes on sale February, but it's doubtful he'll have a lot of time to enjoy the off-roading experience in '96. Despite presiding over the most successful period in the No. 3 automaker's history since being recruited by Lee A. Iaccoca from General Motors Corp. in 1992, he now is locked in a bitter battle with Las Vegas billionaire Kirk Kerkorian over control of the company. And it's a battle that seems to escalate daily. Mr. Eaton discussed that fight -- and where Chrysler is heading in 1996 -- with Editor-in-Chief David C. Smith and Executive Editor Drew Winter in November in his Highland Park, MI, office.
May you live in interesting times, the old Chinese curse goes, and 1996 promises to be yet another very interesting year for Chrysler Corp. Chairman Robert J..
After presiding over one of Chrysler's most impressive comebacks and enjoying a brief honeymoon of praise for running a company with the most innovative vehicle lineup and lowest product development costs in the industry, Mr. Eaton now once again is under the gun as his company is put under the microscope by financial analysts, shareholders and the media.
On top of the list of items promising to make '96 interesting is Las Vegas billionaire Kirk Kerkorian, who is stepping up his campaign to wield more control over the automaker and get his top aide, Jerome B. York, on Chrysler's board of directors at its annual meeting in May -- and maybe earlier.
Mr. Kerkorian, who controls 13.6% of Chrysler's stock and for the past five years has been its largest shareholder (he recently was replaced as Chrysler's No. 1 shareholder by Fidelity Investments, a Boston-based mutual fund company that now holds 14.4% of the stock), argues that Mr. Eaton and his management team are too conservative and aren't delivering enough value to shareholders.
At the vortex of the controversy is Mr. Eaton's insistence the company set aside $7.5 billion so it can ride out the next recession without cutting back on major vehicle development programs.
Despite lost of negative pressure on auto stocks in general, Mr. Kerkorian, 78, also wants higher dividends and faster growth in the stock price. He has become increasingly vocal about Chrysler lagging the rest of the Big Three in major quality surveys as well.
Last October Mr. Kerkorian wrote to Chrysler demanding, among other things: three board seats, the right to buy more stock without triggering a "poison pill" defense and the appointment of a committee to determine how much cash the automaker should accumulate. Chrysler's board rejected the committee idea, but agreed to study the other demands over 90 days.
But Mr. Eaton seems unwilling to stop accumulating cash anytime soon. The automaker currently has about $6.4 billion.
"We're not at $7.5 billion, and I'm not comfortable where we're at. The fact of the matter is, $7.5 billion is not nearly enough for a recession like we had back in the early '80s. It would be enough if we had a recession like the last one." The "cost" of hoarding that much cash is minimal, he argues. "It seems to me that any rational person would consider it the cheapest kind of insurance to make sure the company doesn't get into (the near bankrupt) situation it has been in about eight times since 1950." Even so, Mr. Eaton says there are no plans to accumulate more than that.
Other points of "interest" for '96:
* A lawsuit by former Chrysler chairman Lee A. Iacocca, who says the automaker is blocking his attempts to cash in $42 million worth of stock options.
* A hyperactive rumor mill that has Chrysler involved in numerous convoluted tie-ups with offshore automakers such as Mercedes-Benz AG and AB Volvo.
* Increasing competition in the lucrative sport/utility market, where Chrysler finds lots of profit, especially at the bottom and top end of the segment, where new products are starting to flood in.
* Continuing bad publicity over the safety of the latches on the rear hatches of Chrysler's previous-generation minivans.
* The perception that Chrysler still is struggling with quality problems and high warranty costs.
Other concerns also have cropped up recently. Chrysler wound up passing on an important deal to build minivans in China, and a strike at Chrysler's McGraw glass plant almost shut the whole company down. It makes windshields for many of the automaker's key products. The dispute was settled before windshield inventories ran out, but keeping the plant running -- and the workers happy -- promises to be another challenge.
Mr. Eaton likes to describe himself as a non-egotistical team player and a strong proponent of participatory management. And until a few months ago, this also is how the modest Midwesterner with an engineering degree from the University of Kansas was depicted in the media as well.
But as the automaker has suffered increasing criticism and the struggle for control of Chrysler with Mr. Kerkorian has escalated, a different view of Mr. Eaton has emerged: one of a feisty, driven executive intent on maintaining control over his company's destiny. He is adamant about keeping Mr. York off Chrysler's board. He says Mr. York doesn't represent all of the company's shareholders, only Mr. Kerkorian. "If you have 14%, you've obviously demonstrated that you have different objectives than everybody else," Mr. Eaton says.
He hasn't looked at Mr. York's recent financial analysis of Chrysler, which contradicts Mr. Eaton's contention the automaker needs a cash cushion of at least $7.5 billion to survive the next downturn.
Mr. York was chief financial officer at Chrysler and IBM before becoming vice chairman of Tracinda Corp., Kerkorian's private holding company, earlier this year.
"We've got at least 50 (financial) models in the United States on Chrysler Corp. and probably another 50 I don't know about," Mr. Eaton says. He gives less -- not more -- credibility to Mr. York's model than most of the others. "This company has changed so much since he left, and it's so much bigger. He's been off focused on something else."
Outsiders may be surprised by the combative side of Mr. Eaton -- which earned him the title "Fighting Bob" in a recent Business Week article -- but it's nothing new. As a research engineer only two years out of college, Mr. Eaton spent eight days on the witness stand successfully defending the Chevrolet Corvair in the 1960s in a big product liability suit.
Later, as chief engineer for GM's much-criticized X-cars, he again doggedly defended the product on the witness stand -- and off -- against U.S. Justice Dept. allegations that the cars had a brake defect. GM won the X-car case in 1987.
"I don't think anybody who's ever known me would think I'm somebody who rolled over easily," he says.
Outsiders probably wouldn't expect to see the immaculately dressed chairman charging off-road in a Jeep, either, but it's a favorite diversion. The first order for the new Jeep Wrangler, which goes on sale in February, will be his, Mr. Eaton says. He recently sold his older Wrangler to a friend.
Although he admits to liking the image of being an unassuming team player, he makes it clear there are limits: "I was to listen to everybody's views. I want people to challenge me. But when it gets done, we don't vote. I believe in participatory management, not consensus management," he says.
Despite all of the pressure, Mr. Eaton is affable and relaxed at an interview in early November -- and very upbeat. He calls Mr. Iacocca's suit an unfortunate situation but "is confident of our position" that Mr. Iacocca "had not fulfilled the requirements necessary to cash in options. Those are the kind of things we all sign."
He also is optimistic about the long-term health of the U.S. vehicle market. While '95 U.S. vehicle sales will be far less than predicted a year ago, (Chrysler's year-ago projection will be off by more than 1.5 million units) the absence of a traditional peak in vehicle sales should eliminate the following valley. Instead of a slowdown in 1997 like many forecasters originally predicted, sales should chug along at a steady clip until 1998 or 1999. Chrysler is projecting 1996 U.S. vehicle sales to be 15 million, about the same as this year.
Mr. Eaton seems somewhat exasperated by continued rumors that Chrysler is arranging stock and equity sharing agreements with automakers such as Mercedes and Volvo. He confirms Chrysler has held talks regarding benchmarking and various cooperative tieups with Mercedes, but says there have been no discussions about stock swaps or full mergers (see sidebar, p. 45).
On the product front, Mr. Eaton says Chrysler will offer a variety of sport/utility vehicles (SUV's) from $12,000 to $35,000, but it won't enter the market with new models that compete directly against General Motors Corp.'s big Suburban and Tahoe/Yukon models orMotor Corp.'s small RAV4.
A full-size, extended cab pickup with a third door similar to those at GM and Ford Motor Co. also is not likely. Mr. Eaton says big sport/utilities like the Suburban represent "a good area of the market, but not an area we intend to go into." Chrysler seriously considered offering an SUV based on its full-size RAM pickup, and prototypes were spotted during testing. But the vehicle was scrubbed because it was a gas guzzler that would hurt corporate average fuel economy.
Mr. Eaton also is confident's new car-based RAV4 won't steal from Chrysler's dominating share of the low-end SUV market. The all-new Jeep Wrangler will be priced below the RAV4, he says. "I could probably put my lower-priced versions of the Cherokee against the RAV4, too, and get it on both sides," he adds.
The Chrysler chairman also continues to argue that the automaker's quality problems are overstated. Chrysler's minivans, SUVs and pickups -- comprising 62% of its volume -- get excellent customer satisfaction ratings from J.D. Power and Associates, and he downplays his well-reported internal crackdown on quality issues. "I've never had job in my life where I thought the product was good enough. I've never had a job in my life where I thought the cost was low enough. The day I retire I will guarantee that I will not be happy with the quality, I will not be happy with the product and I will not be happy with the cost. You show me the company where they are happy with any one of those, and I'll show you a company that's on the way out."
Mr. Eaton also downplays Chrysler's reportedly sky-high warranty costs and says in the just-completed '95 model year the automaker logged the best year-over-year improvement in warrantly experience in the company's history -- although he declines to cite specific costs.
And what about the strike at Chrysler's window-making subsidiary?
Chrysler has been trying to sell it for some time, mainly because it lacks the technological expertise needed to allow it to be world-class. But as part of the labor settlement, Chrysler now has agreed not to sell the company and instead is looking for a technology partner that will allow the plant to become more competitive.
Despite the problems, much has gone right for Chrysler in the past year. First and foremost is the success of its new-generation minivans, which won rave reviews and were launched without major startup problems -- despite numerous press reports to the contrary.
Perhaps a few more successes like that may lend a few boring moments to an otherwise overly interesting '96.
It has been a tumultuous year for the Ford Motor Co. It started when Ford 2000, the company's new global strategy, officially began taking hold in January, and it ends with two huge new-product launches: The all-new Taurus and Sable midsize cars and F-Series full-size pickups in the U.S., plus major launches in Europe, including the small Fiesta and the Galaxy minivan built jointly withAG in Portugal. Edward E. Hagenlocker, president of Ford Automotive Operations (FAO), discussed where Ford is heading in 1996 at Ford World Headquarters in Dearborn, MI, with Editor-in-Chief David C. Smith and Executive Editor Drew Winter.
Ford Motor Co. heads into 1996 with some of its tougher days now over, but with no time to take a breather.
Ford 2000, its global effort to align products and processes, "came together very quickly" and actually is running ahead of schedule, President-Ford Automotive Operations (FAO) Edward E. Hagenlocker tells WAW. Numerous high-volume new-product launches also are on or ahead of schedule, and Ford will comfortably outsell all of General Motors Corp. on the truck side this year by 140,000, he predicts, beating GM for truck leadership for the first time since 1970.
Although the industry's annualized sales rate slipped to the 14-million level in the waning months of 1995, Mr. Hagenlocker thinks it'll hit "around 15 million" when it's all over.
Looking ahead, "We're projecting the full year of '96 to be a little stronger than '95, and we could see '97 continue to be 15-million to 15.5-million. So it should be a good next two years in the auto industry."
Because 1996 is a Presidential election year, it's not likely the economy will be allowed to seriously weaken. But Mr. Hagenlocker thinks '96 is different from other election years. "The issue right now is around implementing a balanced budget," which in turn would relieve pressure on interest rates. Separately from that, he thinks there's room in any case to reduce interest rates, creating "a little stronger growth in the economy next year."
The new lately hasn't been entirely upbeat at Ford, though While it made $187 million on U.S. automotive operations during the third quarter, that was far below the $553 million earned a year earlier. And when a $388 million loss on International operations is included, Ford lost $201 million on the automotive side compared to a $619-million profit during the same three months of 1994.
Moreover, Wall Street analysts now predict Ford will continue to lose money on its core automotive operations during the current quarter, possibly extending into 1996.
None of this especially surprises Mr. Hagenlocker. "You've got to keep it in perspective," he says. Industry sales rates during last year's third and fourth quarters were much stronger, he emphasizes, and beyond that Ford is paying the penalty for the stream of product launches.
Indeed, after an upward march that seemed unstoppable, Ford's U.S. market share dropped back to 24.8% during the third quarter from 25.2% a year earlier. In Europe, Ford's share crept up to 12.9% from 12.8%, but that didn't stanch the flow of red ink in that region.
Declining to reveal specific results of Ford 2000 so far, Mr. Hagenlocker says the global scheme is on track to create annual savings in the $2 billion to $3 billion range by the end of the century. "We've projected that by the time we get through the transition we would save several billions of dollars, and we can fully see where that, in fact, will happen," he says.
"We said we wouldn't break down the accounting on a year-by-year basis, because that would just perpetuate the old way of doing things," he adds.
This much he will say, however: Despite adding new vehicle programs, Ford's engineering and investment costs are going down. Under Ford 2000 its product-development head count already is shrinking and the number of unique platform -- especially on the car side -- has been slashed, as have been the variety of engines and transmissions Ford will build in the future.
Ford still hasn't determined howMotor Corp., in which it owns a 25% interest, will fit with Ford 2000, he says. "That strategy is still under review, and for the time being Mazda will play the role they have been playing," he says. "As we go forward we will sort that out" (see Auto Talk, p. 25).
Some suppliers have criticized Ford recently for using heavy-handed methods to push down their prices, attributing the tactics in part to the fact it is moving from regional to worldwide purchasing under Ford 2000. They contend Ford is demanding 20% price relief between 1995 and 1998, or 5% a year.
Mr. Hagenlocker says what Ford has tried to do in 1995 is independent of Ford 2000. "I think the two subjects are confused," he says. "We've spent a fair amount of time with our top 100 suppliers here in North America and we've spent time with our top European suppliers within the last month. The calendar-year '95 negotiations with various suppliers had nothing to do with Ford 2000."
What the talks will focus on as they relate to moving ahead with Ford 2000, he says, is "total cost management -- all the way from the supplier through the design, through the way the trail was handled within our system, the total cost.
"It's a mutual effort, and it's not a flat number for every commodity. The final targets depend on what the opportunities are. It's a collaborative process and it involves a mutual buy-in to the targets and the process," he adds.
To validate the idea, Ford has been conducting pilot projects with numerous suppliers, he says, with some achieving cost reductions exceeding 30% over four years. "There's now a mutual understanding that there is a process and how it's going to be managed. It's not about negotiating the suppliers' margins or Ford Motor Co.'s margin. It's about removing waste that's not a value as far as the customer is concerned," he maintains.
Despite supplier contentions to the contrary, Mr. Hagenlocker says that all of Ford's long-term contracts "have been honored." He says part of the problem can be traced to raw material increases this year, which have put pressures on suppliers even as Ford seeks cuts.
"Obviously there have been differences of opinion" on that score, but he's convinced that "at this point those issues have been resolved. '95 has been a hard year in the area of negotiating costs, but we've had some success stories and we've had some issues that didn't work out as well. We've discussed them and that's behind us."
Turning to the product side, Mr. Hagenlocker says the '96 Taurus and Sable are "performing as we expected and launching very strongly," despite recent weakness in the midsize segment and a shortage of station wagons. As of early November, Ford had booked 232,000 orders from all sources -- dealers, Canada, fleets, daily rentals and exports, with U.S. retail sales hovering around 60,000. Ford's strategy dictates a drop in daily rental deliveries, suggesting that the new model may not keep pace with the old.
Many outside experts and dealers question Ford's strategy of pricing Taurus above $19,000, but Mr. Hagenlocker terms as "really inaccurate" reports that it already is discounting the '96s. Ford is offering "a $250 loyalty lease" discount to those coming off a Taurus/Sable lease, then leasing a '96, but that's not the same as the usual incentives posted to move the sales needle, he maintains.
With the front-drive Windstar minivan hitting stride and a tweaked Mercury Villager for '96, where does that leave the aging, rear-drive Aerostar, which Ford planned to drop a few years ago? "We'll definitely have Aerostar in model-year '96, and we'll definitely continue it for the foreseeable future," he says.
Mr. Hagenlocker predicts truck sales will account for half of all U.S. light-vehicle sales by 2000, indicating a shakeout may be coming on the car side. Still, Ford was no plans to drop its large rear-drive Ford Crown Victoria and Mercury Marquis any time soon, even though GM's tired old horses slog toward the pasture when the '96 model year ends. "That's still 300,000 to 400,000 units annually, so I guess we'll be the only participant." Indefinitely? "Indefinite is a long time, but as far as I'm willing to discuss product strategy, yes we're going to remain in that market."
Commenting on other subjects, Mr. Hagenlocker says that:
* Ford expects to have ample cash and marketable securities to withstand a downturn and still keep product programs moving forward, although he won't say how much. On Sept. 30 Ford had $12.2 billion in its kitty, down from $13.0 billion the prior year.
* Despite losing a major car program in China to GM during November, Ford won't stop trying. "China is a top priority for us and we'll continue to grow our presence there. Somewhere in the future there'll be a small-car program there. We're continuing to evaluate other vehicle programs and component joint ventures in China."
* Ford does not know yet what the issues will be in 1996 bargaining with the United Auto Workers union, but after 15 years of joint employee involvement programs with the UAW "we'll approach '96 the way we've approached the last several" negotiations.
* Ford can do little to change its Mexican manufacturing strategies to offset the calamitous drop in the industry sales rate there from 600,000 annually 18 months ago to 200,000 today. One tiny bright spot: Ford actually has picked up some share in the moribund Mexican market.
* Like other automakers, Ford is seeking ways to reduce its reliance on German production, where the strong deutschmark makes exports expensive relative to local currencies. "Clearly at this point it would appear we need to increase our revenues in marks and reduce our costs in marks," he says, without being more specific.
Baseball insiders say Ted Williams' short reign as manager of the Washington Senators resulted from the game's last .400 hitter's expectation that his players be as talented and dedicated as he was during his stellar career.
Carlos E. Mazzorin, Ford Motor Co.'s vice president of production purchasing, and the No. 2 automaker's suppliers could be encountering a similar clash. Any workaholic supplier CEO would have a difficult matching Mr. Mazzorin's daily routine: up at 4 a.m., 8 miles on a treadmill, in the office at 5:30 a.m.
But Mr. Mazzorin says he is trying to bridge the gulf between he and his suppliers with communication. In fact, he practically dares vendors who say they can't reach him to try his line at around 6 a.m., when he is the only one there to answer the phone.
Since last year's announcement that Ford would begin a worldwide purchasing strategy as part of Ford 2000, some suppliers have been critical of Mr. Mazzorin's handling of the situation, saying that contracts have been torn up and that his demand for a 20% cost/price decrease over four years is excessive.
"We honor contracts," he states emphatically, explaining that the confusion could have come when the number was increased to 5% per year and some current contracts stipulate only 2% decreases. "Then you say forget your contract, that's a new number. We accept that, but we've got to reach that number." He says the 5% can come from Ford's part of the total value chain (see purchasing execs story. p. 59).
Mr. Mazzorin says a number of supplier communication activities have been initiated in the last year. The first is a supplier communications network in North America and in Europe. In each continent Ford meets with 50 suppliers who in turn disseminate information to 10 other companies. "The intent is: we communicate with them on Ford 2000, they communicate with the 10 suppliers, and we reach 1,000," he explains.
Another program, which also is being attempted at General Motors Corp., is the assignment of non-purchasing executive champions of each of the top 80 suppliers. "They can discuss issues they have with the company," says Mr. Mazzorin. "It's an open forum."
Other supplier relations initiatives include:
* An international council that meets three times a year.
* A day-long ride and drive for the top 50 suppliers at the Ford Proving Ground.
* Meetings with the top 50 suppliers in Germany.
* Supplier hotlines in Germany, England, Spain and the U.S.
* A value center in Livonia, MI, to analyze supplier concerns about Ford's own product design process. "So far we have exceeded $1 billion in elimination of cost from 1994-1998," boasts Mr. Mazzorin.
Contrary to some reports, Mr. Mazzorin says he wants to hear supplier problems. Supplier executives in attendance at recent meetings confirm that vendors have been candid with the nattily-dressed executive.
"I said if you have a concern, I want to hear it," Mr. Mazzorin reiterates. "I just listened. That doesn't mean my demands or what the market wants are less. I can't say that any one of the top 100 suppliers didn't say what they had to say."
He adds that in spite of any tension present between Ford and its supply base, Ford ultimately will be more dependent on suppliers as the industry moves toward more supplier engineering and design responsibility. He says both need to have the same objective. "We want to satisfy the customer quickly, have good quality and at a low cost. That's the key. They are going to make Ford successful, because if we are successful, they are successful. If they are successful at the expense of the OEM, they will not have the market. We have incredible market share. So it's a win-win."