If it all works, Ford Motor Co. will become the world's lowest-cost automaker with the fastest new-product turnaround, affordable prices, high quality and after-tax profits averaging 5% return on sales (ROS) by the turn of the century.
Ford's ROS was 1.9% last year. it's all part of a grand "total cost strategy" Ford is implementing under its Ford 2000 globalization scheme, which began 15 months ago but is still years from showing results.
Ford lifted the veil on its plans during a recent series of 10-hour "deep dive" sessions with the media and automotive analysts in reaction to criticism for failing to contain costs and pricing its new-generation Vehicles too high in a market where affordability is becoming the key issue. It also aimed to assure that Ford 2000 is indeed working.
While Chrysler Corp. rolls up product and profit successes and General Motors Corp., its March strike notwithstanding, mounts a comeback, Ford has been taking its lumps lately.
Reporters invited to the "deep dive" agreed not to quote any Ford executives or discuss details of future product programs. Still, the Ford contingent tacitly agreed that Ford's old way of bringing products to market had gotten out of hand -- that first determining costs and then tacking on a profit can be suicide in today's highly competitive marketplace.
That system produced the all-new 1996 Ford Taurus and Mercury Sable. Although they are advanced from the models they replace, the newcomers were priced 6% higher and immediately encountered price resistance. As a result, they've already been "de-contented" to take out $600, and Ford folks are scrambling to take out more.
There's a wall placard at the company's recently established "Value Analysis Center" in suburban Detroit showing some 40 proposed Taurus changes aimed at cutting costs, and thus prices. Look for some to be implemented even before the '97s are introduced next fall.
Asked whether those responsible for the Taurus/Sable content/cost/price debacle were still employed at Ford, several officials looked at each other and shrugged. But they assured that it won't happen again. "At the vehicle approval stage, the team will determine what the market can afford and still get the 5% ROS we need," says one executive. "How? By concentrating in the total cost."
Ford's total cost strategy alms to implement an "affordable business structure process" to drive change throughout the entire organization, focusing on what the market will bear -- and thus costs -- up-front.
Ford officials say they've already identified $11 billion in savings, importantly traceable to a reduction in platforms worldwide from 21 to 16 and engines from 30 to 14. The product development cycle is targeted to come down from 33 months now to 24 months by 2000, primarily by replacing people with computers for numerous key engineering tasks such as costly and time-consuming prototype work (see TNT, p.58).
Thousands of jobs will be eliminated as computers take on more product development work, with attrition through retirements and buyouts estimated to run between 7% and 10% a year.
Despite the basic platform and powertrain shrinkage, Ford says vehicle variations per platform actually will rise from 5.7 now to eight by 2004 and that derivatives of the remaining engines will double to 2.2 each from 1.1 now.
Ford's attack on costs range from detailed benchmarking of competitive vehicles to boosting in-plant efficiencies by reducing scrap and die hits and re-using equipment, sharply reducing component complexity, and organizing "plant vehicle teams" to track vehicles after they go into production, solving customers' concerns and implementing new cost-cutting ideas -- a first for Ford and a rarity in the industry.
A major part of the overall strategy includes bringing marketing experts and suppliers into the vehicle teams at the outset. Ford officials admit that until very recently, both groups came in after it was too late to benefit by their input. With 80% of a new program's cost absorbed before Job 1, failure to get all of the players on the cost bandwagon early-on made no sense.
Meantime, at the Value Analysis Center, specialists are busy taking costs out. As one result, Ford is going from 14 to just 1 cigarette lighter worldwide, prompting one reporter to grumble that if he buys a Lincoln he doesn't want an Escort lighter.
No one ever said it was easy to cut costs and keep everyone happy.
