Ford Has Plan B Should Buyouts Fall Short, Mulally Says

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Ford Motor Co. has additional “levers” it can pull to further reduce its workforce if too few employees sign up for the latest round of buyouts, President and CEO Alan Mulally says.

In a presentation at a Morgan Stanley Global Automotive Conference in New York, Mulally declines to reveal what other measures the auto maker could take to reduce its headcount.

Mulally says Ford must make money on every vehicle it sells, regardless of size.

He says Ford does not yet have a total for the number of workers that have accepted a severance package in the latest round of buyout offers that expired yesterday.

“We know people are agonizing through the decision whether to stay or not,” Mulally says. “We’re still going to keep doing what we have to do to restructure ourselves with the (lower demand) for our products.

“We would like to achieve all the (reduction) that we did last year,” he adds. “But if we can’t, we have different mechanisms to right-size the place.”

Ford officials previously have said layoffs are a possibility if employment-reduction targets are not met through the buyout offer.

Meanwhile, Mulally notes U.S. light-vehicle sales so far this year are running on the low side of Ford’s forecast of 15.7 million units for 2008. But even if that sluggish pace continues, Ford has “stress-tested” its business plan and is “able to go down lower if things get worse,” he says.

“We have the cash and liquidity to stay on plan.”

Mulally reiterates Ford’s ongoing initiative to leverage its global resources by reducing the number of vehicle platforms to just eight worldwide and to cut overall product complexity.

He says the current consolidation plan differs markedly from past failed initiatives to integrate Ford’s worldwide product lineup – such as during 1985-1989, when European models were imported into the U.S. and Canada under the ill-fated Merkur brand.

“What’s different now is the requirements of (global) vehicle design have coalesced, especially with (the focus on) fuel efficiency and (reducing) carbon-dioxide emissions,” he says. “The requirements for the car have come together (worldwide).”

Other attempts to align Ford globally fell by the wayside, Mulally says, as profits generated by large trucks and SUVs in the U.S. made the auto maker complacent.

“I asked Bill Ford why they didn’t consolidate in the past,” he says. “And he said every time things got tough they would start to move that way, but then fuel prices would come down and the SUVs and trucks would do well.”

Another key initiative is a renewed focus on small cars. Mulally says that when he first arrived at Ford a year ago, he was told small cars “didn’t make sense because they were cheap,” and it was impossible to turn a profit on them.

He disagrees with that assessment.

“Small is beautiful and small is big. Europe has fabulous small vehicles, and there’s nothing cheap about them.”

But Ford will have to make money on every vehicle it sells, regardless of size, Mulally says.

There are “no longer days where we lose money on small cars,” he says. “Every vehicle we make we want to make money on it. Everybody knows that’s the only way (to do business).”

Mulally says Ford is working to reduce vehicle complexity by narrowing the amount of choice available to consumers.

He points to past practice in which Ford offered 128 different options for the console of a Lincoln Navigator SUV.

“(But) you’d go out on the lot, and of course (the dealer) didn’t have that one,” he says, adding that led to dissatisfied customers and forced dealers to offer discounts, eroding residual values.

Reducing complexity also will help bolster Ford’s supplier relations, Mulally contends. The auto maker traditionally has ranked near, or at the bottom, of surveys that measure supplier/OEM relationships.

“Our supply base was sized for when Ford had 25% (U.S.) market share. Add that to the complexity at Ford and imagine what it’s like to be a supplier,” he says. “It’s tough. I think the most important thing is (now we’re) aligned with our suppliers and we’re sharing data and really going after this complexity.”

Questioned about Ford’s powertrain strategy, Mulally says the auto maker will rely heavily on its EcoBoost technology, which combines turbocharging and direct-injection for improved performance and fuel economy.

In addition, all future Ford vehicles will be capable of running on gasoline or ethanol, Mulally says.

Hybrids are “neat,” but “carrying around two powertrains is very expensive, and in most cases right now it doesn’t make economic sense,” Mulally says, noting the advancement of battery technology is key to making hybrids profitable.

Diesels are an option for the U.S., but still largely cost-prohibitive due to the expensive exhaust aftertreatment technology needed to meet emissions standards, Mulally says.

Hydrogen fuel cells are also on the horizon, but much work still must be done in perfecting fuel-cell technology and developing a refueling infrastructure, Mulally says, adding that Ford is working on developing all powertrain technologies.

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