The beat'll go on into 1998

Sitting on $13 billion in cash and marketable securities, Ford Motor Co. has a formidable nest egg to keep rolling when the next downturn comes.

From where Chairman Alex Trotman sits, that long anticipated dip may still be some years away: He sees a string of high-plateau years still coming that could stretch beyond 1998.

His outlook is bouyed by successful conclusion of new contracts with the United Auto Workers and Canadian Auto Workers unions; a management shakeup in October aimed at boosting efficiency in automotive operations and strengthening Ford's component business; soaring sales of highly profitable sport/utility vehicles (SUVs) and pickups; strong "fundamentals" in the economy; and what he expects to be "a positive impact" on the industry during the second term of the Clinton Administration.

But not all's well in Fordland. The No. 2 automaker is taking a bath in Europe, undergoing a costly restructuring in Brazil and Argentina after severing ties with Volkswagen AG in the Autolatina joint venture, and faces increasing price pressures from Japanese automakers triggered by the rising strength of the yen.

Although he admits some parts of the massive Ford 2000 globalization effort that began to kick in two years ago next month haven't turned out so hot, Mr. Trotman says Ford 2000 is still on track to produce major results by Editor-in-chief Dave Smith and Senior Editor Greg Gardner interviewed Mr. Trotman in November in his 12th floor office at Ford's World Headquarters in Dearborn, MI.

Ford Motor Co. may have big problems in Europe and a costly re-startup in South America, but Chairman Alex Trotman is bullish on America.

"The fundamentals are fairly positive, we're looking for one, two or three more years of steady sales (in the U.S. market) and there's a decent chance we could go up a little in 1997 from 1996 which we're projecting at 15.5 million cars and trucks including heavy-duty models."

Among the favorable basics he cites are continuing low inflation, moderate growth in the gross domestic product (GDP) and "a fairly strong strong automotive industry," albeit one aided in recent months by waves of rebates at Ford and other companies.

Moreover, "We don't see any reason to feel bearish about 1998, either" barring "some unforeseen event like an oil shock," he says. (This is a very long recovery (it began in 1993). It's not spectacular, but we like the look of it. We'd rather grow at 1% or 2% a year, slow and steady, than 10% and then go down 20%."

Mr. Trotman was interviewed on election day just before the polls closed, with President Clinton expected to win handily. Without predicting a winner, Mr. Trotman confides that "It's my feeling we'll have a positive environment for the auto industry over the next four years," and gives the Clinton Administration high marks for providing "visibility" on automotive trade issues.

After rising steadily since 1993, Ford's market share has slipped this year, hitting 25.1% for the first 10 months vs. in 1995. Like General Motors Corp., Ford is cutting back on marginally profitable rental-car fleet sales to boost the "quality" of its market share, says Mr. Trotman.

Lack of capacity to meet searing demand for hot products such as the newly introduced Expedition full-size SUV also has hurt. "That's my one regret right now. I don't have enough engines, I don't have enough supercabs. I can't sell (enough) SUVs even though they are actually red hot."

Allowing that "we might" add more truck capacity in the 1997- '98 timeframe, Mr. Trotman concedes Ford underestimated demand and didn't invest enough in necessary capacity. "We didn't call it right, but if we could have foreseen what we know now we would've spent the money. We thought we were being very aggressive."

He also frets about the steep rise in the Japanese yen, which wipes out a price advantage the Big Three have enjoyed in recent years. "At I 113-114 yen to the dollar (compared with the mid-80s a year ago), there has been a very substantial shift in favor of the Japanese manufacturer's strength in the U.S.," he says.

If the yen went to 130, as some speculate it will, would that be a killer? "I don't expect to be killed - maybe wounded - if it goes to 130," he quips. But even if the Japanese currency drops back to around 100, "It wouldn't change my view that we need to keep moving and driving for more efficiency and cost-competitiveness."

That's the compelling reason for the top management reorganization announced in October (see sidebar, p.38), he says. Under the new alignment, Ford established a new Automotive Components Operations under Vice Chairman Edward E. Hagenlocker with Group Vice President Charles Szuluk directly in charge. The components group has 75,000 employees in 19 countries.

"It's a clean sheet of paper, but it's far too early to say what Ed and his people will recommend with regard to a strategy," he says. "Maybe six months from now." Ford's old strategy was to concentrate on meeting its own needs, but that now apparently will change. "We certainly are interested in selling more business outside the Ford Motor Co., but that's not to say the total will grow." He'd also consider joint ventures with GM's Delphi components group, he allows, "but that's not something we have in mind."

Under the recently concluded UAW contract it's also reported that Ford may expand its components manufacturing to ensure UAW jobs. "We've had informal discussions of all sorts of alternatives with the union, but I don't want to get into details. But certainly we've discussed expanding - yes, there's a possibility of expanding some operations."

Saying he's not surprised by the wave of mergers taking place among suppliers, Mr. Trotman says he expects the trend to continue - with a favorable impact on Ford. "We'll deal with fewer suppliers over time with greater technological clout and greater efficiency," he says.

Ford also will continue to clamp down on suppliers that fail to meet its Q-1 quality standards, he says. The Q-1 flag has been dropped at more than 100 facilities in recent months. "If we don't meet them (the standards) we're taking very tough disciplinary actions both inside and outside" he says, adding that he knows of no quality problems impacting vehicles or Ford's product quality ratings.

Ford clearly faces an awesome challenge in turning things around in Europe where its cumulative loss since 1990 totals $1.8 billion, with red ink during the third quarter soaring to $472 million vs. $320 million a year earlier.

Jacques Nasser, who replaces Mr. Hagenlocker as president of Ford Automotive Operations, also becomes Ford of Europe chairman, a title he held in the early '90s when he carved a reputation as "Jac the Knife" for slashing 10,000 jobs and otherwise cutting costs.

Mr. Trotman absolves Mr. Nasser of blame for the European dilemma. "You have to look at it in the long context of what has happened in Europe over the last 10 years or so; you can't take the performance of an individual over one or two years and assume that that was the only variable." With shifting currency values, market segmentation, over-capacity and tough competition, "Europe is a very tough place for any auto manufacturer to make respectable returns right now," he adds.

Is it possible that part of the problem lies in distractions related to implementing Ford 2000? "I think there might be some credence to that, but it's a very minor issue," Mr. Trotman explains. "The issues are far greater than that. Ford 2000 is the fix, not the issue."

Admitting that the radically styled upscale Scorpio has fallen far short of expectations, Mr. Trotman says a wave of new products in Europe, including a revamped Fiesta and Mondeo and a new tiny urban car called Ka, provide ammunition for a rebound. He won't say when that may come, except "1997 will be much better than 1996 ... I expect Europe to be positive in 1997."

He rules out building a new plant in Western Europe to reduce manufacturing costs, but more smaller operations will be considered in Eastern Europe where Ford recently has planted some stakes.

Ford also is dripping red ink in Latin America: A $226-million loss in the third quarter compared with $102-million a year earlier. Most of that is traceable to building a whole new structure in Brazil and Argentina following the split-up of Autolatina, a joint venture with Volkswagen AG formed in 1987.

The venture made sense at the time, he argues, because Brazil was a closed market, and VW already had a major manufacturing presence to supply vehicles for both companies. But its Brazil liberalized its policies "It was a completely new ballgame. We really couldn't get into the business of sharing our very latest technology and our very latest products with each other, and VW agreed; it didn't make sense."

Ford now is building facilities to produce the latest version of Fiesta in Brazil and the Escort and Ranger pickup in Argentina. "It's expensive to rebuild, and 1997 will be another difficult. challenging year for us. But we know what we're doing. We're putting Ford back in business in a big way in Brazil and Argentina," he says.

Elsewhere around the world, Ford is optimistic about its prospects in China and will begin producing the European Transit commercial truck there with Jianagling Motors Corp. within a year or so, he says.

With Ford now effectively in control of Mazda Motor Corp., Mr. Trotman foresees rationalizing Ford and Madza vehicle lines, although each wll retain its own identity. "I think we will make better use of Mazda's talents and Ford's talents together than we have in the past ... there may well be some sharing of platforms, yes." Meanwhile, he says, Mazda "is in the realm of a breakeven company today; it was losing a lot of money a year ago."

Looking further ahead, Mr. Trotman confirms that Ford is developing a "multipurpose" vehicle for emerging nations such as China, India, Eastern and Central Europe and Latin America and already is evaluating test beds of such vehicles.

It won't be based on any existing small-car platform such as Fiesta or Ka because "I doubt that either of those cars are the kind of car that could do the job," he says.

Asked if the target price is in the $6,000 to $7,000 range Chrysler and GM are shooting for with similar vehicles, Mr. Trotman replies: "It's down there somewhere - down further than anything we have today."

He adds: "This isn't a toy. It's a very low-cost vehicle for emerging markets - a rugged workhorse that will be multipurpose and will carry people and goods. I don't think performance is a likely requirement - it's simplicity, durability, utility.

Ford 2000: `We're starting to roll'

When Alex Trotman took over as Ford's chairman three years ago he told WAW he had no plans to remain on after his 65th birthday, a milestone he'll reach on July 22, 1998. Now he's not so sure.

Muddying the picture are persistent reports that William Clay Ford Jr., the 39-year-old chairman of the company's powerful finance committee and great-grandson of Henry Ford, is being groomed to assume the top seat. Add to that the October shakeup, which seemingly has sidetracked his apparent successor, Edward E. Hagenlocker, 56, who moved to vice chairman, making way for Jacques Nasser to take over as president of Ford Automotive Operations - nominally the company's No. 2 job. Only 48, it may take more than two years for Mr. Nasser to get ready for the chairman's slot - if indeed that's the way it plays out.

Whoever is running Ford in the late '90s, Mr. Trotman's legacy - for better or worse - will be the giant Ford 2000 globalization effort he has spearheaded from the outset. Here are his views on Ford 2000.

Q - If you had to give Ford 2000 a 1-10 rating after its first two years, what would it earn?

A - I don't think you could do that because it's not really ranking a dive from a 10-meter board. It's not that simple. It's lots of dives from lots of boards at different heights. So I couldn't give it a single score. I can't hold up a card and give it a nine. In some parts of our organization I think it's a 10. In other parts it's not so good.

Q - Is it tougher than you thought?

A - As we said when we started, this is a very enormous, complicated organization, we were making a huge amount of change, and that we would be adaptable and change our course left or right or however many degrees as we came across things that we could have done better. And there's quite a bit of that in various parts of the company.

Q - Then how would you describe Ford 2000 to date?

A - Overall I'm very pleased with the progress we've made, and I think the benefits are going to be huge as we go through the rest of this decade and into the next decade.

Q - You're reducing your platforms from 32 to 16 (and making similar reductions in engines and transmissions). When's the payroll coming?

A - The benefits of all of that are really going to roll out in 1998. Meanwhile, in the shorter term we are going to be improving our performance quarter over quarter compared with the prior-year quarter. Our third quarter was better than the third of last year, and we expect the fourth quarter to be better than that of 1995, and so on. So we're starting to roll.