Ford Unveils Plan to Cut Costs, Shift to Trucks and EVs

The Dearborn, Michigan-based automobile company, Ford Motor Co., revealed its plan to slash $14 billion in costs over the next five years, the company’s Chief Executive Officer, Jim Hackett, said in a statement and added that Ford would drop some car models from its lineup and would invest more money on sport utility vehicles, trucks, and electrification rather than in sedans and internal combustion engines.

The no. 2 U.S.automaker said that its goal is “to leverage its unique product strengths, trusted brand, and global scale to refocus and thrive in an evolving and disruptive period for the auto industry.”

The company’s plan to cut $14 billion costs involves reducing materials costs by $10 billion and engineering outlays by $4 billion, as it plans to shift spending toward products like the resurrected Bronco SUV while terminating passenger cars, not specifying the models. It said that it will reallocate $7 billion to sport utility vehicles and trucks and it plans to build the next-generation Ford Focus in China, saving capital investment and costs.

According to Hackett and other Ford executives, as they reflect the industry’s long product engineering lead times, those savings will not be visible on Ford’s bottom line until 2019 and 2020.

The automaker will be open to more partnerships to spread the costs and risks of simultaneously developing new technology and services while producing a profit from selling trucks and SUVs in North America, Hackett said. He cited the partnership with ride services company Lyft to deploy future Ford self-driving cars, an alliance with the Indian car maker, Mahindra, and a potential tie-up with Chinese electric vehicle maker, Zotye.

“I get up every day feeling like time can be wasted here if we don’t get moving,” Hackett told investors Tuesday at a briefing in New York. “I feel a real sense of urgency.”

Ford reaffirmed a goal of achieving 8 percent automotive operating margins and generating returns that exceed the cost of capital. Ford will provide a financial forecast for 2018 in January. It could take until 2020 or later to achieve the 8 percent margin goal, Ford Chief Financial Officer, Bob Shanks, said.

Moreover, the automaker said it is cutting its capital expenditures with internal combustion engines by a third and redeveloping the capital into electric cars, in addition to a previously announced $4.5 billion in investments in electrification. Ford had already promised 13 new electric or hybrid vehicles within the next five years.

“When you’re a long-lived company that has had success over multiple decades the decision to change is not easy – culturally or operationally,” Hackett said in a statement.

“Ultimately, though, we must accept the virtues that brought us success over the past century are really no guarantee of future success.”

The company also plays catch-up in some areas. By 2019, it plans to equip all U.S. models with built-in modems and to install mobile internet connections in 90 percent of global vehicles by 2020, Hackett said.

Rival General Motors Co. has been installing built-in mobile broadband connections in its U.S. vehicles since 2015 and now has about 7 million 4G LTE connected vehicles on the road globally, a spokesperson said on Tuesday.

Shares of Ford increased 0.6% after ending the regular trading session up 2.1%.

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