Ford Motor Structure Threatens Viability. Vast Reorg Coming

Ford Motor President and CEO Jim Farley said today that it is continuing to transform its global automotive business, accelerating the development and scaling of electric, connected vehicles, “while leveraging its iconic nameplates to strengthen operating performance and take full advantage of engineering and industrial capabilities.”

Executive summary – here comes a sweeping reorganization needed to survive in the 21st century mobility business. There will be two separate automobile businesses – one  is the old blacksmithing business – Ford Blue. The other  is the emerging EV business Ford e, where it is spending $5 billion on battery electric vehicles in 2022 with much more needed in the future.

Last May, Farley introduced the Ford+ plan, calling it the company’s biggest opportunity for growth and value creation since Henry Ford scaled production of the Model T. The formation of two distinct businesses – Ford Blue and Ford Model e – with the new Ford Pro business, will – it’s hoped – increase growth by 2 million units  – one-third of global volume – and ultimately allow Ford to outperform both legacy automakers and new EV competitors. (AutoInformed: Ford Motor Posts Tepid Q4, FY 2021 Financial Results; Ford Motor 2020 Loss $1.3 Billion. Microchip Shortage Looms)

Right now Model e is hemorrhaging money. Ford claims it will be profitable around 2026 and it wants a 10% margin in profitability even with the enormous costs and complexity involved in migrating to EVs and away from internal combustion vehicles, aka ICE. Ford confirmed its 2022 guidance of $11.5 billion to $12.5 billion in company adjusted EBIT. The high end of the range equates to a margin of 8% which, if achieved, would be one year earlier than the company’s previous target.

With changes announced today, Ford is raising its longer-term operating and financial targets, including:

  • Company adjusted EBIT margin of 10% by 2026, a 270-basis-point increase over 2021– driven by higher volumes, improvement in the cost of EVs, and a significant decline in ICE structural costs of up to $3 billion
  • More than 2 million electric vehicles produced annually by 2026, representing about one-third of Ford’s global volume, rising to half by 2030, capturing with EVs the same, or even greater, market shares in vehicle segments where Ford already leads
  • In addition, Ford expects to spend $5 billion on EVs in 2022, including capital expenditures, expense and direct investments, a two-fold increase over 2021
  • Ford reiterated its commitment to achieve carbon neutrality by 2050, and to use 100% local, renewable electricity in all of its manufacturing operations by 2035.

Ford is increasing and pulling forward its profitability targets, apparently on vast cost cutting at Ford Blue where manufacturing costs (too much complexity) and quality (poor) via non-competitive warranty costs are and have been problematic for a long, long time. In fact this led to previous Ford reorganizations under common platforms underpinning different brand vehicles.

Advertising costs are also too high said Ford. Facilities and headcount over time will no doubt be affected, but Ford did not provide details on how it is going to achieve $3 billion in cost reductions that will be invested in Model e. Over time ICE will be minimized, which will present potential labor problems, In NA, Mexico is only EV plant, Kansas City and Rouge will be mixed. However, there is only one contract with the UAW. Here comes another – often dreaded by executives inside – Ford dual reporting structure with Model e getting the EV plants. UAW negotiations will come in 2023 on what is now one contract. No changes for now until the fall of next year. However, AutoInformed opines change there will be.

Also coming is a reorganization in the US of the legally-required franchise system where Ford has no choice but to bet that dealers can be transformed to operate with single, transparent pricing, and no-inventory, already in common use at pioneering EV companies. Ford in China is making EVs and using an agency model with pure EV stores. Only 13 clicks are required to buy a Mach-E online via its build to order system, which is direct to customer. This will be the latest export from the communist economic super-power that has taken away so many US jobs with the help of outsourcing automakers such as Ford.

“Ford Model e will be Ford’s center of innovation and growth, a team of the world’s best software, electrical and automotive talent turned loose to create truly incredible electric vehicles and digital experiences for new generations of Ford customers,” Farley said.

“Ford Blue’s mission is to deliver a more profitable and vibrant ICE business, strengthen our successful and iconic vehicle families and earn greater loyalty by delivering incredible service and experiences. It’s about harnessing a century of hardware mastery to help build the future. This team will be hellbent on delivering leading quality, attacking waste in every corner of the business, maximizing cash flow and optimizing our industrial footprint.”

Ford Model e and Ford Blue will be run as distinct businesses, but allegedly also support each other – as well as Ford Pro, which is dedicated to delivering a one-stop shop for commercial and government customers with a range of conventional and electric vehicles and a full assortment of software, charging, financing, services and support on Ford and non-Ford products. Ford Model e and Ford Blue will also support Ford Drive mobility.

Ford Model e also will lead on creating new shopping, buying and ownership experience for its future electric vehicle customers that includes simple, intuitive e-commerce platforms, transparent pricing and personalized customer support from Ford ambassadors. Ford Blue will adapt these best practices to enhance the experience of its ICE customers and deliver new levels of customer connectivity and satisfaction.

Ford Blue will use its  old automotive expertise to:

  • Strengthen the iconic Ford vehicles customers love, such as F-Series, Ranger and Maverick trucks, Bronco and Explorer SUVs, and Mustang, with investments in new models, derivatives, experiences and services;
  • Help customers fulfill their passions and daily lives with tailored brand and vehicle experiences, from off-roading to performance to family activities, especially for those situations when ICE capabilities are required;
  • Deliver new, connected, personalized and always-on experiences for customers powered by Ford Model e’s software and embedded systems;
  • Make industry-leading quality and exceptional service a reason to choose and stay with Ford;
  • Root out waste and dramatically reduce product, manufacturing and quality costs; and
  • Support Ford Model e and Ford Pro through proven, global-scale engineering, purchasing, manufacturing, and vehicle test and development capabilities for world-class safety, ride and handling, quiet and comfort, and durability.

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