Ford targets $10bn material cost reduction by 2022, focuses on new partnerships

In a strategic update to investors today, Ford Motor Company unveiled plans to leverage its product strengths, brand and global scale to refocus in an evolving and disruptive period for the auto industry.

The investor presentation follows a four-month analysis of the company’s strategy and business operations led by president and CEO Jim Hackett and Ford’s senior leadership team. Hackett said Ford will improve its operational fitness, refocus capital allocation and accelerate the introduction of smart vehicles and services.

“Ford was built on the belief that freedom of movement drives human progress,” said Hackett, who became Ford president and CEO on May 22. “It’s a belief that has always fueled our passion to create great cars and trucks. And today, it drives our commitment to become the world’s most trusted mobility company, designing smart vehicles for a smart world that help people move more safely, confidently and freely.”

Reiterating its long-term goal of an 8 percent automotive operating margin, Ford says it will embrace the profound technological changes and new competition buffeting the industry. To deliver, the company is expanding its scope to include vehicles and services – all designed around human-centered experiences. The company plans to:

Accelerate introduction of connected, smart vehicles and services: By 2019, 100 percent of Ford’s new U.S. vehicles will be built with connectivity. The company has similarly aggressive plans for China and other markets, as 90 percent of Ford’s new global vehicles will feature connectivity by 2020.

Rapidly lower costs, release capital and finance growth: Ford aims to reduce automotive cost growth by 50 percent through 2022. As part of this, it is targeting $10 billion in incremental material cost reductions. The team also is reducing engineering costs by $4 billion from planned levels over the next five years by increasing use of common parts across its full line of vehicles, reducing order complexity and building fewer prototypes.

Profitability first, re-allocating of capital: The plan is to reallocate $7 billion of capital from cars to SUVs and trucks, including the Ranger and EcoSport in North America and the all-new Bronco globally. Ford also has plans to build the next-generation Focus for North America in China, saving capital investment and ongoing costs. Further, Ford is reducing internal combustion engine capital expenditures by one-third and redeploying that capital into electrification – on top of the previously announced $4.5 billion investment.

New partnerships: Ford aims to continue to leverage partnerships, remain active in M&A and collaborate to accelerate R&D. The company recently announced it is exploring a strategic alliance with the Mahindra Group as it transforms its business in India, and Zoyte with the intention of developing a new line of low-cost all-electric passenger vehicles in China. As regards autonomous vehicle development, the company recently announced a relationship with Lyft to work towards commercialisation.

Expanding EV revenue opportunities: The company recently announced a dedicated electrification team within Ford, focused exclusively on creating an ecosystem of products and services for electric vehicles and the unique opportunities they provide. This builds on Ford’s earlier commitment to deliver 13 new EVs in the next five years, including F-150 Hybrid, Mustang Hybrid, Transit Custom plug-in hybrid, an autonomous vehicle hybrid, Ford Police Responder Hybrid Sedan, and a fully electric small SUV.

Revamping product development, modernising factories: Ford says it is redesigning its operations to better compete in this disruptive era. An example is the new 2015 F-150 which has helped the F-Series has gained market share and the average transaction price has increased 16 percent. A 700-pound reduction has also helped make the F-150 the company’s most positive contributor to CAFE standards for model year 2018. Additionally, 90 percent of the manufacturing equipment can be reused for the next-generation F-150, reducing future capital requirements. Finally, the innovation on aluminum and light weighting will pay off across a range of Ford trucks and SUVs.

Speedier time to market: In the next five years, Ford is aiming to reduce new vehicle development time by 20 percent, with new tools and fewer orderable combinations. Through the use of virtual assembly lines, the company has been able to reduce new model changeover time by 25 percent.

Redesigning factories of the future: Accelerating and scaling 3D printing, robotics, virtual reality tools and big data will improve logistics and enable a more efficient manufacturing footprint.