Comprehensive Plan Announced
Ford Motor Co
23 January 2006
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FORD FIGHTS BACK
* Bill Ford: 'Ford Motor Company was solidly profitable in 2005 and growing
around the world. The next chapter in our history will be remembered for a
renewed commitment to innovation and as the time we moved boldly to prepare
Ford's North American business for global competition.'
* Comprehensive North American 'Way Forward' plan focuses every part of the
business on the customer - to build stronger Ford, Lincoln and Mercury
brands, a strengthened product lineup and far greater quality, competitive
costs and improved productivity.
* Product investments will result in new vehicles in new segments to reach
more customers - including small cars and more crossovers - while
maintaining Ford's truck leadership.
* Ford is committed to stabilizing its U.S. market share in the near term.
* Competitive cost structure includes net material cost reductions of at least
$6 billion by 2010.
* Productivity improvements leverage the company's global product development
scale and lean and flexible manufacturing system to introduce more products
faster.
* Straightforward vehicle pricing will continue to be introduced with new
models.
* North American capacity is realigned to match demand - with 14 manufacturing
facilities to be idled - resulting in significant cost savings and reduced
employment of 25,000-30,000.
* Salary-related costs are being cut 10 percent in North America with the
previously announced reduction of the equivalent of 4,000 salaried positions
by the end of the first quarter. In addition, the company's officer ranks are
being reduced 12 percent by the end of the first quarter.
* Ford is planning a new low-cost manufacturing site for the future.
* North American automotive profitability is achieved no later than 2008.
* Beginning in 2006, Ford Motor Company will no longer provide earnings guidance
- to keep the company and investors focused on one goal: sustainable
profitability over time in all regions.
DEARBORN, Mich., Jan 23, 2006 - Ford Motor Company (NYSE: F) today announced
details of a comprehensive plan to restore profitability to its automotive
business in North America no later than 2008. Ford will apply lessons learned
from consumers and the company's successes around the world to strengthen its
Ford, Lincoln and Mercury brands and deliver more innovative products while
simultaneously reducing costs and improving quality and productivity.
'The automotive market in North America is rapidly becoming as crowded and
fragmented as other global markets,' said Bill Ford, chairman and CEO. 'To meet
this challenge, we are acting with speed to strengthen the Ford, Lincoln and
Mercury brands, deliver the innovation customers demand and create a business
structure for us to compete - and win - in this era of global competition.
'We will be making painful sacrifices to protect Ford's heritage and secure our
future,' he added. 'Going forward, we will be able to deliver more innovative
products, better returns for our shareholders and stability in the communities
where we operate.'
Ford Around the World - 2006 Outlook
For 2006, the company is expecting another year of profitability from automotive
operations outside of North America. Pre-tax profits, excluding special items,
are expected from automotive operations in South America, Europe (Ford of Europe
and Premier Automotive Group), Asia-Pacific and Africa, and from Mazda and
Associated Operations. North American automotive operations are expected to be
unprofitable. Overall, Ford's global automotive operations are expected to have
pre-tax losses in 2006, while Ford Motor Credit is expected to achieve pre-tax
profits.
The underlying assumptions behind this outlook include: full-year industry
volumes of 17 million units in the U.S. and 17.3 million units in Europe;
industry net pricing that is expected to be down slightly in the U.S. and
Europe. Also, the company's quality performance is expected to improve, market
share is expected to stabilize or improve in all regions, and cost performance
is expected to be favorable. Capital expenditures of approximately $7 billion
are expected during 2006, while the company expects its year-end cash balance to
be more than $20 billion.
Beyond the above expectations, the company is providing no other guidance about
its financial performance for 2006 - to keep employees and investors focused on
one goal: sustainable profitability over time in all regions.
'We must be guided by our long-term goals of building our brands, satisfying
customers, developing strong products, accelerating innovation, and, most
importantly, producing a sustainable profit from our automotive business,' said
Bill Ford.
Ford in North America - the Way Forward
Ford's automotive business in North America was profitable in 2003 and 2004,
thanks to the product investments and cost reductions driven by the company's
Revitalization Plan, announced in 2002. Since that time, more and stronger
competition in all segments, a faster-than-expected customer shift from
traditional SUVs into other segments, significantly higher material and energy
costs and other factors have resulted in lower market share and higher costs for
the company.
'The team in North America, led by Mark Fields and supported by Anne Stevens,
developed the plan for North America, drawing on their extensive global
experience in Asia, Europe and The Americas. They have reenergized the Ford team
to make it work, and they have the full support of the Ford Motor Company behind
them,' said Jim Padilla, president and chief operating officer.
Fields, executive vice president and president, The Americas, calls the plan the
'Way Forward.' It touches every piece of the North American business to make it
more customer-focused, product-driven and efficient, including:
* More clarity for the Ford, Lincoln and Mercury brands - with a sharper focus
on the customer and a clear point of view that will appeal to more buyers than
today.
* A renewed commitment to design, safety and technology innovation to
differentiate Ford Motor Company and its products in the marketplace.
* New product investments - utilizing Ford's global architectures and scale -
to deliver more new products faster, including more crossovers, hybrid
vehicles, new small cars, increased spending on Ford's truck leadership and
new 'white space' products.
* Material cost reductions of at least $6 billion by 2010.
* Continued straightforward pricing that is clear, credible and simple, which
will further improve residual values.
* A lean and flexible manufacturing system combined with capacity matched to
demand. Capacity will be reduced by 1.2 million units or 26 percent by 2008,
representing the majority of actions within the plan's 2006-2012 period.
* Plant-related employment is reduced by 25,000-30,000 people in the 2006-2012
time period, in addition to salaried personnel reductions and a reduction in
the company's officer ranks.
Stronger Ford, Lincoln and Mercury Brands
Ford kicked off the Way Forward plan in October with a comprehensive analysis of
consumer attitudes and values in the U.S. automotive market. The goal was to
develop a laser-like focus on different customer targets for Ford, Lincoln and
Mercury to guide each brand's design, engineering and marketing decisions.
'One of the most important findings from this research is that Americans really
do want to buy American brands, as long as they are competitive with the
imports,' said Fields. 'We know this, because it's already working in some
segments today, such as the success of the new Ford Fusion in the import-
dominated midsize car market.
'Of all the leading automakers, we believe Ford is America's Car Company because
of where we've been. In terms of economic and social influence, there is no
other company that's had a greater impact on the lives of people in the U.S. and
in the 20th century than Ford.'
Customers identify with Ford and its uniquely American story, the research also
revealed.
'The challenge going forward is to give our customers, employees, retirees,
dealers, suppliers and investors a reason to believe in Ford. That is going to
be our focus,' Fields said. 'Our Way Forward is not a retreat into smaller
markets, but a retaking of the American marketplace. It's time to play offense.
It's time to fight back.
'We will compete vigorously to be America's Car Company, winning the hearts and
minds of even more customers,' he added. 'We will maintain our commitment to our
loyal truck customers, while delivering innovative and boldly styled cars,
crossovers, SUVs and other all-new products that will appeal to people who are
still inspired by the American dream.'
With that clear point of view in the marketplace, Ford is investing in new
products for Ford, Lincoln and Mercury.
The investment includes moving forward with the company's plan to offer hybrid
technology on half of the company's Ford, Mercury and Lincoln nameplates in the
U.S.
Today, the company is announcing that hybrid versions of the Ford Five Hundred,
Mercury Montego, Ford Edge and Lincoln MKX will debut in the 2008-2010
timeframe. The new hybrids will join the Ford Escape and Mercury Mariner
hybrids, which are on sale today, as well as the Ford Fusion and Mercury Milan
hybrids, which will debut in 2008. Overall, Ford Motor Company plans to build
250,000 hybrids a year by 2010.
Ford also is announcing that it will introduce new 'white space' products to
reach customers in new segments, and accelerate plans to bring even more
crossover vehicles and new small cars to market. At the same time, the company
announced that it is increasing its product investment in Ford F-Series truck
leadership; increasing momentum on its blockbuster cars today, such as the Ford
Fusion and Ford Mustang; introducing more design innovations - for more 'at a
glance' sheet metal changes - and introducing more safety innovations
throughout its North American lineup.
'With more focused brands, new product investment and innovation, Ford will slow
the rate of loss and then stabilize our U.S. market share in the near term, even
as competitors add new models,' Fields said. 'From there, we can set our sights
on the future.'
The Ford Brand: In the past, the Ford brand has demonstrated a clear customer
focus in many - but not all - segments. Going forward, the Ford brand will
build upon the success of hits, such as the Ford F-Series, Explorer, Expedition,
Mustang, Escape and Fusion, and enter new segments with a clear, consistent and
distinct point of view - one driven by bold, American design and innovation.
The 2007 Ford Edge, which goes on sale later this year, embodies that spirit.
'We know how to play offense and play to win,' Fields said. 'Our plan will
deliver more products - from small cars to our largest trucks - that are
unmistakably Fords.'
Ford remains committed to maintaining leadership in full-size pickup trucks with
the F-Series. The company also plans to continue its momentum in midsize cars -
with all-wheel-drive and hybrid derivatives coming for the Ford Fusion - and
developing new small cars and even more crossovers for the Ford brand.
Mercury: Ford is recommitting itself to Mercury and has developed more focused
positioning that is a refinement of the work already done to revitalize the
brand.
The newest Mercury products - the Milan, the Mariner and the Mariner Hybrid -
are attracting younger customers to the brand and more women than Ford-brand
products in the same segments, Fields said. In addition, they are bringing new
customers to Ford Motor Company - at conquest rates as high as 50 percent.
'The attraction of Mercury is modern, expressive design - one that is
differentiated from Ford vehicles. Our Mercury target customer is not looking
for product functionality that is substantially different from Ford vehicles.
But they do have different attitudes and values, and they want a product that
visually communicates that distinctiveness.
'Going forward, we will be more aggressive in appealing to these customers with
clear, modern differentiation in the design of Mercurys, a unique purchase
experience and marketing that is targeted, personalized and interactive,' Fields
said.
Lincoln: Ford's vision for the Lincoln brand is to make Lincoln the reward for
consumers who are living the American dream. The company sees Lincoln becoming
the largest volume contributor to the Lincoln Mercury business.
'Lincoln customers don't need to shout about success. They are self-made people
with enough confidence to be elegant and understated,' Fields said. 'That
understanding of the Lincoln customers will drive our brand and product
decisions going forward.'
The 2006 Lincoln Zephyr, the brand's first entry-luxury car, and the 2007
Lincoln MKX, the brand's first crossover, are significant first steps. Going
forward, the company plans to give Lincoln vehicles an even clearer point of
view through their powertrains, unique comfort and convenience features and
unique designs.
'Lincoln is about American luxury. There are many customers in this country
living the American dream and who would prefer to drive America's luxury car.
That is where we are headed,' he added.
Straightforward Pricing: Ford is accelerating the clear-and-simple pricing
strategy that began with the introduction of the Ford Fusion and Ford Mustang.
Ford plans to reduce the MSRP of its products and dramatically reduce and cap
rebates as it introduces new products.
'We started introducing clear pricing two years ago. The success of Mustang and
Fusion proves that it works,' Fields said. 'We will bring sticker prices more in
line with actual transaction prices and cap 'cash on the hood' rebates as we
introduce new cars and trucks into the marketplace. It will protect our margins
and consumers, too, through higher resale values.'
Ford also will increase its product advertising, focusing on brand
characteristics based on innovative designs, features and customer benefits.
Investment-Efficient Product Creation
Ford has committed to return its North American automotive business to
profitability no later than 2008. Over time, the Way Forward plan should deliver
profitability throughout the lineup - including new small cars - by achieving
significant material cost savings as well as quality and productivity
improvements.
Several new initiatives will bolster ongoing work that already is yielding
significant operating improvements. Specifically:
* Ford will use more global vehicle architectures in North America, particularly
for cars and crossovers, to reduce investment spending and improve quality.
* The company will share more parts and systems that are invisible to the
customer, such as brakes, suspension and underbody components, across its
North American, European and Asian brands to leverage its global purchasing
power for lower costs and better quality.
* Ford will continue to implement its Global Product Development System - which
is based, in part, on Mazda's highly successful and efficient model - to
reduce product development times by six to 12 months, depending on the size
of the program.
* Ford will continue to invest in lean and flexible manufacturing, with 75
percent of its North American assembly capacity being 'flexible' by the end
of 2008.
Improved quality will be achieved, in part, through the 'Aligned Business
Framework' agreements with select strategic suppliers. The agreements are
designed to strengthen collaboration and create a more sustainable business
model for both Ford and its key suppliers to improve mutual profitability.
The Aligned Business Framework - coupled with Ford's 'Commodity Business Plan'
process and a new single-team approach to product development and purchasing -
will deliver improved quality and drive technology innovations to Ford, while
lowering costs.
'We are committed to developing strong relationships with a select group of more
capable, more financially stable strategic suppliers on a long-term basis,' said
Anne Stevens, executive vice president and chief operating officer, The
Americas. 'Strong suppliers and proven processes that everyone sticks to
religiously go hand in hand with delivering innovation, quality and lower
costs.'
Smaller, Nimbler Organization
Achieving a lean fixed-cost structure and significantly improving Ford's North
American assembly capacity utilization are critical components of the Way
Forward plan.
'We're now well past the point in which one or two hit products can correct the
overcapacity we have or justify the staffing levels we maintain - even with the
significant actions we've taken during the past couple of years,' Stevens said.
'Sadly, this isn't just a Ford issue. It's an issue for our domestic
competitors, as well.
'As hard and painful as it is to idle plants and reduce our work force, we know
these sacrifices are critical to set the stage for a stronger future,' she
added.
Ford is taking the following new actions to align its capacity with expected
demand and to reduce fixed costs:
* 14 manufacturing facilities will be idled and cease production by 2012,
including a total of seven vehicle assembly plants.
* Assembly capacity will be reduced by 1.2 million units or 26 percent by the
end of 2008.
* A new low-cost manufacturing site is planned for the future.
Ford will idle the following facilities through 2008:
- St. Louis Assembly
- Atlanta Assembly
- Wixom Assembly
- Batavia Transmission
- Windsor Casting (announced following CAW contract negotiations in 2005)
- Two additional assembly plants, which will be determined later this year
In addition, production at St. Thomas Assembly will be reduced to one shift.
Facilities operated by Automotive Components Holding LLC are not included in the
new announcement.
All of these actions will reduce total North American employment by 25,000-
30,000 people in the 2006-2012 time period. This is in addition to the
previously announced reduction of the equivalent of 4,000 salaried positions in
the first quarter of 2006 - or 10 percent of salary-related costs - and a
reduction in the company's officer ranks by 12 percent by the end of the first
quarter.
Ford has briefed the leadership of the UAW and CAW about these plans.
Financial Impact
2006 will be a year of transition as Ford moves from its old North American
business model to a new customer-focused strategy that is designed to restore
automotive operations in the region to profitability no later than 2008. The
estimated pre-tax financial impact of the North American plan in 2006 includes:
* $250 million for hourly personnel separations - excluding ACH actions.
* $220 million for fixed asset write-offs.
'Our cost structure will improve as we progress through 2006 and increasingly
thereafter, and we'll return to profitability in our North American automotive
business no later than 2008,' said Don Leclair, executive vice president and
chief financial officer. 'We're confident in our plan and optimistic we can
achieve our goals.'
Summary
Ford begins a new era in its North American automotive business with a realistic
view of the challenges facing the company but also building on several important
competitive strengths, including:
* A corporate commitment to design, safety and technology innovation.
* Leadership in full-size pickup trucks, where the Ford F-Series has
been No. 1 for 29 years.
* A resurgent car business, paced by the Ford Mustang and Fusion, the
Mercury Milan and the Lincoln Zephyr.
* A strong and growing presence in crossover utility vehicles, today's
fastest-growing segment.
* Ford Credit, which continues to be closely linked to Ford's automotive
business, delivering solid profitability.
* More than 4,300 Ford and Lincoln Mercury dealerships.
'Ford's strengths were built over 100 years, and we are taking the tough but
necessary steps to address our issues with candor, speed and compassion for the
people affected by our work force reductions,' said Bill Ford. 'This next
chapter in Ford's history will be remembered for our renewed commitment to
innovation and as the time we moved boldly to prepare Ford's North American
business to face global competition.'
Jan.23,2006
Safe Harbor/Risk Factors
Statements included or incorporated by reference herein may constitute 'forward-
looking statements' within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are based on expectations,
forecasts and assumptions by our management and involve a number of risks,
uncertainties, and other factors that could cause actual results to differ
materially from those stated, including, without limitation:
* Greater price competition resulting from industry overcapacity, currency
fluctuations or other factors;
* A significant decline in industry sales, particularly in the United States
or Europe, resulting from slowing economic growth, geo-political events or
other factors;
* Lower-than-anticipated market acceptance of new or existing products;
* A market shift (or an increase in or acceleration of market shift) away
from sales of trucks or sport utility vehicles, or from sales of other
more profitable vehicles in the United States;
* Higher prices for or reduced availability of fuel;
* Currency or commodity price fluctuations;
* Economic distress of suppliers that may require us to provide financial
support or take other measures to ensure supplies of materials;
* Work stoppages at Ford or supplier facilities or other interruptions of
supplies;
* Labor or other constraints on our ability to restructure our business;
* The discovery of defects in vehicles resulting in delays in new model
launches, recall campaigns or increased warranty costs;
* Increased safety, emissions, fuel economy or other regulation resulting in
higher costs and/or sales restrictions;
* Unusual or significant litigation or governmental investigations arising out
of alleged defects in our products or otherwise;
* A change in our requirements for parts or materials where we have entered
into long-term supply arrangements that commit us to purchase minimum or
fixed quantities of certain parts or materials, or to pay a minimum amount
to the seller ('take-or-pay contracts');
* Worse-than-assumed economic and demographic experience for our postretirement
benefit plans (e.g., investment returns, interest rates, health care cost
trends, benefit improvements);
* Changes in interest rates;
* Additional credit rating downgrades;
* Inability to access debt or securitization markets around the world at
competitive rates or in sufficient amounts;
* Higher-than-expected credit losses;
* Lower-than-anticipated residual values and/or higher-than-expected return
rates for leased vehicles; and
* Inability to implement the Way Forward Plan.
We cannot be certain that any expectation, forecast or assumption made by
management in preparing these forward-looking statements will prove accurate, or
that any projection will be realized. It is to be expected that there may be
differences between projected and actual results. Our forward-looking statements
speak only as of the date of their initial issuance, and we do not undertake any
obligation to update or revise publicly any forward-looking statement, whether
as a result of new information, future events or otherwise.
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