Trotman’s Global Gambit

With Ford 2000, a global restructuring that aims to give the No. 2 automaker global agility and lowest cost, Ford Chairman and CEO Alex Trotman fashioned an interesting paradox: If the initiative succeeds, Ford could become the most profitable carmaker, but, if he retires at 65, Trotman won’t be around to take the credit.

September 1 1996 by JP Donlon


When Alex Trotman took the wheel of Ford Motor Co. as chairman and chief executive in November 1993, he was understandably ebullient. With improved after-tax profits and strong vehicle unit sales growth, the 93-year-old automaker was pulling vigorously out of a slump. The first foreign-born executive to run a major U.S. auto company, Trotman, 63, vowed he would make Ford the world’s best car and truck company. To many, that meant overtaking Toyota, whose manufacturing efficiencies and car designs set the global standard. It also suggested an attempt to topple GM as the world’s biggest vehicle producer.

In December 1994, Trotman unveiled Ford 2000, a global initiative that sought to remake the company by tearing up its regional structure in favor of one based on an integrated set of processes across product development, manufacturing, supply, and sales.

Plagued by world overcapacity and mature markets in North America and Western Europe, all carmakers have been compelled to increase efficiencies, cut cost, and improve product-cycle times. Ford can build a vehicle for $443 less than GM, according to Harbour & Associates, an industry consultant that studied the impact on cost of different levels of vertical integration. But Chrysler can build it for $583 less than GM.

Under Ford 2000, Ford’s North American and European operations and their respective components operating units are grouped into a single unit, Ford Automotive Operations. Five vehicle program centers-one in Europe, four in North America-have worldwide responsibility for the design and development of specific vehicle ranges, such as small cars, front-wheel drive vehicles, and trucks. As Trotman puts it, “Ford has merged with itself.”

For Trotman, the stakes are high. “Ford 2000 is more important than the doubters could have imagined,” explains Furman Selz’ Maryann Keller, a longtime auto industry analyst. If Trotman succeeds, Ford could be a big winner as the industry consolidates. If he fails, it will be one of the most expensive re-engineering lessons ever.

Earlier this year, Trotman’s dream hit a few potholes-including a 22 percent drop in profits in 1995 over 1994, to $4.1 billion; a full-point drop in U.S. market share; and the use of deep discounting to boost sales. Its share price floundering, Ford found Wall Street had transferred its affections to a suddenly resurgent GM and a profitable, plucky Chrysler. Last spring, at the 40th anniversary celebration at the NYSE of Ford’s IPO, one analyst remarked that Ford’s highly profitable financial services, if divested, would have a market value equal to the entire company’s. Never mind that Ford’s $4.1 billion in earnings on $137 billion in revenues last year was the fourth highest in its history, or that the company has a strong balance sheet, a fully funded pension, and a 5 percent dividend yield. Or that five of the top 10 cars and trucks sold in America bear the blue oval.

The question is whether the recent slow down represents a speed bump or a real road hazard to the future fortunes of the world’s second biggest auto producer. Pointing to its surprisingly strong 21 percent second-quarter earnings increase over the same period last year, Trotman asserts that the company is delivering on its promises. U.S. truck sales, which outnumber U.S. car sales at Ford, got a further boost by the new F-Series pickups, launched in January 1996. But Ford’s second-quarter U.S. market share stands at 24.8 percent, lower than both the 26.2 percent of one year ago and the 25.6 percent for all of 1995.

For his part, Trotman isn’t the typical Detroit-in-denial-of-anything-amiss car man. Born in Middlesex, England, but reared in Edinburgh, Scotland, Trotman joined Ford in 1955 as a parts chaser in its U.K.-based Dagenham plant. With a soft Scottish burr, a steely, if diffident, manner, and a clipped moustache, Trotman cuts something of a military figure-which he arrives at honestly, having served five years as a night fighter-navigator in the RAF.

“Alex is an unusual character,” observes Keller. “When the filmmaker of ‘Roger & Me,’ challenged each CEO of the Big Three to change the oil on one of his company’s vehicles, Alex actually did it.” On what Ford vehicle? The Explorer, of course-his favorite model.

DRAINING THE OCEANS

The auto industry sells about 50 million vehicles a year, and world production capacity is about 70 million. How will future consolidation affect Ford?

You’re touching on one of the biggest issues facing the industry: a huge and growing overcapacity. The Koreans are adding capacity vigorously, and they will continue to do so. If you cut through the analysis, it’s all about scale: scale of operations in product development, manufacturing, purchasing, and technology. Companies will search for efficiencies in speed, fixed cost, material cost, inventory, you name it.

There will be continuing rationalization of suppliers, which will be halved 10 years from now. We’ll almost certainly see a similar rationalization in the distribution end of the business, in the number of dealers.

Ford is a large company, and our challenge is to achieve the efficiencies that exist within our organization. With Ford 2000, we are really merging with ourselves, finding efficiencies as we drain the oceans between various parts of the Ford Motor Co., minimizing duplication and, in the future, eliminating it.

Do you think there’ll be far fewer car-makers globally?

I think there’ll be fewer boardrooms, but an increased number of brands. Customers like choice. So even if there is rationalization of corporate entities, there won’t be any inclination to drop brands on the floor.

How has the Ford 2000 initiative fostered changes?

It’s hard to put together a global cycle plan-a plan for a new product, new facilities, and resource allocation-without having a truly global organization. We have attempted to achieve that kind of unity by using central staffs, and they’ve all failed over 20 or 30 years.

Ford 2000 mandates the execution of the global cycle plan. It reduces duplication and waste. And it provides our customers around the world with more product than we could provide under the regional format and at a capital investment over a five- or six-year period that saves $11 billion over the previous combination of regional plans.

Some savings already have flowed to the bottom line, but we’ll really start to see the large savings by the end of ’97, ’98, ’99. We will be able to make a purchase order for 1 million or more of some widget to fit a single design, as opposed to two different designs at half a million each. The leverage from that capability is enormous.

How will the product development cycle time change?

By the end of the decade, a program that took us 48 months to execute will take 24 months. We may not choose to execute the program in 24 months, but we’d like to be able to push a button and have a major program on the street in 24 months. We’re in an industry where tastes change, all sorts of variables impact what the customer wants-so if you’re four years away from bringing something to the marketplace, there’s a greater risk of missing the market than if you’re two years away.

SCRUTINIZING SHIPWRECKS

What benchmarks did you use as you developed Ford 2000?

We looked at a number of successes in major organizational change, as well as at some shipwrecks. Among the successes we looked at were Motorola, Eastman Kodak, and McDonald’s. One conclusion we reached is that the top-down approach doesn’t work if you want to make a major change: Three or four people meeting in secret, devising a process change, then throwing it over the wall to a large number of employees in a complex organization doesn’t work. That was a common feature of the shipwrecks: The buy-in wasn’t achieved before the company set sail on the change.

So how did you get the buy-in?

We couldn’t get total buy-in with 350,000 employees. But about 100 senior people from all over the world formatted the process change. What we did wasn’t perfect, and we knew it wouldn’t be. But it was hammered out day and night by lots of people and then cascaded as those 100 people went back to their operations or divisions and interacted with the people there. The challenge is to make it everyone’s crusade. And those who can’t join the crusade have to find some other way to occupy their days.

CHINA SYNDROME

Fully 40 percent of your sales are from non-U.S. markets. Which markets hold the most potential?

Growth in the auto industry in the next century will come from the Asia-Pacific region, and we have to increase our presence there dramatically. We’ve committed major investments in India, China, Thailand, and Vietnam. We’re looking at the Philippines again and at Indonesia. Meanwhile, we’re increasing our investment and push in Taiwan, where we’re the No. 1 auto manufacturer. And we’re committed to the Japanese market.

How will Ford 2000 allow you to tap 40 into those markets more quickly and smoothly?

Ford 2000 helps in getting product focus on, for example, India and China, and having the vehicle center vice presidents “own” China or India. The Escort that went into production last month was “Indianized” quickly by the vehicle center in charge of European Escort design

How does a car get “Indianized”?

Suspension, brakes-various component changes that have to be made due to poor roads and driver behavior. The old format made it impossible to get the focus needed to make those changes.

Same with Brazil: Ford 2000 has enabled us to introduce new products there with lightning speed. In the old format, it would have been unthinkable to move as fast as we have in putting the new Fiesta or Escort program into production in Brazil.

What is your strategy for China and how do you stand relative to other non-local players there?

We were disappointed when the Shanghai minivan project went to GM rather than us. But we have many irons in the fire in China. And since the Shanghai minivan project, we have bought 20 percent of Jianling Motors. And we are working at the moment on some other major joint-venture programs there.

Is the reality of doing business in China what you thought it would be?

The business we’re doing now in China is more or less what we expected it would be. The slope of growth in China is going to be huge. We have 17 assembly plants in the U.S., and we don’t have any in China yet, so we know we had better get started.

But this is all part of our long-term strategy. Our bread and butter comes from Western Europe and North America, and we can’t take our eyes off those markets for one New York second. But we need to build for the next century; that means getting active in the Asia-Pacific region.

At one time you had 30 percent market share in the U.K.; now you have 22. Will you ever see 30 again?

We might. Our focus now is balance. Britain is an important market for us, so I’m not happy to see our share down. We can go north from there, but only consistent with running a balanced business. We’re not there to throw money around and see how big we can get the share at any cost. It’s a much tougher market in which to make a profit than it was 10 years ago. And the Koreans have arrived to make things more difficult. But VW’s strong, Fiat’s strong, PSA’s strong, Rover BMW is strong.

Your suppliers are on the periphery of Ford 2000. Since they must integrate their processes with yours, are they to become satellites of Ford?

No. We have interdependence, and that’s healthy. I don’t see Ford ever becoming dependent on a single supplier, nor do I see a supplier depending totally on Ford. While we’re working with fewer suppliers, we still have to maintain a competitive stance and strategic dependence for the future.

Some have noted that perhaps the big automakers might become systems integrators, much like Boeing hiving off subassemblies. Is that likely?

Not for Ford. Many things are core to us: engines, transmissions, painting, some of the assembly.

FAMILY TIES

How would you characterize your relationship with the Ford family?

Very good, in my opinion. I don’t find it onerous to have the people whose name is on the building in close proximity. The Ford persona is helpful, in that our company is still thought of by many as a family company, one with people in it, as opposed to a big corporation.

How does it feel to have five Fords in the top 10 best-selling vehicles in the U.S.?

We aren’t driving to have five of the top 10 just for the fun of it, although it is fun. Rather, we are spending a lot of time on the bottom-line quality of our market share. We are trying to strike the right balance between share and profitability. It’s not leadership at any price.

What would you like to have accomplished when you step down?

It’s very simple: Higher levels of customer satisfaction. Shareholder satisfaction with their total returns. Employee commitment and satisfaction. Measured by numbers that are better than when I started.

How would you rate yourself at midcourse?

In employee commitment, north of when I started. In shareholder value, on the line. But the middle point isn’t that important. It is what the track looks like after I finish my tenure.