Ford CEO Hackett to Redeploy Capital to Re-Fashion Company for New Era

Ford CEO Jim Hackett did what he needed to do on Tuesday: Hatched a credible plan. He needed to demonstrate to Wall Street and the rest of the world how Ford was going to stop losing ground to rivals in areas from SUVs to electrification, and Hackett came forth with a roadmap for doing that and more.

Specifically, the CEO, after his first 100 days, told investors and analysts in New York City on Tuesday that he plans to do what Ford apparently should have been doing long before Hackett replaced Mark Fields in June. That is, boosting its investments in high-profit trucks and SUVs while de-emphasizing cars, and accelerating development of electric and autonomous vehicles while scaling back on improvements in internal-combustion engines that have become the auto industry’s endangered species these days.

Investors immediately responded favorably, giving Ford shares a 0.5% bump on Tuesday. One reason Hackett has the job is Ford stock declined by nearly 40% during Fields’ three-year tenure.

Wall Street liked hearing Hackett on Tuesday say things like, “I get up every day feeling like time can be wasted here if we don’t get moving. I feel a real sense of urgency.”

“Ford will prepare for disruption by becoming fit in operations and capital allocation. That should give Ford the time, resources and flexibility to evolve.”

It may seem schizophrenic for Ford to devote more resources both to high-gasoline-consumption pickup trucks and to fielding more all-electric vehicles. But Hackett’s decision to redeploy $7 billion in resources from cars and gasoline engines to trucks, SUVs and electric powertrains reflects his emphasis on pursuing both near- and far-term objectives simultaneously. The company needs to do everything it can to optimize profits now from its top-selling models, while also catching up with General Motors and others in electric vehicles.

Hackett also assured investors that he plans to do a better job of good old-fashioned cost cutting, revealing his intention to strip $10 billion out of incremental material costs and $4 billion from reduced engineering costs over the next five years.

“Ford will prepare for disruption by becoming fit” in operations and capital allocation, Hackett said. That should give Ford “the time, resources and flexibility to evolve.”

For example, Hackett wants to move Ford past patting itself on the back for having overhauled its small-car lineup a decade ago to take advantage of $4-a-gallon gasoline prices in 2008. Over the last several years, not only have gasoline prices moderated, giving consumers more freedom to drift to lower-mileage larger vehicles, but also buyers have made a dramatic shift in favor of SUVs and crossover vehicles over sedans.

Thus, Hackett plans not to eliminate car production altogether but to focus on higher-profit versions of small sedans, such as performance vehicles. He also plans to save engineering investments by dramatically reducing the number of orderable vehicle combinations—such as a reduction down to only 96 possible combinations in future versions of the Fusion sedan, down from 35,000 in the current one.

He also plans to get new models to market faster by reducing development time by 20% and cutting the time it takes preparing factories to build those vehicles by 25%.

“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.”