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Oct 3, 2017

Ford to slash US$14B in costs, cut cars under new CEO

Ford Motor Co. CEO Jim Hackett

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Ford Motor Co plans to slash US$14 billion in costs over the next five years, Chief Executive Officer Jim Hackett told investors on Tuesday, adding that the No. 2 U.S. automaker would shift capital investment away from sedans and internal combustion engines to develop more trucks and electric and hybrid cars.

Hackett told investors that Ford will be open to more partnerships to spread the costs and risks of simultaneously developing new technology while still churning out profits from its legacy business of selling trucks and sport utility vehicles in North America. He cited a partnership with ride services company Lyft to develop technology to deploy self-driving cars.

Hackett, former CEO of office furniture maker Steelcase Inc, took the top post at Ford in May, after his predecessor Mark Fields was pushed out. At the time, Hackett promised investors a statement within 100 days as to how he would improve the "fitness" of Ford to compete as the auto industry becomes more digital, more electric and less wedded to selling one vehicle at a time to individuals.

Since taking over, Hackett has signed off on a series of moves, including a plan to shift production of Ford Focus compact cars from Michigan to China. He also hired a company outsider, Jason Luo, to lead Ford's China business. Ford is revamping operations in China, and looking to expand partnerships to get a stronger position in electric vehicles for the world's largest car market.

Some of Hackett's plan indicated that Ford is playing catch up. For instance, Hackett said that by 2019, Ford plans to equip all U.S. models with built-in modems, and install mobile internet connections in 90 per cent of global vehicles by 2020. Rival General Motors Co has been installing built-in mobile broadband connections in its U.S. vehicles since 2015.

Of the US$14 billion in promised cost reductions over five years, US$10 billion will come from material costs and US$4 billion from reduced engineering costs, Hackett said.

"We have too much cost across our business," Hackett said.

By 2022, Ford plans to cut spending on future internal combustion engines by a third, or about US$500 million, putting that money instead into expanded electric and hybrid vehicle development, on top of US$4.5 billion previously announced. Ford had already promised 13 new electric or hybrid vehicles within the next five years.

GM on Monday said it planned to launch 20 new all-electric vehicles by 2023.

Ford's profit margins fell short of its goal of 8 per cent automotive operating margins, in part because revenues fell short of expectations, while costs rose faster than expected, Hackett said. Ford's automotive profit margin was 6.7 per cent in 2016.

He said one way to cut costs will be to offer fewer variations of Ford's models. The slow-selling Ford Fusion midsize sedan can now be ordered in 35,000 combinations of features, colors and powertrain options. The future model will come in just 96 combinations.

He said Ford also will cut the time it takes to engineer a new car by 20 per cent, and invest in "factories of the future" that will occupy less space and use more robots.