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Ford to Slash $14 Billion in Costs, Cut Cars Under New CEO

Bloomberg logoBloomberg 10/3/2017 Keith Naughton

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Video by CNBC

Ford Motor Co. will cut $14 billion in costs and drop some car models from its lineup under Chief Executive Officer Jim Hackett, who will focus its future on sport utility vehicles, trucks, electrification and driverless technology.

The automaker will target reducing materials costs by $10 billion and engineering outlays by $4 billion over the next five years, according to a statement released Tuesday before an investor briefing in New York. Ford will shift spending toward products like the Ranger midsize pickup and Bronco SUV while axing passenger cars, without naming specific models.

“The decision to change is not easy -- culturally or operationally,” Hackett said in the statement. “Ultimately, though, we must accept the virtues that brought us success over the past century are really no guarantee of future success.”

Hackett, 62, is on a mission to win over Wall Street and convince wary investors that he has a plan to reverse a three-year stock slide. With profits and market share falling, Ford is being outmaneuvered by competitors such as General Motors Co. and Tesla Inc. when it comes to getting electric vehicles and autonomous technology on the road -- a reality the former football player is trying to rewrite by focusing on the company’s “fitness.”

Ford shares rose 0.5 percent to $12.40 as of 4:22 p.m. in New York, after the close of regular trading. The stock is up 2.1 percent this year, trailing gains by GM, Tesla and the benchmark Standard & Poor’s 500 Index.

Teaming Up

Ford plans to reallocate $7 billion that had been earmarked for cars to spend instead on SUVs and trucks. The company will scrap the mostly go-it-alone strategy under former CEO Mark Fields and be active with mergers, acquisitions and joint ventures. Since Hackett took over in May, he’s partnered with companies on electric vehicles in China and India and teamed up with Lyft Inc. on self-driving cars.

“The world’s impression of Ford is that they are behind on a lot of these technologies,” Emmanuel Rosner, an analyst with Guggenheim Partners, said in an interview.

That was reinforced Monday when crosstown rival GM, which already sells the long-range electric Chevy Bolt, announced plans to have 20 battery-powered cars on the road by 2023. The same day, Ford announced it had formed an independent unit, dubbed Team Edison, to create a business case for EVs. Ford will debut its first long-range model in 2020.

“Ford is not behind on the technology,” Sherif Marakby, the head of the company’s electric vehicle program, said in an interview Monday. “What’s important is that this team makes sure to create a viable and profitable business. Our absolute goal is profitability.”

Hackett established deep ties in Silicon Valley when he reinterpreted the workplace in leading a turnaround of office furniture maker Steelcase Inc. He befriended Steve Jobs and convinced him to outfit Apple Inc. in Steelcase furniture.

“He has a very comfortable relationship with Silicon Valley,” said Jeffrey Sonnenfeld, associate dean of the Yale School of Management, who studied Hackett’s work at Steelcase. “There’s no arrogance, vanity or even self-awareness about him. Jim is not concerned with managing his personal brand.”

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