DETROIT -- Ford Motor Co. on Wednesday said it plans to stop selling all sedans in North America and that it has nearly doubled its cost-cutting target by 2022 from the plan it laid out only six months ago. The automaker said it will either fix or eliminate unprofitable portions of the business.
Ford said the only cars it will keep in North America beyond their current generations are the Mustang and the Focus Active arriving in 2019.
The automaker said it now expects achieve an eight per cent global profit margin by 2020, two years sooner than planned. It upped its five-year cost-cutting goal to $25.5 billion (Ford reports earnings in U.S. dollars), from the $14 billion projected by CEO Jim Hackett in October.
Ford CFO Bob Shanks announced the improved guidance as the company reported a nine per cent increase in first-quarter net income. Its global profit margin was 5.2 per cent in the quarter, as higher commodity costs reduced earnings in North America. The company posted a 6.4 per cent margin during the same quarter last year.
"Our intention is to raise the level of performance on all parts of the business through fitness," Shanks told reporters at Ford's headquarters near Detroit. "But frankly, that is not going to address completely the underperforming part of the business. We will have to make choices around how we disposition those businesses going forward. We can make different investments; we can partner; we can exit products, markets. And we will do that."
SMALL CARS LOSE MONEY
Shanks said small cars and "most Lincoln products" are among those losing money.
Ford officials already signaled that some cars would be removed from the portfolio as consumers gravitate toward far more profitable pickups, SUVs and crossovers. He said the Lincoln brand as a whole is not in danger but noted that it lost money in China because it is in ramp-up mode there after being introduced in 2014.
Shanks suggested that Ford could reduce investment in certain geographic regions or exit them completely if it did not see adequate returns on the horizon. That echoes the strategy General Motors has employed in selling its European business and abandoning several other countries, including Russia.
LESS CAPITAL SPENDING
He also said the company was reducing its planned capital spending from 2019 through 2022 by $5 billion to $29 billion through such actions as using common “modules” to account for 70 per cent of the value of each vehicle and reusing tools and equipment.
Shanks wouldn’t say whether Ford would need to eliminate jobs to achieve the additional $11.5 billion in cost cuts. Nearly half of the cuts would be in sales and marketing -- through incentive optimization, reduced advertising and other actions -- with the rest coming from engineering and product development, material costs, manufacturing and information technology, in that order.
About $4 billion of the $11.5 billion in cuts would be accomplished in 2019 and 2020, Shanks said, with the rest occurring in the subsequent two years. He said the company used “hard work” to find more efficiencies after Hackett unveiled his plan in October. The plan was met with a tepid reaction from analysts and investors, who have been eager to hear more specifics.
“We have looked at every single part of the business,” Shanks said. “I don’t think they’re done yet.”
In the first quarter, net income rose $144 million to $1.74 billion, and revenue grew 7.4 per cent to $42 billion. About $100 million of its income was due to a lower tax rate.
Ford’s North American pretax profit fell 9.2 per cent to $1.94 billion, with commodity costs accounting for more than the entire decline. It lost $149 million in South America, 37 per cent less than in the first quarter of 2017, and earned $119 million in Europe, down 43 per cent. Its Asia Pacific business swung to a $119 million loss, from a $148 million profit a year ago.
Ford Credit’s profit jumped 33 per cent to $641 million, while the automaker’s fledgling mobility ventures lost $102 million, 59 per cent more than a year ago.