Jim Hackett, CEO of Ford Motor Co., disclosed its plans to cut costs of around $14 billion over the next five years. The cost deduction is divided to $10 billion coming from material costs and $4 billion from reduced engineering costs.
The projections will not show up immediately but most of it will be seen on Ford’s bottom line until 2019 and 2020 which reflects the industry’s long product engineering lead times. Hackett also stated that the No.2 US automaker would swing capital investment away from internal combustion engines and sedans to continue their progress with developing more trucks and a variety of hybrid and electric cars.
Ford Motor Co. set a goal of achieving 8 percent automotive operating margins and generating gains that exceed the cost of capital. Ford Chief Financial Officer Bob Shank said it could take the same allotted years for projections to show as achieving the 8 percent margin goal. Ford will release a financial forecast for 2018 in January.
Hours after the company’s executives and Hackett announced their outlook. Ford shares were little changed as it had risen 2.1 percent on Tuesday. This standing is up with other automotive stocks. However, the company’s share price is down 30 percent since 2014 of July.
Ford Motor Co.’s Proposal Breakdown
Ford aims to put the money from the deductions into its electric and hybrid vehicle development expansion, in addition to the $4.5 billion previously announced. The company plans to cut spending of about $500 million worth of future internal combustion engines.
The automaker is looking “carefully” at marginally profitable or unprofitable partnerships and operations outside the country such as Europe and Latin America.
“We have a strong revenue presence,” stated Jim Farley, head of global markets as he pointed out to investors how Ford is “looking to build sustainable profitable BEV (battery electric vehicle) business”
Auto factories that produce electric vehicles will be more in favor for future company costs as it will only require half the capital investment and 30 percent fewer labor hours per car. The final assembly area can also be only half the size than usual and will cut the time it takes to engineer a new automobile by about 20 percent.
Hackett presented one of options to cut costs which are to offer fewer variations of Ford’s models like the slow selling Ford Fusion midsize sedan. The unit can be assembled in 35,000 combinations of features, colors and powertrain options.