Ford Exec Tackles State Of Industry

November 18, 2006
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GRAND RAPIDS — Ford Motor Co. senior executive Dominic DiMarco was in West Michigan last week as part of the World Affairs Council of Western Michigan's Global Executive Briefing Series.

Recently appointed president of the company's South American division, in addition to his role as Ford's executive director of Canada, Mexico and South America, and former CFO for International Operations, DiMarco addressed the concerns of the company's local stakeholders during Tuesday's briefing and in an earlier interview with the Business Journal.

What can you say about the conversation that took place today, after months of delay, between the White House and leaders of the Big 3 automakers?

I will tell you that it's encouraging that the meeting took place; that the president found time in his busy agenda to meet with the leaders of the Big 3. The issues they were scheduled to cover affect not only the auto industry but the manufacturing industry in general, issues such as health care affordability and quality, currencies, commodity prices — steel, in particular — and energy security.

The fact that we had a dialogue is a very important first step. Hopefully, we'll be able to move on with the government in terms of educating them on what American industry is facing today in terms of its competitiveness. Just four years ago, steel prices were around $320 per ton; they're about double that today. Gasoline was about $1.30 per gallon; it's a dollar higher now, and was even higher in the $3 range.

These are issues the American consumer is facing that are changing preferences in the products they buy.

While health care often gets the most attention, it seems the federal government would be best suited for dealing with some of those issues, namely material costs and currency manipulation.

If a manufacturer is producing a large portion, or even some portion of its components in a foreign country, where the currency is maybe undervalued, that gives the industry in that country a competitive advantage when it exports those products to the United States. In dollar terms, the cost of those products becomes lower.

This has worked to benefit the profit margins of the Japanese automakers.

What's happening in South America and Canada

Our market share in Canada is growing and we may be up as much as a point of market share this year. In South America, we went through a very similar situation to what North America is now facing about five to seven years ago.

We were faced with a need to bring new and fresh product to the marketplace, to restructure our business and adjust our capacity. Those actions were taken, and Ford in South America is profitable today and our market share is growing.

The industry is very robust in South America right now — all the major markets and on the truck side. … One of the very interesting things about Brazil is you can drive up to any fuel station and fill up with either ethanol or gasoline. Over 50 percent of our vehicles there have FlexFuel technology; it doesn't matter what's in your tank. You can choose whichever costs less that day.

The government there decided it was going to push ethanol. It kept the sugarcane production high and poor people working, and made the country independent of oil from the Middle East. There are no large price increases.

Where will the Big 3 stand as the industry restructures itself?

The Big 3 represents 76 percent of our industry's employment. At Ford, we employ 38 people for every car we sell, compared to 18 at Toyota and 13 at Honda. ... This is the end of the Big 3 as we know it, and the beginning of the up-for-grabs Big 6. There is some thought that one or both of the American automakers might not make it out. I think that is overly pessimistic.

Look at the Apple iPod that's fast becoming a cultural icon — 10 years ago, investors and media had all but given up on Apple as a company.

How do you respond to the perception that domestic automakers essentially ignored the industry factors — such as the need for fuel-efficient vehicles — that led to Toyota's blockbuster success in recent years?

The Toyota business model is impressive, you can't argue that. But as for fuel economy, their largest markets were in countries where fuel was much more expensive and small cars were much more popular.

SUVs and large trucks are an American phenomenon; this country likes larger vehicles. We got stuck thinking that was a sustainable business model. Fuel prices changed that, and Toyota was fortunate to be bringing its technology into the market at the right time.

We still have more revenue per vehicle than what the foreign automakers do. The market share they grabbed has been at the lowest level, but it was our mistake to ignore that low end.

In other news today, Ford's new CEO, Alan Mulally, announced the company should be profitable by 2009.

Our Way Forward plan is actually a little ahead of schedule. Early in the year we spent a lot of time defining our brands and the attributes of those brands, and then we refocused our product cycle plan around those brands to make them seamlessly consistent.

Because of higher fuel prices and higher steel cost, we had to accelerate our plan. That included an agreement with our partners in the UAW to offer hourly employees buyout plans that would allow them to move away from Ford in a positive way, either through an early retirement or to help them "retool," if you will, by some very unique and creative educational packages.

The other thing is the recent successes we've had in product. Consumer Reports announced the Ford Fusion, Mercury Milan and Lincoln Zephyr achieved their coveted "Best Buy" award, in terms of overall product reliability, outpacing Toyota and Honda. ... The soon-to-be-introduced, all-new Ford 250 pickup truck won Truck of Texas, the most coveted award in that hotly contested sector.

And lastly, our most important launch this year is the new crossover vehicle, the Ford Edge — which we believe has the potential to define that market — and the Lincoln MKS. A year ago, we predicted that the crossover vehicle segment would outsell the SUV segment this year, and just recently, that has happened.

There is a lot of concern among suppliers locally about Way Forward, and the cutbacks have already had an impact. Can you offer any assurances to the local base?

No. It is a gut-wrenching time in the auto business for Ford and General Motors. Unfortunately, that's being shared by our supply base, as well as our dealers.

We need to become more competitive as an industry. Ford recently set up a program called Aligned Business Framework, working with strategic suppliers inviting them to participate upfront in product design and development, encouraging them to offer suggestions for producing components that go into our platforms. We plan to use common components across platforms and are working to consolidate our programs.

Suppose I'm a company that isn't part of the Aligned Business Framework. I'm an innovative, engineering-focused firm with a product that could provide a valuable feature to Ford. Am I shut out?

No. If your feature offers considerable improvement to our product, we want to do business with you. And you'll be supplying to not only Ford, Lincoln (and) Mercury, but globally to Volvo, Jaguar and Mazda.

For some time, pricing pressure has defined the supplier relationship on all tiers. Is that going to change?

Today, it is much more of a partnership with our suppliers, rather than a day-in, day-out negotiation for lower prices. We need to work together with our supply base in making sure that their business model is profitable in a sustainable way.

The health of our suppliers and our dealers is part of our future success, and we realize that. … In Brazil, we've gone so far as to unite suppliers and Ford in the same facility. They wear the same uniforms, but with their company label on the lapel instead of "Ford." This forces us to work together on issues like quality, health care and sustainability.    

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