Ford to stop selling autos in over-served markets
Ford CEO Jim Farley says his company will stop competing in over-served market segments and instead will place big bets on connected vehicles and digital services.
The days of Ford being all things to all people are over, Farley said at the company’s capital markets day event Monday.
The company, he said, has been “stuck in a box”, with thin profit margins, weak growth and low stock valuation.
Ford, Farley said, will emphasise software and services as well as iconic vehicles such as pickup trucks, large SUVs, commercial vehicles and advanced second-generation electric vehicles. He said the company is eliminating waste to close a cost gap with the best in the industry with a “lean disciplined operating system” that reaches into all Ford factories.
Ford’s F-Series pickups are the top-selling vehicles in the United States and a huge profit centre.
Farley said by focusing on software, services and Ford’s strengths in products, the company won’t be as vulnerable to a downturn as in the past. He said the company has let complexity “overrun our business as we tried to be all things to all people.”
Ford will now be competing differently, going for tailored ownership experiences rather than “jockeying for slivers of market share” with complex vehicles in competitive segments such as two-row crossover SUVs. Farley also said Ford will go to non-negotiated vehicle prices.
Ford has said it will get to a 10 per cent pretax profit margin in 2026. It reiterated 2023 full-year guidance of US$9 billion to US$11 billion in adjusted pretax profits. Farley said the company has even greater margin ambitions.
To get there, Ford says it will cut costs by reducing the number of parts in its vehicles, as well as cutting warranty and recall expenses by boosting quality.
But Farley said he doesn’t see reductions in the number of factory employees or among engineers and other office workers. The company predicted it would sell 5.6 million vehicles in 2026 as global sales recover, and it will need workers to design and produce them, Farley said. Ford sold roughly 4.2 billion vehicles last year.
Farley has long complained about Ford’s high retail and warranty costs, and Kumar Galhotra, president of Ford Blue, the company’s internal combustion unit, said Ford is making changes to improve profit margins.
Rather than testing the new Super Duty pickup to a particular standard, the company tested it until parts and systems failed, he said. Now Ford is finding the eventual weak point and eliminating it, prolonging vehicle life, Galhotra said.
Ford also is focusing on reducing the number of vehicle parts, and on the stability of parts supply companies. For example, by the time Ford rolls out a new version of the F-150 pickup this year, it will have cut 2,400 parts from the existing model.
“We have some chronically inefficient tier one and tier two suppliers,” Galhotra said. Some have caused an unstable flow of parts, he said, adding that Ford has worked with 125 key suppliers to stabilize their operations. “If the present supplier is not on a path to a permanent solution, we’re re-sourcing the business,” he said.
A study by Plante Moran released Monday showed that Ford’s working relations with parts suppliers has declined dramatically since 2020.
Ford also said its new or revamped electric vehicle manufacturing plants will be far more efficient, with nearly 30 per cent less labour overhead than the company’s current large internal combustion vehicle plants. But Farley said that doesn’t mean fewer factory workers because they’ll be needed to make batteries and other EV parts.
Ford has split itself into three business units – Ford Blue, Ford Model e for electric vehicles and digital products, and Ford Pro, the company’s commercial vehicle business.
“I’m not here to tell you that we’re undervalued,” Farley said Monday. “You make your own decision.”
AP