Ford Is Preparing Big Changes

Dearborn automaker CEO Jim Farley wants to reduce the cost structure and focus on electric vehicles.

Ford Motor  (F) – Get Ford Motor Company Report should be making some big announcements soon. The veteran vehicle maker is taking important steps to solidify its roadmap. 

On March 2 Chief Executive Jim Farley had announced a major reorganization, with the separation of Ford’s automotive activities into two distinct units. 

Activities linked to internal-combustion-engine, or gasoline, cars, including iconic models like the SUV Bronco Sport, the F-150, and the Mustang Ranger, became part of a unit called Ford Blue. 

The operations of battery-electric vehicles, in a unit called Ford Model e, are seen as Ford’s long-term future, with the launch of vehicles like the Ford Mustang Mach-E, F-150 Lighting pickup and more to come. 

The company’s ambitious goal is to produce 2 million electric vehicles by 2026. It sold just 27,140 EVs in the U.S in 2021.

Ford Blue will remain Dearborn’s financial engine in the medium term, Farley said. He also said that the company needs to pare $3 billion or more costs out of its business by 2026. 

The cost cuts are not arbitrary, but rather strategic, to make the business more competitive beginning now, Ford says.

Thousands of Job Cuts Underway

This cost reduction will lead to the cut of several thousand salaried jobs, a source told TheStreet. Bloomberg News reported 8,000 job cuts, mainly at Ford Blue but also at other salaried operations throughout the company. The job cuts are likely to begin this summer.

“We aren’t commenting on the speculation about our business,” spokesman T.R. Reid said in an emailed statement. 

“As we’ve said lots of times, to deliver our Ford+ transformation and lead an exciting and disruptive new era of electric and connected vehicles, we’re reshaping our work and modernizing our organization across all of the automotive business units and the entire company.

“We’ve laid out clear targets for our cost structure so that we’re lean and fully competitive with the best in the industry,” Reid added, without confirming or denying reports of thousands of layoffs to come. 

The source told TheStreet that the cost cuts should come across the entire company. Beyond the automotive operations, business-support functions, finance, human resources, communications, legal and commercial will all be affected.

Farley, the source said, wants the whole company to rethink what it’s doing, prioritize what’s important, and find more efficient ways to do things. 

The idea that Ford Blue alone is where the carmaker needs to be more efficient, more cost effective, is mistaken, the source added. For example, Ford believes that its warranty costs are too high relative to those of competitors.

Announcement Could Be Made on July 27

Ford, which hinges its future on the widespread adoption of electric vehicles in the coming years, has seen the costs of assembling these less polluting vehicles soar because of sharply higher raw-materials prices and disruptions to supply chains. 

Manufacturing an electric vehicle today costs much more than a vehicle powered by a gas engine, Farley said at the Bernstein Strategic Decisions Conference last month. 

Ford’s Mustang Mach-E electric SUV, with a starting price around $43,895, costs about $25,000 more than a comparable Ford Edge gas SUV, the CEO said. The battery cost alone is $18,000, and the charger adds another $3,000.

In addition to these costs, Ford, like most companies, faces rising labor costs.

“We have too many people,” Farley said at a Wolfe Research auto conference in February. “This management team firmly believes that our [internal-combustion-engine and battery-electric vehicle] portfolios are underearning.”

Inside Ford Motor is the belief that the company can be something in between a startup/disrupter and a legacy carmaker, setting the company apart in the industry.

Ford has industrial and engineering capabilities and the ability to build things at scale that some of the startups don’t have. 

The company plans to continue to invest in its internal-combustion-engine business around its iconic products. But it will do so selectively because it believes its long-term future is connected to zero-emission — electric — vehicles.

Farley and John Lawler, Ford’s chief financial officer, may provide more color on the job cuts during the company’s second-quarter-earnings call, the source says. Ford will report its second quarter results on July 27.

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