DEARBORN – To open the employee Town Hall meeting at the company’s World Headquarters auditorium Friday, President and CEO Alan Mulally applauded the team’s commitment to the One Ford plan for returning the company’s 19th-consecutive profitable quarter despite pre-tax profits ($1.4 billion) being $765 million lower than a year ago.
“Welcome to our Town Hall for the first quarter results, we had a real good meeting this morning with the analysts, and again the One Ford strategy is continuing to work for us,” said Mulally before summarizing highlights of the quarter. In his remarks, Mulally noted the record profit for any quarter in Asia Pacific, a profitable North America, Middle East and Africa and Ford Credit as well as losses in both Europe and South America.
Milestones for the quarter included revealing the all-new 2015 Ford F-150, Ford Figo/Ka four-door concepts, new 2015 Ford Focus five-door and wagon as well as the new Ford Expedition and Lincoln Navigator. In this time period, Ford also expanded production of the Ford EcoSport in Thailand and announced significant investments in Ohio Assembly Plant ($168 million) for the production of the all-new 2016 Ford F-650 and Ford F-750, Lima Engine Plant ($500 million) to build the new 2.7-liter EcoBoost® engine and Kentucky Truck Plant ($80 million) to meet surging demand for Ford F-Series as well as Ford Super Duty trucks. Mulally added that all of the 23 global launches planned for 2014 continue to be on track and that it was a solid quarter overall despite a number of adverse factors.
Several challenges in the quarter reduced pre-tax profits by $900 million. These included extremely poor weather conditions in North America ($100 million), an increase in warranty reserves ($400 million) and currency devaluations in South America ($400 million).
Mulally explained the warranty reserve and why it was higher in the first quarter. “The warranty reserves fluctuate and were increased this quarter because of some of the costs we anticipate with some of our vehicles going forward whether it be recalls, safety or customer satisfaction items, etc … ” Mulally said. “We continue to look at all of the data for all of our vehicles over the past few years and based on those trends and what we see, we will move the reserve up or down.”
South America continues to affect the balance sheet with a volatile economy and rapidly changing exchange rates. Mulally said Ford will continue to work through South America’s challenges, noting that all companies operating in the area face the same issues.
Elsewhere in 2014, Ford is projecting further economic recovery in Europe, where the company expects growth of 1 percent this year as the region continues to climb out of recession; Asia Pacific, where China’s economy is expected to grow about 7.4 percent; and India, which is projected to grow roughly 5 percent.
New to the report this quarter was the Middle East & Africa region, a business segment separate from Europe and Asia Pacific. “The reason we are creating this position now is it’s going to be a very important part of our plan going forward. This is a great growth region, they love Ford products. Africa is starting to come on strong. So we want to put a laser focus on the management team working together under the One Ford plan to bring all of these fantastic vehicles to the Middle East and Africa.”
Before moving into the employee question and answer session, Mulally reminded everyone that the company would be operating on a substantially lower cash flow this year due to investment in product and production and. “Clearly, this is a very important year for us, with all of the launches and increasing production, all of the businesses are starting to improve outside of South America, but this is an important year for us to establish profitable growth continuing into next year and beyond.” he said.
Q. With all of the recalls GM is facing, what are we doing to develop processes to avoid ending up in a similar situation?
A.“Really important question. Ford has a very lateral process where we know what’s going on. We do it differently than GM with our warranty reserves because we are always looking at our fleet, at the vehicles we have out there to determine what the issues are. And whenever we see data that says something may not be what we thought as far as reliability is concerned, we make an observation of that and then we progress the issue. One of the things I am most proud of at Ford is we do that very decisively. But it starts with looking at the data all the time. Another thing we do here at Ford that is different than some of our competitors is we have everyone at the table. Product Development, production, sustainability, quality - so we have lots of windows into what the issues were in the past and what they are now. I think that is so healthy to have these checks and balances in the system.”
Q. Will the political and military issues facing Russia have an impact on our business?
A. “Russia is a great market, as you know. I think within a couple of years it will be the largest market in Europe just due to the size of it. They love the product line. But they are definitely going through a rough time economically led by all those other macro factors. A lot of countries are trying to talk to them about what they are doing, applying sanctions and such. A positive thing for us to recall is that we are part of Sollers, and they are great business people. They understand the market and they are great partners. So we are going to continue to take action just as we are doing here, we’re going to break out our production to our demand now. So I think this is a temporary thing and that it will get worked out.”
Q. Would we support TPP without language about currency and inflation?
A. “I don’t think so, no. This is a big deal because right now we have some companies that are really practicing mercantilism. Which means that they are managing their currencies so they can enhance their exports and lower prices. It’s not sustainable and it’s not right. I read in the paper today that President Obama was recently with Japanese leaders and it looks like they have made progress in some areas but not in others. B we will continue to encourage our leaders to move to a world where currencies are set by markets and not by the countries.”