Ford's consolidation of side-mirror configurations on its Explorer is an example of the automaker's move to simplify
“it’s an age-old problem that never seems to get solved. It appears they took their eyes off the ball when things got good.”
Michelle Krebs, senior analyst, AutoTrader
Ford Motor Co. CEO Jim Hackett is channeling his inner Henry Ford to maximize profits on the next-generation Explorer: You can get any side-mirror color you’d like, as long as it’s black.
The automaker is slashing the number of different mirrors, from 139 today to 25 on the 2020 model, by including blind-spot monitoring on every vehicle and using only gloss-black mirror caps instead of matching them to the exterior paint.
It’s a small change but a telling example of how a rejuvenated Ford let itself fall out of shape after skirting bankruptcy — and the sort of bloat Hackett sees as a threat to Ford’s “fitness.”
Joe Hinrichs, Ford’s president of global operations, last week described Hackett’s strategy as a “more fundamental redesign than any time I’ve been at the company.”
At the same time, such streamlining is by no means a new concept for Ford, which made similar cost-cutting pronouncements under Alan Mulally a decade ago.
Mulally vowed to cut the number of ways vehicles could be configured by more than half on 2009 models to help turn inventory faster. The Lincoln LS sedan, available in 50,000 varieties, was replaced by the MKS, with just 300.
But within a few years, Ford had reverted to old habits amid a product blitz and a desire to generate extra revenue from more optional equipment.
Hinrichs: Most fundamental revamp of career.
Bottom line takes a hit
“It’s an age-old problem that never seems to get solved,” said Michelle Krebs, senior analyst at Autotrader. “It appears they took their eyes off the ball when things got good.”
Ford launched a record 23 new or updated vehicles in 2014, including a redesigned F-150 and Mustang. Hinrichs said the added complexity that more options created didn’t fatten Ford’s profits as much as anticipated.
Now those decisions are coming back to hurt the automaker’s bottom line as the lineup has aged.
“We’re not assuming we’re going to get revenue for all that complexity and just go back to being simple about that configuration set,” Hinrichs said last week at the Barclays Global Automotive Conference in New York. “There’s a lot of learnings, as there always are, and now we’re taking those learnings from North America and bringing them to the rest of the world.”
Under Hackett’s direction, Ford is using “yield management” techniques to closely monitor individual vehicle lines and adjust prices and inventory to certain markets to make more money. It’s part of his global restructuring, which is expected to cost Ford $11 billion over the next three to five years.
The automaker has focused those techniques on its North American business, where a small team of executives gathers every Wednesday to study each nameplate and decide how to maximize its profits. The meetings prompted Ford to stop making a version of the Expedition with a smaller touch screen because it wasn’t selling as quickly as the SUV with a larger screen.
‘Part by part’
The automaker also has cut the orderable configurations of its Fusion sedan to about 30 instead of 2,000. Hinrichs said that has reduced the time it takes to deliver Fusions to 30 days from more than 80.
Similarly, Hinrichs said Ford is reducing the number of orderable combinations on the next-generation Escape to about 25 from around 1,000 now.
“We’re going part by part and product by product to attack all this complexity in the business,” Hinrichs said.
The moves have yet to convince Wall Street. Ford shares have fallen 22 percent this year, and investors at the Barclays conference questioned why these fairly straightforward moves weren’t made years ago.
Hinrichs said it’s all “part of manufacturing and auto 101” before admitting to mistakes made in the 2012-14 time frame.
“But like any business, there’s an opportunity to see over time where you haven’t stayed as fit or competitive as you’ve wanted to be, and you re-evaluate,” he said. “You have to evolve to that next level.”