FORD'S JIM HACKETT: 2019 a year of action

DETROIT — Ford Motor Co. CEO Jim Hackett has called 2019 a "year of action" as many of his organizational changes take root.

In spite of Wall Street's continued worries about the company, as well as a harder-than-expected launch of the redesigned Explorer and Lincoln Aviator, Hackett, 64, is confident in the path Ford is on.

The automaker this year inked partnership deals with Volkswagen and Mahindra to collaborate and share costs on region-specific vehicles, wrapped up an organizational redesign that will save money and make the company more nimble and recently unveiled the Mustang Mach-E, an electric crossover developed through a process designed to be the template for future vehicles.

Hackett says he's also thinking about fundamental changes to the content of vehicles and how dealers interact with customers. He detailed some of those plans in an interview last week with Staff Reporter Mike Martinez, News Editor Nick Bunkley, Chief of Editorial Operations Dave Versical and ANTV Reporter China Haley. Here are edited excerpts.

Q: Can a CEO of any automaker run a business in a way that would please Wall Street?

A: Imagine you came from Mars. You know a little bit about Earth, and you happen to meet Jim Hackett, and you knew he ran a large automotive company. The Martian asked Jim Hackett, "How do I know the company's doing well and is designed to last a long time?" and I say, "Look at today's stock price." It doesn't make any sense. Why does it move every day? I understand the value of shareholders and am really in favor of what they bring. And I'm really in favor of long-term shareholders because their commitment and understanding of what it takes to make a long-lived company is aligned with how we're running the business. I understand what Wall Street's prerogative is, but I don't know I always agree it drives long-term value.

The introduction of the Mustang Mach-E focused heavily on the work of Team Edison. Can you take the Team Edison model — small group, quick-thinking, moving like a software startup — and apply that to other nameplates?

The underpinnings of the team structure at Edison is a fundamental shift in the way knowledge work is going to happen at Ford. So it's referred to as agile teams. The software industry really adopted the word "agile" in front of "teams." But team-based innovation is something I was known for in my last job.

The emergence of it comes because you need a collective of different kinds of intelligence around the table. The problem is so hard that you have to work these things in parallel. So you have to have software engineers next to mechanical engineers, next to marketers, you know, next to other kinds of scientists. In an old-fashioned bureaucratic structure, you would come in to our conference room and see PowerPoints that would kind of argue each one of those vertical areas of excellence and then someone, like a sage, would sit and hear all that and decide what to do. Five to seven years ago, that's how work was done at Ford. That's what we had to tear up and start over.

When you came in, the Mustang Mach-E project was torn up and moved in a different direction. Are there similar things going on with other products at various stages of the process?

One of the inside comments that I got, like, 48 hours into the job was, "Hey, Jim, now you're not going to come and stop all the work, are you?" Because if you're an engineer or in product development, they've got years invested in a lot of the things that are making their way to market, like the new Explorer and Aviator. This new consciousness, you know, couldn't get applied to [those products] because it was too late. But the Bronco, which had made progress, yes, we are applying that. The F-150, yes, we are applying that.

Former Fiat Chrysler Automobiles CEO Sergio Marchionne once asked customers not to buy electric vehicles because he lost money on each one sold. How were you able to make the Mustang Mach-E profitable?

When we came in in June 2017, we looked at the whole portfolio, and there were products that could not make the test for the future, some of which you've written about. This was birthed under that kind of scrutiny. It took not more time, but a lot of attention to make sure that it could perform in a world where the scrutiny was much higher on the profitability. Secondly, the battery used to be 70 percent of the cost of the vehicle back when [Marchionne] made that comment. And it's probably now 30 percent. So the battery costs have dropped in a way that make it feasible. But the third thing is — and this is where I credit Jim Farley and Hau Thai-Tang and Joe Hinrichs. The three of them reasoned that by associating this with a badge like the Mustang, we get the kind of price realization that now will generate the kind of contribution margin.

How are you going to incentivize dealers to sell the Mach-E, or other electric vehicles, over gasoline-powered vehicles, since EVs presumably won't need as much maintenance and could lead to lower service sales?

Let's go back 50, 70 years ago when there were only manual transmissions and they went to automatic. What happened to the service areas inside the dealerships? Because they used to rebuild a lot of transmissions. I think they can today, but it's a lot harder because of all the mechanical linkages in that day. In other words, they changed as the vehicle changed. The configurability of the vehicle is going to be a really attractive part of their business. It's my statement to them: Don't get rid of your franchises.

What role will dealers play in a future of autonomous vehicles?

Imagine a dealer in the middle of the United States that's selling three pickups to a small plumbing company. In the future, the programmability of the vehicle and what that plumber needs, he's going to rely on the dealer for more counsel.

Now, what I've said to the dealers, before that freaks you out, think about the kind of service techs you have in the back today. This is no more complicated than that. Might even be easier, frankly, if we do a good job of making the vehicles ready-made for them. But the connectedness to their customers can't be any higher than that because they have to understand what they do with the vehicle.

[Some dealers have] created adjacent businesses where they outfit the vehicles for the particular kinds of applications their customers are putting in. That's the analog version. There's a software version of that. The folly here by lots of really intelligent people who think about distribution systems and the power of the Web to kind of make customers have faster access is to think that you don't need an arm, a distribution. That's just crazy. They're the closest to the customer, so you want to leverage that.

For me, their role will be bigger than it is today because the opportunity with the technology in the vehicle is unlike any time in history. So we can't even imagine what they'll be doing for their customers because they haven't had this capability. I'm really optimistic about that. There's two parts of the business that I worry least about. One is the role of dealers. I'm not worried at all about their future. And the second is labor in the factories.

Product development chief Hau Thai-Tang said the Mach-E will lead to 25 percent less labor input than a comparable gasoline vehicle. Should the UAW be worried that when you eventually start building EVs in the U.S. it will lead to fewer jobs?

Whether there's that much less labor, I don't know that to be accurate, because there may be other value that we're putting in the vehicles. I think the way the UAW and Ford negotiations went, which were really successful, is we've involved them in the evolution of our thinking here in terms of how we want to transition. So, yeah, if you take an old powertrain plant where 100 percent of the [gasoline] propulsion is coming through that now, one day it's 70 percent. One hundred percent won't go to EVs, I don't believe, for a long time. So we just have to size things. We just did this, with Romeo [Engine plant]. You know, we were helping people as we size the capacity of that back into the Ford industrial system, because the real success here is not having anybody lose their jobs, but being willing to transition as the portfolio transitions.

Vehicle prices keep rising, and loan terms are getting longer. With more technology and connectivity, how do you make sure people can buy cars—

We have a discipline in Ford Credit, so we're not doing the below-market kind of loans or what I call high probability of default. We don't have, in the portfolio, some of the stuff that you're reading about. We're actually different than some of our competitors there. Much more conservative. We've actually written the balance sheet down, which obliges the company less if there's any kind of recession. So I'm really happy with the Ford Credit situation. But the point of your question is, you know, trees don't grow to the sky, according to Warren Buffett. So the price of vehicles eventually starts to level off. And the way to fix that problem is what we call reductive design. We're beginning to look at things that customers don't use at all. And because they're connected, we can actually tell what they're not even interacting with in the vehicle and take content out. I'm really optimistic that the paradigm of everything just getting more expensive is actually going to get disrupted, fairly soon.