The NADA convention is on in San Francisco. NADA's Auto Exec magazine sat with Ford chairman William Clay Ford, Jr., to talk about issues facing his company and dealers prior to the opening of the convention. Stay with TCC for more from NADA, and to get continuous coverage from the convention, click over to www.autoexecmag.com.
William Clay Ford, Jr., Ford Motor Co.’s chairman and CEO, has faced a litany of challenges since taking over the top job in late 2001 following Jacques Nasser’s ouster. But having served in many capacities since joining the company in 1979, the 45-year-old Ford brought a range of experience to a job that has admittedly been taxing for him. He will deliver a keynote address at the NADA convention on Saturday, February 1.
In an interview at Ford World Headquarters in Dearborn, Mich., late last year, Ford discussed key issues with AutoExec editor/publisher Marc H. Stertz.
AutoExec: What is your financial outlook for the company going into 2003?
William Clay Ford, Jr.: We’re in much better shape going into ’03 than we were going into ’02. We’ve got almost $26 billion in cash, which gives us tremendous flexibility to do whatever we need to do and whatever we want to do. We’re going to be profitable in ’02 (we certainly weren’t in ’01), and we expect ’03 to be better than ’02. We’re on our way in terms of the revitalization plan that we laid out in January . And I feel pretty good about where we are today, recognizing that we still have a long road ahead of us.
AutoExec: What about the pension costs?
Ford: Our pension issue relative to the competition is considerably smaller. And, with that cash core I just mentioned, we have the flexibility to address the pension issue really at any time. The one thing about the pension to keep in mind is the long-term obligation. We had always planned, when we laid out this plan back in January when we were overfunded, to make contributions in ’03 and ’04, and we’re still going to do that, so we feel the pension is very manageable and isn’t causing us a lot of concern.
AutoExec: Ford Credit sold $3 billion in consumer loans to Bear Stearns. Was that perceived as weakness by the financial markets?
Ford: No. As a matter of fact, our stock went up afterwards and our spreads tightened considerably. We had been playing primarily in the asset-backed market. To be able to package whole loans like that just opened up a new avenue for Ford Credit. Both the equity market and the bond market responded very favorably to that. Ford Credit is one of the really pleasant surprises that happened in ’02. When we took over in ’02, Ford Credit really had lost its focus. Carl Reichardt, who was head of Wells Fargo, came in and helped set the new direction.
AutoExec: Do you ever see corporate getting back into the subprime market?
Ford: It never totally got out of it. These things tend to ebb and flow, and it depends on how we develop these other avenues of financing and what the receptivity is to them. We really tightened up earlier in the year in terms of who we were financing, and the dealers were telling us that. There’s no question we bought too deeply before, tightened up too much–and now we’re trying to get the equilibrium.
AutoExec: Leasing hasn’t been so hot lately. Do you see that as a continuing trend? Do you see problems with the residuals?
Ford: We will never get away from leasing, and don’t want to. There’s quite a high loyalty rate that comes with things like Red Carpet leasing. Residuals are something we do have our eye on, but we factored that in at the beginning, so the residual rates haven’t surprised us on the downside. We’ve been very conservative in going into the leasing. Given the climate now with 0 percent financing available with purchase, it does pull a lot of customers away.
AutoExec: Zero percent incentives forever?
Ford: As long as we have overcapacity in this industry and as long as the North American market is perceived as the most profitable in the world, there is going to be real pressure, or, if you’re a customer, real opportunity depending on how you are looking at it. So I don’t anticipate a retail shift away from the incentive game. The customers like it and it’s up to us as manufacturers to figure out how we can survive and thrive in that atmosphere. To think that anyone of us is going to unilaterally change that I think is wrong.
AutoExec: Talk about product–you have new models in the pipeline, but not for a couple of years.
Ford: No, no, no. In 2002 alone we replaced every flagship brand in PAG [Premier Automotive Group]. Every PAG division has had its major product redone. Lincoln has redone almost its entire lineup. In ’03 we’ve got a lot coming, primarily the F-series.
AutoExec: Is Mercury here to stay?
Ford: Mercury came back under [Ford] North America in 2002. Importantly for dealers and customers, the Lincoln Mercury team came up with a product plan and business plan. Mercury was underinvested over the last few years and we are rectifying that.
AutoExec: Are you happy with Jag’s profitability?
Ford: We had growth targets that were too aggressive. Our appetite was bigger than we could handle, so we stumbled with Jag in ’02, but we should get back on track in ’03. It was an internal Ford issue. We had to sort that out.
AutoExec: What’s your outlook with Volvo?
Ford: Volvo is probably the brand with the clearest identity in the marketplace. Customers know exactly what a Volvo is and what to expect from a Volvo. The dealers know exactly what Volvo stands for. That kind of clarity is something that was built up over many, many years. They stalled a bit at the beginning of 2002 in North America. We changed the management around and refocused on North America and it came back nicely the last half of the year.
AutoExec: What’s your message to your dealers?
Ford: Several things. Ford, Lincoln Mercury, thank you for getting us through 2002. We have an incredibly strong distribution network, and they really came through for us in ’02 when we had a lot of skeptics watching the company. Ford dealers were coming off the Explorer and they had to deal with all of that. Lincoln Mercury was coming off an uncertain time in terms of where their future was headed. But both Ford and Lincoln Mercury dealers really pulled through for us and so it will be a thank you. I think the dialogue is very good, the level of honesty has been terrific. Even when you have something like Blue Oval, which is a difficult topic, we had a very good dialogue and very good cooperation. I feel very good about the relationship building that has gone on the past year. That will be something that may be the focus of my NADA speech.
AutoExec: Did you really want this job?
Ford: No, but I feel I had to take it and I’m glad I did because there’s satisfaction in starting to see this place getting back into the kind of shape it needs to be. We’re one year into a five-year plan, and we’re not where we ultimately need to be, but we are making progress and I really feel very good about that.