Ford to Focus on High-Growth Areas, Cost Cutting -- Update

Ford Motor Co. will shift about $7 billion toward the development of more trucks and sport-utility vehicles while "attacking" costs, part of new Chief Executive Jim Hackett's strategic plan for the No. 2 U.S. auto maker.

Mr. Hackett, the former office-furniture executive appointed in May, is scheduled to outline his strategy to investors and analysts in New York late Tuesday. He plans to emphasize speedier action to deploy capital in fast-growth regions and product lines while positioning the auto maker for a future of electric vehicles and connected, automated cars, according to a summary provided by Ford.

Moving capital investment to higher-margin trucks and SUVs is a response to fast-shifting consumer tastes in the U.S. market and abroad, as buyers abandon sedans for vehicles with greater utility and space. Part of the $7 billion capital reallocation includes reintroducing the Ranger pickup truck and Bronco SUV in North America and moving production of its next-generation Focus small car to China, plans that were previously disclosed.

Ford also will shift about one-third of its scheduled investment in gas and diesel engines into cars that run fully or partly on battery power. That will come on top of $4.5 billion the company plans to spend through 2020 to expand its electric-vehicle lineup.

"Capital will be allocated to regions, products and services with highest potential for growth and return," Ford said in a statement. Rival General Motors Co. won investor praise over the past few years for exiting Europe, India and other unprofitable markets while accelerating investment into potentially higher-growth areas.

Ford appointed Mr. Hackett to succeed Mark Fields, who was ousted in the spring amid a downtrodden share price and belief inside and outside the company that the auto maker lacked a clear vision. Mr. Hackett spent four months studying aspects of Ford's business to devise the plan.

The 62-year-old, who emphasized smart design during his long tenure running Michigan-based Steelcase Inc., wants to slash costs by modernizing and simplifying Ford's vehicle lineup, factories and product-development process. The company aims to cut material costs by $10 billion and engineering costs by another $4 billion over five years.

"The decision to change is not easy," Mr. Hackett said in a statement. "Ultimately, though, we must accept the virtues that brought us success over the past century are really no guarantee of future success."

Ford also reaffirmed 2017 financial guidance it gave in July and said it would provide a new 2018 forecast in January. It previously had said it expects to grow pretax profits in 2018.

Write to Mike Colias at Mike.Colias@wsj.com

Mr. Hackett, the former office-furniture executive appointed in May, outlined his strategy to investors and analysts in New York late Tuesday. He emphasized faster action to deploy capital in regions and product lines with solid growth potential while positioning the auto maker for a future of electric vehicles and connected and driverless cars.

Moving capital investment to higher-margin trucks and SUVs is a response to fast-shifting consumer tastes in the U.S. market and abroad, as buyers abandon sedans for vehicles with greater utility and space. Part of the $7 billion capital reallocation includes reintroducing the Ranger pickup truck and Bronco SUV in North America and moving production of the next-generation Focus small car to China, plans that were previously disclosed.

Ford also said it would shift about one-third of its scheduled investment in gas and diesel engines over the next five years -- about $500 million a year -- into cars that run fully or partly on battery power. That will come on top of $4.5 billion the company is spending over five years to expand its electric-vehicle lineup.

The Dearborn, Mich.-based auto maker appointed Mr. Hackett to succeed Mark Fields, who was ousted in the spring amid a downtrodden share price and belief inside and outside the company that the auto maker lacked a clear vision. Mr. Hackett spent four months studying aspects of Ford's business to devise the plan.

The 62-year-old is out to prove to Wall Street that Ford has a plan to take on Tesla Inc. in electric cars and deep-pocketed tech giants like Google's Waymo unit in driverless technology while also fending hard-charging traditional rivals like GM, which many analysts believe has a lead in advanced technology. Ford is investing $1 billion in startup Argo AI to develop autonomous-driving technology, which executives said is on track for commercial deployment by 2021.

Mr. Hackett, who emphasized smart design during his long tenure running Michigan-based Steelcase Inc., wants to slash costs by modernizing and simplifying Ford's vehicle lineup, factories and product-development process. The company aims to cut material costs by $10 billion and engineering costs by another $4 billion over five years.

"Ford will prepare for disruption by becoming fit" in operations and capital allocation, Mr. Hackett told investors. That should give Ford "the time, resources and flexibility to evolve," he said.

Executives said they would move quickly to shore up low-margin or unprofitable parts of the business, as GM has done in recent years by exiting Europe, India and other money-losing markets. Ford Global Markets Chief Jim Farley said the company will be "looking very carefully at the actions we have to take" in South America and Europe, including potential partnerships in those regions.

Ford also reaffirmed 2017 financial guidance it gave in July and said it would provide a new 2018 forecast in January. It previously had said it expected to grow pretax profits in 2018.

On its vehicle lineup, Ford plans to "double down" on its F series line of pickup trucks, Mr. Farley said. The trucks already fuel the bulk of Ford's global profits. The company also wants to build on its U.S. lead in commercial vehicles, such as cargo vans and large service trucks, Mr. Farley said.

Ford will add new SUVs across global markets, including more rugged, off-road entries in the U.S. -- where Fiat Chrysler Automobiles NV's Jeep brand now dominates that category -- as well as larger SUVs in China and other developing markets. Ford won't to walk away from small cars in the U.S., as FCA has done, but it will pursue more-profitable niche segments, such as sportier versions of the Focus, executives said.

Overall capital spending -- previously pegged between $8 billion and $9 billion annually through 2020 -- won't increase and could decline from that level as those dollars are spent more efficiently, Ford said.

Write to Mike Colias at Mike.Colias@wsj.com

(END) Dow Jones Newswires

October 03, 2017 20:11 ET (00:11 GMT)