BILL FORD, SPEECH AT EUROPE INTERNATIONAL AUTOMOTIVE ROUNDTABLE, PARIS

SEPT. 25, 2002

When I first got this invitation to come here this morning I was very pleased to do so, but more than that when Dave Power and Keith Crain are putting a group together to talk about our industry, you better be there.

What I’d like to do this morning is to share my perspective on the opportunities and challenges that are facing our industry, particularly in today's business environment.

Ford Motor Company has been in business nearly 100 years, I've worked there 23 years, and I've been CEO for almost a year. As you might expect, I’m going to use examples from Ford as I talk about how our industry is developing.

Our Company turns 100 next year, specifically on June 16th, and that makes us roughly the same age as the automobile industry itself. We are using our centennial to celebrate our past, better understand the present, and, most importantly, anticipate where we’re going in the future.

In our fast-paced world and the way that we’re changing our industry, no one can afford to live in the past. But to fully grasp where we're going, we need to take a quick glance in the rearview mirror. I'll start there, and then look at the road we're on and the road ahead.

I think it’s fair to say that no other industry transformed people’s lives more than the automobile industry did in the last century. We provided personal transportation. We really defined where people chose to live, where they chose to work and where they chose to play. In addition to providing this kind of freedom and mobility and frankly the sheer fun of driving, we created the jobs and wealth that laid the foundation for our modern standard of living.

That capacity to create jobs and wealth is as relevant today as it was 100 years ago.

A few years ago our industry was dismissed as an old economy dinosaur, and now it is being hailed, particularly in the United States, as the driving force that sustained the world's free markets in the wake of the September 11 attacks.

Meanwhile, the dot.coms that were going to rewrite the rules of business really proved that the old rules still applied – particularly the ones that say you must have paying customers and profits if you want to stay in business.

Global competition and technical innovation were hallmarks really from almost the start for our industry. For example, Ford sold cars in Britain in late 1903, only six months after it was founded; and opened its first overseas sales branch right here in Paris in 1908. We established our first national sales company and first overseas assembly plant in Britain in 1911.

And in 1967 Henry Ford II championed the formation of Ford of Europe, which really was a pan-European organization that brilliantly anticipated what was going to happen in the late 20th century.

Today, there are more than 100 automobile manufacturers spread around the globe, in various forms of partnership, ownership, and independence. Last year, these manufacturers had the capacity to build about 75 million vehicles, but only about 50 million were produced and sold.

These numbers are projected to increase by the end of the decade, but the relative difference between the two will stay roughly the same.

The difference between what we can sell and what we can build, and the law of supply and demand, tell us that the automobile industry is going to remain a fiercely competitive global business for the foreseeable future.

Let's look at another ongoing trend that’s happening right now with deep historical roots.

At the same time that our industry was establishing itself as a global presence, it also was setting a pattern of rapid and continuous innovation. From the moment that Karl Benz patented the first automobile in 1886, the race has been on to bring new technical advances into the marketplace.

It's hard to actually predict where the technology will take us next. Even as basic a question as what will power future automobiles is difficult to answer. Obviously the potential of hybrid electric and fuel cells is compelling, and they’ve been getting huge amounts of publicity in recent years.

But the internal combustion engine has stood the test of time, and has evolved into an extremely clean, efficient, and inexpensive power source. It continues to be improved, and emissions are now approaching zero in some designs.

All the automakers are eager to demonstrate to customers and regulators in North America what you already know here in Europe – that today's diesel engines can be clean, inexpensive and a compelling way to attack the CO2 problem.

The only prediction that we can make with certainty about future technologies coming on stream is going to happen faster. It took the automobile 55 years after it was introduced before it was being used by one-quarter of the population. The personal computer took 16 years. The Internet only took seven.

The next breakthrough in automotive technology will undoubtedly arrive faster; and could well be from an area nobody predicts.

When that happens, the slow and the weak will be left behind.

Clearly, global competition and technical innovation will continue to drive the industry in the coming years and beyond.

In addition, a more recent and growing force –that of corporate governance – will also will have a major impact on the auto industry. Within the last year companies in every sector of the economy have come under attack because of the misconduct of a few corporations and a few corporate leaders outside our industry.

The silver lining in all this, though, is that it’s accelerated the trend toward transparency and greater accountability, which I think is actually a very encouraging development.

The free enterprise system has taken a beating in the last year. But despite the criticism that the system has undergone, it is still the best way to foster competition and innovation, and that ultimately improves productivity and creates wealth. And it helps raise our standard of living.

The growing demand for greater corporate governance will empower consumers and shareholders of this century very important ways. As they learn more about corporations, their knowledge will become power, and their trust ultimately will be restored. Without the trust being restored, we can’t re-embark on the growth mode that we have been in as an industry.

Trust in our free enterprise has to be solid and it must be concrete. If we don’t have it, our whole enterprise system is at stake, and our future as an industry is at stake. I think the automobile industry is to be commended for how rapidly we’ve responded to this corporate governance issue. Fortunately I think our companies have been in many ways models for what’s right in the free enterprise system. But we have to continue along this trend and reestablish confidence as a company, as an industry and as an economy. If we do that we will continue to transform our business into a growth industry

In China, for example, the auto market is expected to nearly double to four million vehicles by 2010. By 2020, there could be 1.1 billion vehicles on the road worldwide, which is nearly 50% more than in the year 2000.

Now all of the automakers have a road map that they hope will allow them to capitalize on these emerging demographic trends. At Ford, our road to the future started this past January with our revitalization plan.

Here in Europe, you should be familiar with the plan because it is very similar to the European Transformation Strategy that put our operations here back on a winning track.

As you know we’ve brought our top two executives from Europe back to North America, Nick Scheele and David Thursfield. They’re now operating on a global scale with the knowledge that the actions they’re taking have a proven record here in Europe. They who developed the strategy here in Europe, where our turnaround plan continues to gain momentum.

We're on track to deliver 45 new products in five years, as we promised. We've brought 15 to market last year. This year we’re going to deliver another 14, and we will replenish more than a third of our volume in this calendar year.

And with the launch of the three-door Fiesta here in Paris, fresh on the heels of our Transit Connect, we complete the replacement of all our core car and truck products here in Europe.

By the way, we're also launching our expanded Ka range, including the StreetKa roadster, which is one of the cutest vehicles you will ever see. It’s going to be on the stand here at the show—it’s unbelievable. And from the minute you see this vehicle, you’re going to fall in love with it. It’s really one of a kind and I think we’ve undercalled our volumes and I’ve told our Ford of Europe people that yesterday when I was reviewing our operations. I said, ‘’How many do you have planned?’’ And as soon as they told me, I said ‘’Double it.’’ Because this thing is going to be a smash hit.

We’re also going to introduce our new flagship, the Jaguar X; also the first true performance Volvos, S60 R and V70 R; and the Mazda2, which will be built here in Europe.

We've seen significant customer quality increases here – in fact, our customer satisfaction here in Europe is the highest ever.

Our market share is also up slightly here in Europe year-to-date, even though we actually are in a transitional launch year and our industry is down nearly five percent.

Costs have continued to come down, and that trend will continue as we increase the focus on flexible manufacturing and product commonality.

To sum all this up, Ford of Europe will be profitable this year. But more important is the point that we are moving toward a model of sustainable profitability. Europe is once again an asset of growing importance and profitability to Ford Motor Company.

Our plans to revitalize our company here and around the world recognize a simple and timeless truth – that to be successful in our business, you have to make great automobiles. The best products win – period.

In North America our plans to improve quality, lower costs, and deliver great products is gaining traction, and there's been a real Ford resurgence.

Ford had the biggest improvement of any domestic manufacturer in the last J.D. Power Initial Quality Study. We were up 12 percent. Over the last year, we've improved our Things-Gone-Wrong on current models by about 14 percent.

The number of safety recalls we've had is down 64 percent compared to last year, and the number of vehicles affected by safety recalls is down 80 percent.

Importantly our cost reduction efforts have really gained momentum in the last couple of months. We're getting significant savings now starting to flow through the system, particularly in material costs. And, importantly, we expect to make a profit in the third quarter.

We beat market analysts' estimates in the first quarter. We’ve beaten them in the second, and we’re going to beat them in the third. We plan to increase production in the U.S. in the fourth quarter, and drive even harder to lower our costs.

We said at the beginning of the year that, due to added product content, our actual overall cost would go up this year before going back down in ‘03. But we are offsetting a lot of these cost increases in other areas and we’re actually going to cut our overall costs, our non-product costs by $2 billion this year.

We've made a good start, but we've got a way to go. And we can't afford to lose our sense of urgency. Our plans gain momentum over the next several years as we introduce new products and upgrade our assembly plants to be more flexible and lean.

As I said, our plan is centered on products. If you look back at our 100-year history, great products have made us what we are, and they‘re going to take us where we're going.

We have a strong product line in the market today. In Europe our product line is the best it’s ever been. The awards we’re getting and the write-ups we’re getting are the best I’ve ever seen in my almost 25 years in the business. The Ford of Europe resurgence, which has been product-led, has been just fantastic. If you believe, as I’ve just said, that products are ultimately going to take you to where you’re going, then I feel very, very confident and secure in Ford of Europe’s future. As I said a minute ago, our U.S. share has stabilized. And for the last few months importantly our retail share has been trending upwards.

Last month we set a record for August sales in the U.S. Our overall sales were up 12 percent. Explorer had the best month for any SUV ever. And Land Rover and Jaguar led all brands in the U.S. with sales increases of 65 and 62 percent, respectively.

We've still got several key products coming this year, Lincoln Aviator and LS in North America, the Land Rover Discovery, the Jaguar XK and the Volvo Cross-Country 90. Next year, we have a redesign for the world's best-selling truck, the F-Series.

All of this is part of the biggest wave of new products in our history.

In addition to the 45 new products that we announced for Europe in a five year period, we will be introducing 20 new products annually in North America. Our premium brands will have 20 major new models in the next five years. And Mazda will introduce 36 new products in three years.

We also are taking advantage of the massive changeover needed for this new wave of products to bring all of our manufacturing systems up to new levels of quality and flexibility. That gives us a remarkably rapid timetable and a very tough work schedule for our company.

By mid-decade, all of our European and about half of all our North American assembly plants will have fully flexible body shops. During this same time period, we’ll also work to standardize and commonize our operations.

The bottom line for us is that this transformation will cut waste, and improve quality and efficiency. It will allow our plants to change the mix of products within existing capacity, and convert new products with minimal investment and changeover costs. We will be lean and flexible.

Again, the plan that we’ve put into place in Europe is really leading the way for what we’re going to be doing around the world and particularly in North America. I think in time, every manufacturer is going to solve the cost and quality problem. Those who don't will frankly just be out of business. But there's no doubt that we’re going to have to move beyond that, all of us, if we’re to be competitive.

The winners are going to be those who give their customers the highest quality and value. Automobiles will have to be technically advanced, aesthetically pleasing, socially responsible, and functional. And most of all they’re going to have to still remain fun.

In short, it will be business as usual – except that everything will change.

As we enter our centennial year, Ford Motor Company's goal is to have an even greater impact on people's lives in our second hundred years than we did in our first.

Considering our accomplishments so far – which helped put the world on wheels by mass-producing simple and reliable automobiles – that is an ambitious goal. But our heritage, and the fiercely competitive nature of our business, make aspiring to anything less than that unacceptable.

In the 20th century automobiles provided personal mobility to the average person, and really launched the modern era. In the 21st century, global competition and advances in technology will create new markets and better automobiles.

That will enable more people around the world to enjoy the freedom and prosperity that individual mobility brings. That’s the best way to honor our past and secure our future.

That is exactly what we intend to do. Thank you very much.