Ford Has Strong Fundamentals, Focus and Momentum, Chairman Tells Shareholders
31 March 1998
Ford Has Strong Fundamentals, Focus and Momentum, Chairman Tells Shareholders
DEARBORN, Mich., March 30 -- In his annual letter to
shareholders, Ford Chairman and CEO Alex Trotman writes that Ford's efforts to
transform itself into a company that consistently delivers value to customers
and shareholders is starting to pay off.
"It will be a few more years until the full benefits of this massive
change are realized. But the results so far have encouraged us to drive these
changes faster and farther," Trotman writes in the company's 1997 Annual
Report. "We've accelerated our search for ingenious new ways to exceed
customer and shareholder expectations."
In 1997, for the first time ever, Ford publicly announced
financial goals for its automotive business and exceeded every one. New
milestones have been set for 1998. In 1997, the company earned $6.9 billion,
the most any automotive company has ever earned in a year, and reduced its
total costs by $3 billion at constant volume and mix -- the first time in
Ford's history that total costs have declined from the prior year.
Ford also strengthened its balance sheet, achieved its best-ever quality,
reorganized its components operations into a separate group, completed an
initial public offering of 19.1 percent of The Hertz Corporation, announced
the spin-off of Associates First Capital Corporation to Ford shareholders and
increased the quarterly common and Class B stock dividend. Investors
recognized the company's results and Ford stock delivered a 57 percent total
return.
The theme of the annual report is "Delivering Value." Ford's 1997
accomplishments, new products and initiatives in the areas of the environment,
safety, community relations, emerging markets and teamwork are explored in
detail with an emphasis on explaining how each adds to customer and
shareholder value.
"The Ford 1997 Annual Report is designed to be a true investors' tool. We
have striven to create a document that provides insight into the biggest
corporate reengineering in history, and our firm commitment to earning the
loyalty of our customers and shareholders," Trotman said.
The 1997 Ford Annual Report is being mailed to shareholders on March 30.
Ford's 1998 Annual Meeting of Shareholders will be held at 10 a.m. (EDT),
Thursday, May 14, 1998, at the Westin Hotel, 21 East Fifth St., Cincinnati,
Ohio. Notice of the Annual Meeting, a Proxy Statement and voting card will be
mailed to shareholders in advance of the meeting.
For the first time, Ford shareholders will be able to vote their shares
via the internet, or by telephone. Voting instructions will be detailed in
the proxy mailing.
The full text of Alex Trotman's letter to shareholders follows:
TO OUR SHAREHOLDERS
Delivering value.
That's what Ford is all about.
How do we do it?
A shared vision of success. Customer focus. Publicly stated goals to
measure our progress. And a lot of hard work.
Four years ago, in my first message to you, I outlined where the Ford team
wanted to go. I said we were committed to earning your loyalty. By being a
successful business over the long term. By building value. By providing a
good return.
In my messages since then, I've described our efforts to transform
ourselves into a company that consistently delivers value. To our customers
and shareholders.
Those efforts are paying off.
In 1997, Ford earned $6.9 billion -- the most any automotive company has
ever earned in a year. We built our strongest balance sheet ever, including
record year end cash of $20.8 billion. Ford stock provided a total return to
shareholders of 57 percent.
WHAT WE DID
We achieved these results by focusing on improving the fundamentals of our
automotive operations to serve our customers. We made the biggest improvement
in initial vehicle quality of any manufacturer. Our quality is the best it's
ever been. Our Atlanta Assembly Plant, which makes Ford Taurus and Mercury
Sable, was ranked by J. D. Power and Associates as the automobile factory with
the highest initial quality in the world in a tie among plants producing
vehicles for the United States.
We made substantial progress on restructuring our business and taking
costs out of our processes. We discontinued low-volume, low-profit vehicles
-- Aerostar, Aspire, Thunderbird, Cougar, Probe. We sold our heavy truck
operations. We reduced excess car capacity, and added capacity for our best-
selling light trucks.
We worked hard to deliver superior shareholder value. We increased your
dividend. We completed an initial public offering of 19.1 percent of The
Hertz Corporation. We reorganized our components operations into a separate
group -- Visteon Automotive Systems -- to improve its competitiveness and
increase its non-Ford business. We decided to spin off our 80.7 percent
interest in The Associates to Ford shareholders.
In 1997, for the first time ever, we publicly announced financial goals
for our automotive business. In North America, we targeted a return on sales
of four percent. In Europe, breakeven. In South America, a reduction in
losses compared with 1996. We said we'd reduce total automotive costs by
$1 billion at constant volume and mix. And reduce capital spending as a
percentage of revenue.
We exceeded all these goals.
Our North American return on sales was 5.1 percent. We earned a profit of
$273 million in Europe, and $40 million in South America. Our total costs
were down from the prior year for the first time in our history -- by
$3 billion. And we reduced our capital spending by $67 million -- nearly half
a point as a percentage of revenue.
WHAT WE'RE DOING
In 1995, in response to the hypercompetitive global market that we saw
emerging, we began reprocessing our worldwide operations. We transformed our
automotive business into a single, globally integrated team. Our goal was to
have all of our functional and regional activities working together and fully
leveraged on behalf of our customers -- eliminating duplication, sharing best
practices and creating global economy of scale.
It will be a few more years until the full benefits of this massive change
are realized. But the results so far have encouraged us to drive these
changes faster and farther. We've accelerated our search for ingenious new
ways to exceed customer -- and shareholder -- expectations.
For example, the new Mercury Cougar has a unique New Edge design to help
it attract younger buyers and differentiate the Mercury brand. But Cougar was
developed under the guidelines of our new value-driven global business
structure. It's based on the Mondeo/Contour/Mystique platform and shares
about 70 percent of its components with those vehicles. That makes it a very
cost-effective investment.
The highly successful Lincoln Navigator is another example of a
breakthrough vehicle, designed to attract new buyers and redefine its brand,
that was developed in a cost-efficient way. Navigator shares a common
platform and components with F-150 and Expedition. Look for more creative
thinking from Lincoln Mercury when it moves to California in 1998, becoming
the first domestic car division located outside Detroit.
We're also looking for new ways to grow our business outside North America
and Europe. To do that, we find strong local partners to help us understand
local customers and enter new markets quickly. In 1997 we built an assembly
plant in Thailand and began new manufacturing operations in Belarus, China and
Vietnam.
Ford Credit, the world's largest provider of automotive financing, has
moved into these new markets along with our automotive operations, sometimes
leading the way. In 1997, it opened offices in the Czech Republic and
Hungary. Ford Credit now has operations in 35 countries, and is the world
leader in the number of new vehicles financed.
Ford has leadership in the sale of alternative fuel vehicles -- AFVs.
Ford accounted for 95 percent of the AFVs sold in North America in the 1997
model year. We offer the broadest line of AFVs of any manufacturer, selling
12 vehicle lines powered by natural gas, propane, alcohol fuels or
electricity.
We're working with Daimler-Benz and Ballard Power Systems to develop
components and systems for fuel-cell-powered cars and trucks. We view fuel
cells as one of the most important technologies for the early 21st century.
We've been working on this technology for many years, and think a
collaborative effort can accelerate the commercial viability of fuel cell
vehicles.
We're also working with the United States government in the Partnership
for a New Generation of Vehicles project, whose goal is to put affordable,
high-fuel-efficiency vehicles on the road as soon as possible.
We believe it's important to be at the forefront of alternative fuel
vehicle development, wherever the most effective technology leads us. We want
to be a world leader in all of our environmental efforts. Not only is it the
right thing to do -- we think it will give us a competitive advantage.
We've announced that, starting with the 1999 model year, all of our sport
utility vehicles will be low-emission vehicles, as clean as our new cars.
They already meet all key U.S. safety standards required for passenger cars.
We will, along with the other major automakers, produce cars with
70 percent lower emissions -- in the Northeastern U.S. by 1999 and nationally
by 2001. These improvements will be cost effective for Ford because our new
engine families are already extremely clean and efficient.
We also are making sure that our production facilities have a minimal
impact on the environment. Ford was the first large company anywhere in the
world to commit globally to ISO 14001 certification, the international
environmental management system standard. ISO 14001 covers all the
environmental efforts of a factory, including energy use, water treatment,
waste disposal, noise levels and air quality. A total of 30 Ford sites are
now ISO-certified -- more than all other automakers combined.
Our Bridgend Engine Plant in the United Kingdom has just begun operating
the largest solar power installation at any manufacturing site in Europe.
Over a 30-year period its solar panels -- which cover an area larger than five
football fields -- will reduce the amount of carbon dioxide emitted at the
plant by more than 4,000 tons.
WHAT TO EXPECT
The short-term economic outlook is fairly positive. We expect the
automotive industry to have another solid year in North America and Europe,
with vehicle sales about the same as last year. Industry sales are expected
to be down in South America and Asia. But Ford's operations in these markets
-- while growing rapidly and vitally important to our future -- are still a
relatively small percentage of our overall business.
Longer term, the industry outlook is more challenging. The emerging
global market I've described in previous messages to shareholders will grow
increasingly competitive. Overcapacity of 40 percent or more in the
automotive industry will put even more pressure on costs and pricing. The
industry shakeout -- with mergers, acquisitions and outright failures -- will
continue.
Ford will emerge from this period of consolidation as a world leader,
stronger than ever. We have new processes, great products and a strong team
to continue our momentum into the future.
We're systematically improving quality by using new information technology
to understand customer concerns more quickly and spread best practices around
the world more rapidly. We have a comprehensive approach to lowering costs.
It focuses on reengineering processes to reduce costs and add value.
We have worldwide truck leadership. The F-Series, which celebrated its
50th anniversary in 1997, has been the best-selling vehicle in North America
for 16 years in a row.
We have great automotive brands to leverage -- Ford, Lincoln, Mercury,
Jaguar and Aston Martin. Our integrated worldwide product development plan
now also includes Mazda. We're only just beginning to see the benefits of
platform rationalization, complexity reduction and global component sourcing
from the plan. Many more exciting new cars and trucks are on the way,
developed from start to finish using cost-efficient, high-value processes.
Last year, we tied executive compensation directly to quality, and saw
substantial improvement. This year, we've added automotive return on sales
and Ford Credit return on equity objectives to the incentive compensation
plan. We believe this will better focus our efforts to deliver value to our
shareholders.
We've publicly stated financial goals for our automotive business once
again in 1998. And we've added goals for our automotive-related businesses.
For our automotive business, we're targeting a five percent return on
sales in North America, profitability in Europe and a breakeven position in
South America. A reduction in total costs from 1997 of $1 billion, at
constant volume and mix. And a reduction in capital spending.
Our target for Ford Credit is after tax earnings growth of more than
10 percent. And for Hertz, record earnings.
Difficult targets. But we know that sustaining our success over time is
the key to delivering shareholder value. We have to keep setting tough
targets and hitting them.
The fundamentals of our business are strong. We have a clear focus and
momentum. Best of all, we have the Ford team.
The Ford team -- employees, unions, dealers and suppliers -- understands
what it takes to succeed in a fiercely competitive global market. They know
what it takes to deliver.
They're successfully undertaking the biggest corporate reengineering in
history. They're finding ingenious new ways to give customers exactly what
they want, and working on what customers never dreamed they could have.
Moving the world. Delivering great value. That's Ford Motor Company.
Better cars. Better trucks. Better ideas. Driven by you.
Alex Trotman
Chairman of the Board
March 12, 1998
SOURCE Ford Motor Company