Ford Chairman's Report to Shareholders
14 May 1998
Ford Chairman's Report to Shareholders
CINCINNATI, May 14 -- The following are remarks, as prepared
for delivery, by Alex Trotman, chairman of the board and chief executive
officer, Ford Motor Company , at the company's annual meeting for
shareholders on May 14, 1998, at the Westin Hotel in Cincinnati, Ohio.
I'd like to spend a few minutes reviewing our first-quarter results, our
long-term strategy, and the steps we're taking to ensure our success in the
21st century.
Let's talk about the first three months of 1998 because I think they're
reflective of where we're going. It was another good quarter for Ford.
The company's first-quarter earnings were a record $1.7 billion, up
15 percent from the same period in 1997. This was the eighth consecutive
quarter we improved our financial performance. Our automotive net cash was a
record $13.1 billion.
We reduced total automotive costs by $400 million at constant volume and
mix. Internal measures indicate our quality continued to improve. We expect
this to be reflected in the J.D. Power and Associates Initial Quality Survey
that will be issued next month.
Last month, we completed the spin-off of The Associates. This marked the
end of a successful nine-year partnership and began a new era for both
companies. It demonstrates our commitment to delivering superior shareholder
value.
When we distributed almost $27 billion in The Associates stock and cash,
in essence we gave our shareholders the value of a company that is roughly the
size of Colgate Palmolive or Merrill Lynch. You may recall, Ford purchased
The Associates in 1989 for $3.3 billion.
The spin-off reflects our confidence in Ford's long-term strategy and in
the earnings power of the company's automotive and automotive-related
operations. This is where we intend to focus our efforts. It is our strength
and our heritage. And it will be the source of our future profits and cash
flow.
We face many challenges, although that is nothing new. This is a tough,
competitive business. In North America, the competition continues to heat up,
keeping strong pressure on pricing and driving up marketing costs.
The business environment is even more intense in Europe, where there's an
estimated six million units of overcapacity.
In South America, industry sales are down about 20 percent as a result of
austerity measures implemented by the Brazilian government in 1997's fourth
quarter. And we continue to watch very closely the economic turmoil in Asia.
Outside North America and Europe, we're taking a balanced approach to
growing our business. As we enter new growth markets such as China, Vietnam
and Belarus, we're tailoring our investments to what makes sense for each
area. And we're finding strong local partners who can help us establish a
presence quickly and better understand local customer needs.
Overall, we have the right long-term strategy. Let's spend a few minutes
reviewing our plan.
Some of you who are regulars at this meeting may think that this is the
boring part of the report because we've been saying it over and over. And
we're going to keep repeating it. The only thing that changes are the
results. They keep getting better.
In 1995, we launched the largest reengineering effort ever undertaken by
any company. We called our new strategy Ford 2000. We began to radically
change our mindset and our company with one goal in mind: to become the
world's leading automaker -- as defined by you -- our shareholders, our
customers and our employees.
The thrust has been on reengineering the four core processes of our
automotive business -- product development, manufacturing, vehicle ordering
and distribution, and after-sales service. The end goal is delivering maximum
value and quality to our customers. We call it The Ford 2000 Enterprise
Model.
By the way, it's interesting that much of the rationale for the
DaimlerChrysler merger looks an awful lot like Ford 2000.
We're also working hard to deliver shareholder value by sharpening the
focus of our automotive-related businesses. Last year we completed an initial
public offering of 19.1 percent of The Hertz Corporation. Hertz reported its
sixth consecutive year of record earnings in 1997. We're targeting a seventh
year for 1998.
We reorganized our components operations into a separate enterprise now
called Visteon Automotive Systems. Our goal is to improve its competitiveness
and increase its non-Ford business. To prove that it means business, Visteon
will disclose its financial results for the first time next week.
And Ford Credit continues to support our global automotive operations. In
the last two years, it has extended its reach around the world from 24
countries to 35. Ford Credit is the world's largest provider of automotive
financing and the world leader in the number of new vehicles financed.
Change is the only constant we know at Ford. We recognize that to achieve
our vision we must keep improving. We must be leaner, faster and more
competitive. We must reduce duplication, increase efficiency, spread best
practices and improve economy of scale. We must keep a sharp focus on
quality, cost and speed in everything we do.
By creating the greatest value for our customers at the lowest cost to
Ford, we'll increase our company's value to shareholders.
If this sounds familiar, it should. For the past four years, I've been
explaining our approach to anyone who will listen.
It will still be a few more years before the full benefits of this massive
change are realized. But we're very encouraged by our progress. Let me share
a few examples.
One major step we've taken is developing an integrated global product
plan. We're leveraging our global platforms like never before.
Ford's F-Series -- America's favorite vehicle for the past 16 years --
shares a platform and a high percentage of common parts with two other top
sellers, Ford Expedition and Lincoln Navigator.
Seven vehicles -- including a pickup truck, van, and our very popular
compacts Ka and Puma -- are produced off the Fiesta platform.
One of our newest models is Ford Focus. Unveiled in Europe in March and
arriving in the U.S. next year, Focus also will share its platform with
several new vehicles still to come.
The F-Series, Fiesta, and Focus platforms each will account for annual
sales of more than one million vehicles. Together, these three platforms will
carry about half of Ford's worldwide volume. By producing a variety of
distinct derivatives from fewer high-volume platforms we get tremendous
economy of scale.
We're continuing to strengthen our lineup by going the extra mile to
surprise and delight our customers.
The Lincoln LS6 and LS8 luxury sport sedans, unveiled at the New York Auto
Show last month, mark Lincoln's first entry into the largest and fastest
growing segment of the luxury market. Eventually they will be sold in some 30
markets around the world. Look for them in U.S. showrooms early next year.
Mercury Cougar went on sale last week. It's our first North American
application of New Edge design, and the first of our models to offer optional
side air-bag technology.
The new 1999 Ford Windstar -- which is making its debut here today -- is
the first and only minivan to offer dual power sliding doors. It's designed
and engineered to maintain its highest federal crash test rating -- five
stars. Windstar has many other exclusive features, including a sonar sensing
system to warn you if you are backing up and something is behind you. Look
for the '99 Windstar in showrooms this October.
Mercury Villager also will get a fourth door. And speaking of extra
doors, when it comes to trucks, we have plenty of them! Ford will be the
first automaker to offer a full range of four-door extended cab trucks. We
call it the "12 door strategy," four doors on three models -- Super Duty,
F-Series and Ranger.
In the future, providing vehicles that are environmentally friendly will
become increasingly important. Ford intends to lead the drive.
It would take the whole day to tell you about all of Ford's environmental,
safety and social initiatives. To get a better idea of the many positive
steps we're taking and the people making it happen, I hope you'll look at the
corporate citizenship report included in your information packet. You are the
first to receive it. The stories you'll read about a few individuals at Ford
will give you a good feel for the thousands of Ford employees who are working
on and off the job to make this a better world.
We feel so strongly about this that we've established a senior management
advisory board to oversee our corporate citizenship activities on a more
strategic and integrated basis.
Let me tell you about several of our more recent environmental actions.
Ford is committed to finding real solutions that work for the environment.
Not only is it the right thing to do, we think it will give us a competitive
advantage.
Our 1998 environmental initiatives are aimed at developing cleaner
vehicles, lowering emissions, improving fuel economy, expanding recycling, and
community outreach programs. Ford already offers the broadest range of
alternative fuel vehicles, including the latest newcomer to the Ford
alternative vehicle fleet -- the natural gas-powered Ford Expedition.
In fact, last month we announced a special incentive program to encourage
taxi fleet owners to buy natural gas-powered Ford Crown Victoria taxicabs.
We're offering them a year's supply of free fuel. The idea is to get a
substantial number of natural gas taxis on the streets of New York City as
soon as possible. More than 2,600 tons of pollution would be eliminated every
year if the city's 12,000 medallion cabs were operated on natural gas.
This move, alone, would reduce air pollution in central Manhattan by
30 percent. We've sold 100 so far with this new program.
We're making inroads in Atlanta and Detroit, too. About half of Atlanta's
Checker Cab fleet of 150 vehicles are natural gas Crown Victorias. And
Airlines Parking in Detroit -- the largest airport shuttle fleet in the U.S.
-- uses Ford Econoline vans powered by natural gas.
Last month, Ford also was recognized by the Gas Research Institute for its
strong marketing strategy and significant advances in natural gas technology.
We've had a very busy first quarter on the environmental front. In
January, Ford announced that all our sport utility vehicles and the Ford
Windstar minivan will be sold nationally as Low Emission Vehicles starting
with the 1999 model year. That's one in every five vehicles Ford sells in the
U.S. We think these vehicles will be the greenest gasoline-powered sport
utilities or minivans available nationwide -- as clean as most cars now on the
road.
Earlier this year, we launched the electric Ford Ranger EV with a national
purchase incentive of $5,000. Ford has established a nationwide network of 44
dealers in 12 states who will sell, service and repair these vehicles.
This year, we also unveiled Ford's P2000 prototype. It weighs nearly
40 percent less than today's family car and gets 63 miles per gallon. Through
the P2000 project, we plan to develop a number of ultra-lightweight research
vehicles that achieve very high fuel efficiency and very low emission levels.
We're working to develop marketable vehicles powered by fuel cells by the
year 2004 with Daimler-Benz and Ballard Power Systems. And complementing this
alliance is a new joint effort with Mobil Corporation to improve fuel economy
and cut vehicle emissions with breakthrough technologies in fuels and fuel
systems.
Technology is changing the world. It's changing Ford, too. Today, it's
at the heart of everything we do. While five years ago very few people had
even heard of the internet, now more than 100 million are on line, and net
traffic is doubling every 100 days. Ford's web sites worldwide get
4.5 million hits each day. In the time it will take me to deliver this
speech, we'll get more than 90,000 hits.
We're now using the internet to establish even more direct links with our
shareholders. This year, for the first time, you could vote your shares via
the internet or by telephone. You can also read our annual report on-line.
Look for even more connections in the future.
Internally at Ford, technology is having a tremendous impact. Our
intranet connects some 120,000 workstations at offices and factories around
the world. It houses thousands of Ford web sites with such proprietary
information as market research, competitive analysis and best practices. We
communicate through this so that all employees know what we're doing to
improve shareholder value, customer value and social value.
Our product development system, for example, documents thousands of steps
in manufacturing, assembly and testing. It's updated hourly and lets
engineers, designers and suppliers work from the same data simultaneously.
Every vehicle has a web site where team members can post questions and
progress reports, note bottlenecks and resolve quality issues quickly.
Sharing information like this has helped the company reduce the time it takes
to get new models into production from about 36 months to 24. It's helped
save millions of dollars while at the same time improving quality.
But it's the people behind this technology who are really making a
difference. For example, four engineers in Advanced Vehicle Technology
designed a computer-aided engineering program to predict the high-mileage
durability of an entire vehicle -- down to its smallest parts.
Previous methods could only test small sections of a vehicle at once.
Under the old system, it took about seven months and $1 million to test a
complete vehicle. The new process takes less than a day and costs under
$1,500.
Innovations like these will keep us on the leading edge of technology and
communications.
By the way, we are very busy preparing our computer systems for the Year
2000 -- Y2K -- and we expect to complete the needed changes this year. This
will give us time to make sure we're ready for the 21st century.
This is an exciting time to be a part of Ford and it's an exciting time to
own a piece of Ford.
Since January 1995, we've been reengineering our automotive business and
sharpening our focus on our core strengths. And it's paying off.
Last month Ford received an award from Morgan Stanley Dean Witter as the
best performing domestic automotive stock for 1997. That same night, we also
received the J.D. Power and Associates Chairman's Award, along with the UAW,
for the teamwork that has resulted in vehicle quality improvement. I was
pleased that UAW President Steve Yokich joined me in New York for the
ceremony.
We're very proud of both accomplishments. They're recognition of our
intense efforts on behalf of our customers and shareholders.
Our total return to shareholders was 57 percent for the 1997 calendar
year. And since our last annual meeting, Ford's total return has been more
than 100 percent.
The good news is there's more improvement to come. As I see it, we're
only about half way through our reengineering efforts. And as we continue to
improve, both our customers and our shareholders will be well rewarded.
On behalf of the Ford Board of Directors, I'd like to thank all of our
outstanding employees for their hard work to make our company the very best it
can be. I'd like to thank the city of Cincinnati for being a most gracious
host. And I'd like to thank you, Ford Motor Company's shareholders, for your
loyal support.
Our goal is to continue to improve shareholder value, continue to give our
customers the very best value, and continue to work to improve the world
around us. That's our goal and we are determined to achieve it every single
day.
SOURCE Ford Motor Company