Ford Cutting Cost by $14 Billion, Where’s It Going and What Are the Consequences?
It is pretty astonishing to believe Ford plans to cut $14 billion in cost within the next 5 years. They have set some high standards to be able to cut cost of this magnitude within half of a decade. As you could imagine these cuts would take around 3 years to show up on the bottom line. The biggest question of all is where is the cost going? Ford plans to invest in trucks and electric cars and cut spending from SUV and combustion engines. This is not a surprise considering the F-series has been the in the top 5 or 10 of most vehicles purchased in the US for numerous years in a row. In fact the F-series was ranked #1 in 2016 with 820,000 plus trucks bought that year alone. The vehicle in 2nd was the Chevy Silverado with “574,876” purchases, Dodge Ram in 3rd and the Toyota Camry in 4th.
This is pretty remarkable that the 3 most popular truck brands made top 3 in all sales. Clearly showing why ford is investing largely in to their truck line. Ford listed out the way it plans to make these cuts. “$10 billion will be cut from material cost and $4 billion from reduced engineering cost,” said the CEO Jim Hackett. These series of cuts are going to implemented by a series of different task. The first one is plans to shift the production of the Ford Focus from Michigan to China. China happens to be the largest car market in the world. Which is the other reason they are doing this is because combustion and electric car sales are up in China. Ford wants to revamp their China market to increase over sees sales. $500 Million of the cost will be cut from combustion engines and used to invest in electric cars. This will bring it to $5 billion now devoted to electric and hybrid vehicle development. Another huge way to cut cost is currently the Ford Fusion model has “35,000” combinations of different features, colors, etc. They plan to offer just “96 combinations” in the future will cut production time by over 20%.
Ford also has planned to analyze profitable operations in Europe and Latin American. Once they locate operation they feel comfortable with, they will want to partner up them. Allowing Ford to expanding their services and operations around the globe. This will allow them to open up more partner ships in all aspects of the company which will lead to further spreading of the cost and risks by developing new technology, materials, parts, and innovation.
Some experts are skeptic of this huge devotion to electric vehicles for numerous reason. First the “Oil Kings” are not going to lose their biggest money maker without a fight. Large companies already control the lithium battery production for electric/ hybrid cars. The biggest producers of lithium batteries are Australia. Then to top it off China and Afghanistan have the biggest lithium reserves in the world. This does not allow the Oil Kings much room to bargain or make a partnership. Instead the Oil Kings have now gone to laboratory for their answer. “Exxon Mobil’s collaborative research with Synthetic Genomics on producing biofuels,” has just made some huge head way. They have been genetically altering algae to turn it into bio oil. This can then be refined to gas. If this process works and comes to flourish. This will change our stance on energy and eliminate our dependence on other countries permanently.
If these Oil Kings can make this work it could possibly eliminate the need for electric vehicles or hybrids vehicles if we have an abundance of our own energy. If this becomes the case Ford will have invested a huge amount of money to electric and hybrid that will now become useless. Now some people ask about the environmental damage of combustion fuels. The one perk about algae based bio fuels is they will also cut CO2 emission by 68%. They also do not require digging or drilling to be refined into gas as well. This fuel can even be used for industrial purposes. Meaning it could literally take over and eliminate the use of fossil fuels and make a new way for bio fuels.
If a situation like this comes into play it could mean catastrophic results for the electric car lines across all brands. But if this bio fuel does not come to flourish, Ford would be ahead of a huge desire to the next “eco-friendly” alternative. Thus putting Ford on top of the number 1 producer of a new era of electric vehicles.
© 2017 Dan Benventano