TBY talks to Gabriel M. López, President of Ford Mexico, on preparing for the crisis, the “One Ford” program, and potential in the hybrid and electric auto segment.
TBY What strategies did Ford Mexico implemented during the recent global economic crisis?
GABRIEL M. LÓPEZ The reason why Ford didn’t ask for support in terms of cash grants was because we had already raised enough funds to confront the storm by the time the crisis hit the US. We knew that something was coming; the economy was spiraling downward in many countries, not just in the US. We predicted that there would be a slowdown in the market, and that a major restructuring would be required. In 2006-2007 we raised enough money to resize our company and survive the crisis. Fortunately, we choose the correct strategy and obtained the results we were expecting. We had excess capacity, particularly in the US. Therefore, we decided to shut down some plants. This action took place during 2007 and 2008. In total we shut down 16 plants in the US. As you can imagine, that required a lot of negotiations with the trade unions. We had to renegotiate our contract with the United Auto Workers (UAW) union. The UAW recognized that restructuring was required in order to survive. The conclusion we obtained from this was that it is better to have a smaller company than a bankrupt company. We put together the right plan that we shared with our stakeholders, and we managed to come back earlier and stronger than our two key competitors in the US, GM and Chrysler. Our competitors had a harder time in obtaining money and support from the government, and make key decisions with their stakeholders. It was painful and difficult, but we gained market share in the US.
What are the key elements of the “One Ford” initiative, and how is its implementation influencing your growth path?
The plan is rather simple. When we restructured the company, we put together a five-year business plan. We set a series of intermediate goals for the period. We were rather conservative in our economic assumptions, and we created a very strong product plan. Through One Ford, we’ll have a global team making decisions and plans. We have one goal for everybody. Our team is looking for automotive leadership based on customer, dealer, shareholder, and employee satisfaction. The team goes beyond the boundaries and limits for the company. The plan is also very simple: restructure the company to a size that can deal with the realities of the industry, make the company buyable, accelerate the development of new products, and raise the funds required to finance the restructuring of the company. We also have a set of values that conducts the way we behave and do business.
Ford in Mexico has registered consistent growth over recent quarters. What market segments are driving this growth?
We report as a region and as a company. In our reports, Mexico is included as a part of North America—besides this, there are three other regions around the world. We also have a consolidated report. We were expecting to repeat this growth in the fourth quarter of 2011, despite the difficulties that we were facing toward the end of that year, especially in Europe. In Mexico, we have been fairly stable over the past three years. We have restructured the company in order to operate more profitably. Most of the investment in Mexico has been dedicated to producing vehicles more efficiently, and meeting world-class standards in terms of safety, fuel efficiency, and design. In 2008, we announced an investment program worth $5 billion, which this year is about to come to an end. It was based on increasing the capacity of the Hermosillo plant, the launch of the 2009 Fusion model, and a complete revamping of Cuautitlán, a plant to the north of Mexico City. Vehicles that are exported to other countries across the Americas are built at our Cuautitlán assembly facility. We completely restored the plant and installed new systems and equipment. It’s almost completely new, even though it has been open for 50 years now. We produce 32 vehicles per hour, in two shifts, which cover 16 hours a day. Hermosillo almost doubles that capacity. It can produce 58 vehicles per hour over three shifts, six days a week. In 2011 Hermosillo produced approximately 320,000 units, and we are planning to increase production to between 345,000 and 350,000 units in 2012. This plant is the largest in Mexico, and it produces primarily for the US market. In 2009, we also built a second engine plant in Chihuahua, which we opened in 2009. Nowadays, we have two plants there that produce diesel engines.
Why has Mexico become such a successful base for production?
One factor is labor quality. Mexicans are very well educated, and it is very easy to get high-quality labor to operate the plants. A second factor is that labor costs are very competitive. As a result, Hermosillo has been used as a business model for the new plants that are being constructed by the company around the globe. We are building several plants in Asia, and a couple more in India and China. They will be built in the same manner as the one in Hermosillo, where the Fusion model is produced and has become one of the most successful vehicles in the US.
How is Ford’s vehicle financing program assisting your sales?
In 2009 we signed an agreement with BBVA Bancomer, and it performs all our vehicle financing. In terms of credit assistance, we operate a wholesale financing arrangement with our dealers. This is an alliance we have been running for a little over a year. Financing as a percentage of total sales is growing, although not at the speed we would like it to. This has nothing to do with our ambitions or performance, but has more to do with the way the market is structured. Many things have to happen in order for the market to achieve a financing rate of 80%-90%, like in Brazil, the US, or Europe. It has to do with the level of access to banking services for both industry and the population.
What is your outlook for the development of the hybrid and electric vehicle segment?
Making our operations sustainable is key for our future. We need to fight global warming, and we should support the efforts that governments around the world are making. We also believe that there will be important purchasing decisions to be made in some markets, but we know that not all markets are the same. Some will take longer to make these decisions, depending on the level of sophistication, purchasing power, and income. Unfortunately, new technologies are not cheap. In 2010 the entire world produced 75 million vehicles, out of which just 1 million were hybrid or electric. Imagine the difference in economies of scale; we know how to produce a conventional vehicle cheaply, but we don’t know how to produce an affordable hybrid. Until the scale of production grows, it will take a while before we can offer a competitive cost. That’s why we have dedicated so much money and resources to improving the fuel efficiency and emission levels of conventional vehicles. We can do a lot more for the environment by simultaneously investing in hybrid technology and greener engines. It will be a while before hybrid and electric vehicles take a higher portion of vehicle sales.
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