Ford Motor Company--the Next Ten Years

Head Table Guests

David A. Edmison, President, Martin Lucas & Seagram, Independent Investment Counsel and Past President, The Empire Club of Canada; Melissa Yuen, Senior Student, North Toronto Collegiate Institute; The Rev. Vic Reigel, Christ Church, Brampton; Tayce Wakefield, Vice-President, Corporate and Environmental Affairs, General Motors; Robert Lander, President and CEO, Stackpole Limited; Scott Vickers, President, Summit Ford; John C. Koopman, Partner, Heidrick & Struggles and 2nd Vice-President, The Empire Club of Canada; Catherine R. Charlton Yocom, MA, Co-ordinator, Pro Action Helping Cops help Kids and Past President, The Empire Club of Canada; Peggy Nash, Assistant to the President, CAW Canada; and Hugues Goisbault, Consul General of France.

Introduction by Bill Laidlaw

Many years ago I read the history of Ford. It has to be one of the more interesting books I have read. It detailed the life of Henry Ford and the history of the Ford Motor Company. Henry Ford was a man who changed the lives of people when he came up with the Model T and his technique of mass production.

The entire history of the company and the man are well displayed at the Henry Ford Museum in Dearborn, Michigan which I would encourage anyone to see if they have not been there.

The making of the Ford automobile as I have said changed our lives. The company worldwide is still one of the largest companies in the world.

It has been challenged by the Japanese automobile companies but it continues to hold its own with them and its other two major rivals--Daimler Chrysler and General Motors.

Ford today is not what it was yesterday when you add the likes of Jaguar and Volvo to its stable.

The company today is still one of the most exciting places to be in business and who has not owned a Ford in his or her lifetime? In Canada there is seldom a day when you do not pass a Ford plant, as I do every day in going to work past Oakville, see a Ford dealership, or read one of its advertisements.

Today the company is going through some challenging times as it has in the past. The challenges of the Firestone tire and increased competition are issues Ford has dealt with and is moving on.

The automobile industry and the associated parts manufacturers are extremely critical to our economic health in Ontario and in Canada. Without that economic input our economy would certainly be in trouble.

Today we are very fortunate to have as our guest, Mr. Alain Batty, the current President and CEO of Ford Canada. I have had the good fortune of hearing him speak before and we are very fortunate to have him as our guest today. Alain is the fourteenth President and CEO of Ford Canada.

He has held this position since April of 2001. An employee of Ford for 25 years, Alain has held many positions within the organisation and served in a number of marketing and sales functions.

Throughout the 80s and 90s he served as Managing Director of Ford Operations in Spain, Portugal, Belgium and Luxembourg. Prior to becoming President of Ford Canada, he was the President of Ford Russia and the Commonwealth of Independent States.

For the past few years Alain has been in charge of establishing Ford's commercial and manufacturing operations in Russia and the Commonwealth of Independent States. This includes the launch of one of Ford's biggest ventures to date--a US$150 million Ford Focus plant outside St. Petersburg. This venture makes Ford the first global automaker to have an assembly plant in Russia.

In 1995 he was appointed Executive Director of Ford's AsiaPacific and New Markets Region. Under his leadership, operations in Taiwan, New Zealand and Australia achieved record profits.

Alain was also an integral part of the development of an integrated service, sales and marketing organisation within the region, and successfully merged Ford's operations in New Zealand and Australia.

Alain holds a Bachelor's Degree in Administration and a Doctorate Degree in Strategy Planning.

He resides in Toronto with his wife, who is from Quebec, and their two children.

Alain Batty

Thank you, Bill. It is both an honour and a challenge to speak to such a distinguished group of members and guests, corporate leaders and business colleagues. Next Tuesday, April 2, marks the first anniversary of my appointment as President and CEO of Ford of Canada, and it has been quite a year.

For business and personal reasons, I am delighted to be back in Canada, where I lived while a business student in the 1970s. It was here that I met a young literature student, Ginette Audet, who became my wife. Her dad is 96 and still very strong, so we are glad to be back in Canada. When we got married, I told him I would look after her and then we disappeared, as you heard from Bill. It has taken 25 years for us to come "home"; I'm lucky she's a patient woman.

I have inherited a company with a proud Canadian heritage, a company that has continually worked to earn the loyalty of Canadian consumers for almost 100 years. We are a company whose investments and jobs have helped provide five generations of Canadians with one of the highest standards of living in the world. The automotive industry is tough. It is a very capital-intensive industry, with long lead times for product development in an environment where changes are accelerating, markets are fragmenting, and competition is always cost-cutting.

What are we doing today to make sure this 100-year old company is as vibrant for the next 100 years as it has been for the past 100? Just as Henry Ford wrote the rulebook for entrepreneurs in the last century, we are rewriting some important chapters that will guide entrepreneurs for the next 100 years.

First, let's see how we got where we are today. Last year, while we were dealing with a slowing Canadian economy, the U.S. economy decelerated much more quickly than anticipated--worsened by the unimaginable attacks in September.

In addition, not only are Canadian-U.S. exchange rates at historic lows, 20 cents in the last 10 years, but the world's currency exchange rates continue to favour some of our strongest competitors. And, as you can imagine, the zero-per-cent financing we put in place last fall to prop up sales also raised marketing costs significantly. We worked hard in 2001 to put some key fundamentals in place and we announced strong revitalisation plans in January. We made some difficult decisions and we'll continue to face challenges, but our momentum is building and I am cautiously optimistic. For the first three months of 2002, sales have been off to a great start, and Ford's market share is holding up well, but that's market share without quality revenue.

Although we see some improvement here, we have to be cautious because global businesses face global challenges beyond the economics of foreign exchange. After September 11, there was much speculation about difficulties transporting and exporting into the U.S. We had worries about crossing the borders because Ford of Canada exports about 80 per cent of what we build here--about $18 billion worth.

However, all borders are not man-made and guarded by immigration and customs officers. Although physically crossing the border with our products was actually less difficult than we expected it to be in the wake of the World Trade Center attacks, we increasingly find that doing business across our borders in 2001 is even more challenging because of economics, different market segments, currency exchange rates and trading policies.

Almost 20 years ago, the late Henry Ford II spoke to the Empire Club and his remarks centred on international trade and the challenges of creating free, but fair, trading policies. He spoke of the 1965 Canada-U.S. AutoPact fondly, as the "symbol of an enlightened approach to such concerns" and "one of the success stories of modern international co-operation." As we all know, Canada's most successful trade policy of the last 40 years has gone into the history books in February last year, taking with it the economies of scale that allowed us to reduce costs and increase quality. It is interesting to note that at the same time in 1967, Henry Ford was creating Ford of Europe by federating in one entity all the separate, splinter companies we had in all different countries. What a visionary, if you consider that Europe itself is still in the making today.

Our bosses, the customers, expect that we will continue to deliver the best products we can make at some of the lowest vehicle prices in the industrialised world--nearly 15 per cent lower than in the U.S. The challenge is that we have to balance the performance of the company with an ongoing commitment to our customers and still run a viable business. And while we must compete on a daily basis, we must put plans in place that emphasise long-term strength and stability in our business, help smooth out the peaks and valleys of a cyclical marketplace, which is key to our rebuilding strategy for the coming years.

In North America, our priorities are to rebuild the product pipeline, introducing an average of 20 new models per year through 2006 and leveraging our strong portfolio of brands--Ford and Lincoln-Mercury, Jaguar, Land Rover and Aston-Martin, Volvo and Mazda.

As we do this, we must also improve our quality, and we have specific action plans and targets to measure our success. The bar keeps moving up but we have plans in place to provide the necessary skills and resources to carry out our quality plan.

At the same time, we are also working to reduce costs and the full benefit of our cost-improvement efforts will take some time to realise. Competitive pressures, safety and emission actions and our strategy to improve customer satisfaction will result in margin pressure for the next several years. In addition, R&D expenses and capital expenditures for future products will further increase costs. However, by mid-decade, our margins are projected to be restored to healthy levels, resulting in strong profitability.

There is a lot of inertia in our business, so you have to work hard at various levels at the same time, knowing that the results will only be evident four or five years or more down the road. We are right now living through the business plans somebody else created five years ago; 10 or 15 years for some engine families, and more for heavier investments. The environment has changed, obviously.

Another key element is to right-size our manufacturing capacity. The thrust of our plan is to get to a more profitable and flexible manufacturing system that involves more conservative planning and increased model flexibility. We need to size our business appropriately and that means making difficult, but necessary, decisions that will realign capacity with the company's business structure and market conditions. World auto production capacity exceeds market demand by 22 million units--88 plants' worth of production. In North America, overcapacity accounts for six million of those 22 million units that won't be built because there are not enough consumers to go around. That means "lights out" permanently for 20 or more production plants in North America.

Why do we have so much excess production capacity? We are experts, with 100 years' experience. Are we stupid or are we just poor at doing the math? Well, the manufacturing systems that are in place today are very inflexible and have led to overcapacity. As a result, we have the capacity to build 5.7 million cars and trucks in North America, but we only need 4.8 million for an all-time record year.

This is the core issue we have to address for the long term. For Ford, this means closing or not identifying new products for seven plants in North America--one in Mexico, five in the U.S. and, regrettably, the single-shift Ontario Truck Plant in the 2004 model year. And after that, we have to introduce flexible manufacturing--that is to say being able to produce more than one platform in a plant. The first one will be the Rouge complex, with up to three different platforms and a much better capability to follow changing demand patterns.

Ford's Canadian operations could not expect immunity from the larger, North American restructuring. Ontario Truck Plant was particularly vulnerable in this regard. It operated on one shift for eight years, rare in the automotive industry. But, even after the truck plant closes, which won't happen before 2004, probably in the first quarter, Ford of Canada's share of North American production will remain about equal to what it is today, around 12 per cent of the total production volume.

The news isn't all doom and gloom, either. Three weeks ago, our joint-venture partner, Nemak, began work on a huge expansion of the Windsor Aluminum plant, bringing with it the promise of around 100 new jobs. Our Windsor operation is a global centre of excellence and the source of high-technology engines.

All in all, we have invested well over $8 billion in Canada since 1990 and have worldwide mandates for products from our St. Thomas plant where we are adding the 2003 Marauder to the line, and keeping the production rolling. Our Oakville plant is the single source for the Windstar minivan. Each of those plants has products planned for their future--products that will keep them up and running for many years to come.

Our plans also stress a strong commitment to future product actions and a strong commitment to buy components and do business in Canada. We are increasing our purchase of Canadian parts and components to about $7 billion by 2004 or 2005, up from $4.5 billion only months ago. We need help from our suppliers to find ways to reduce costs. And we are willing to split the savings 65/35 for your help.

In all, Ford operations employ more than 16,000 people in Canada. In addition, another 21,000 Canadians are employed in the 515 Ford and Ford-Lincoln dealerships located in all provinces and two territories. We have a dedicated team of dealers and employees who are 100 per cent behind us as we build momentum and move forward in the marketplace.

There's a bond people feel with Ford Motor Company that can't be duplicated at other companies. We're a family company, and as long as I've worked here--for those 25 years with my family, in virtually every corner of the globe--Ford has that family feel to it. With Henry Ford's great-grandson at the helm, we think there's tremendous leverage in trust. More and more people around the world want to do business with companies they trust. No matter the industry and no matter the product. Companies must offer quality products, value and put the customer first to earn this trust and be socially responsible companies.

That sense of commitment and responsibility--of family--in our community is crucial to who we are. Running facilities around the world, I have concluded that there are four key pillars on which our business is built. One of them is corporate citizenship. In Oakville, Windsor, Brampton, and St. Thomas, we have major operations and thousands of employees. We are very active in supporting community initiatives that improve the quality of life for our people, their families, friends and neighbours--our neighbours. Our employee volunteer programme encourages every salaried employee to spend up to two days each year, fully paid, working in some way toward a worthwhile cause. Last year, the response was tremendous and our employees donated more than 5,000 hours of their time to community service projects. We try to build rich and rewarding, long-term partnerships such as our major sponsorship role in the Run for the Cure and other causes we support, or with the United Way and the Juvenile Diabetes Research Foundation.

The second pillar also has to do with giving back in environmental leadership. That's why all of our facilities are certified to the tough ISO 14001 standards. We think that environmental stewardship is the basic price of admission. Even as we work to right-size our business, we're investing huge sums in future technologies, including Ford Motor Company's $600-million investment with Ballard Fuel Systems in British Colombia for hybrid electric vehicles and fuel cells. And you saw yesterday in the news that Ford donated 500 electric vehicles to be used in national parks throughout California. The donation represents the largest gift of alternatively fuelled vehicles ever made and we expect to have production models of both technologies on the road within just a few years.

The third pillar is about building relationships at all levels. To me there is nothing more important than creating a corporate environment that makes it possible for all our employees to bring their very best to work every day, and in return to be recognised for their accomplishments and their potential. Helping Ford become an employer of choice is a personal passion of mine, and is all about the family relationships. It is about building relationships at all levels--dealers, employees, and unions--and also with suppliers, the local community, government, business leaders like yourselves and journalists.

And finally, most important, is the focus on the customer--the fourth pillar. That's the most critical relationship of all. This is not easy because the customer is not your friend; the customer thinks for himself. A customer will reward you, but you can take nothing for granted. Every contact with your company must confirm to the customer that she or he made the right choice in choosing your product. It may sound trite, but if we always do what's right for the customer, the rest will follow. It's simple to say, but very demanding to put into practice. It is a balance, but in case of doubt, I always take the side of the customers. In my company, I am the advocate for our customers--dealers, fleet or retail customers. I feel strongly that I cannot delegate that responsibility. Now, allow me just 30 seconds of advertising.

Did you know Ford has been the top brand in Canada for 10 years and that in 2001, Ford remained the top-selling brand in Canada with three products among the top-10 selling vehicles in the country--Ford Focus, Windstar and FSeries. Our products dominate in key segments of the industry.

Explorer is the best selling SW in Canada, and Escape was a close second.

F-Series was the top-selling pickup in Canada for the 36th consecutive year.

Focus is the best selling car in the world and one of the top-10 sellers in Canada. Having a strong small car is key in Canada.

Mustang is the number-one small specialty car. Econoline is number-one full-size bus or van, and the new Thunderbird was named the Motor Trend Magazine "Car of the Year."

The list shows the tremendous vitality of our brands and, as I said, if we do the right things for the customers, they usually give it back to us in sales, volume and profits.

I am truly honoured to join the list of presidents of Ford of Canada to address your club going back some 50 years or more. I am impressed by your group and tried to share some of the insiders' views, as colleagues would do. I was interested to learn that the Empire Club has been providing a forum for diverse points of view since 1903, which was just one year before Henry Ford and Gordon McGregor began a venture that established the Canadian automobile industry as we know it today--Ford of Canada.

In about eight weeks, we will be moving Mr. McGregor's desk out of the lobby of our old building into our new headquarters in Oakville, before we implode the old Central Office Building. As soon as the new building is up and running we will be delighted to invite you all to stop by for a visit just like family and colleagues. We are very proud of the new building, and it will be a strong statement on the modern Ford motor and our readiness for the next 100 years.

It is perhaps a bit over-used to say that Ford is a part of the fabric of Canada. We are part of the family that is Canada. And I want to thank you again for the opportunity to be here and for your attention.

The appreciation of the meeting was expressed by Catherine R. Charlton Yocom, MA, Co-ordinator, Pro Action Helping Cops help Kids and Past President, The Empire Club of Canada.