Ford CEO outlines plan to aggressively cut costs, funneling savings to electric, self-driving cars

Key Points
  • Ford CEO says automaker will shift focus to most valuable products, trucks and SUVs, and shift away from less valuable areas like cars.
  • The automaker will target aggressive cost cuts to help fund the development of electric and autonomous-drive vehicles.
  • Ford is aiming for $10 billion in materials cost cuts over the next five years.
  • Ford will cut $4 billion in engineering expenses over the same time period, while slashing development time for new vehicles by 20 percent.
Ford: Cut material costs by $10 million
Ford: Cut material costs by $10 million

The Blue Oval is getting a makeover.

Ford CEO Jim Hackett and his leadership team are steering the automaker to drive greater profits on its most valuable products, trucks and SUVs, while turning away from less valuable areas like cars. At the same time, Ford plans to aggressively cut costs while investing more resources on electric and autonomous-drive vehicles.

"When you're a long-lived company that has had success over multiple decades, the decision to change is not easy — culturally or operationally," Hackett said. "Ultimately, though, we must accept the virtues that brought us success over the past century are really no guarantee of future success."

Hackett devised his plan for transforming Ford after using most of his first 100 days at the helm to evaluate what works and what doesn't. The result is a substantial push to shift gears at a company that has a history of being slow to change.

More trucks and SUVs, fewer cars

Ford plans to reallocate about $7 billion to increased development and production of trucks and SUVs, while de-emphasizing less profitable cars and sedans.

Ford is not getting out of the car business altogether, but it will no longer be an automaker that pushes cars as heavily as it has in the past.

Instead, Ford will emphasize trucks and SUVs, an area of strength and big profits, especially when compared with its competitors. This year, 76 percent of Ford's sales in the U.S. are trucks and SUVs.

Charging up EVs

Like other automakers, Ford is going electric.

Over the next five years, it will redeploy money into its program for developing and building electric vehicles while cutting capital expenditures for internal combustion engines by one-third.

Ford sees the writing on the wall, especially in many foreign markets where governments are de-emphasizing or moving to ban gasoline-powered vehicles. This move is critical since Ford has lagged competitors when it comes to developing EVs.

A much leaner Blue Oval

Ford is moving quickly to cut expenditures, including a $10 billion reduction in material costs over the next five years. That means slashing the complexity and content in many of the vehicles it builds.

For example, the number of combinations a customer can order for the next-generation Ford Escape will go from about 35,000 to 96.

Meanwhile, the automaker is targeting a $4 billion reduction in engineering expenses over the next five years while cutting how long it takes to develop a new vehicle by 20 percent.

Hackett's plan comes at a critical time for Ford as other automakers and tech companies are quickly rewriting the rules for the auto industry. While Ford has been investing in future mobility systems and new technologies, Hackett realizes his company must move even faster.

"We believe Ford will achieve its competitive advantage by focusing deeply on our customers — whether they're drivers, riders or cities — and that's where we are playing to win," Hackett said.

Ford hired Hackett, in part, to boost its lagging share price. The automaker's stock inched higher in trading after the market's close Tuesday. The shares are up about 1.7 percent in the year-to-date period.

The company plans it issue a financial outlook for next year in January, but reaffirmed its previous forecast for 2017.

WATCH: Ford sales up 8.7% vs. 4.7% estimated

Ford September US sales up 8.7% vs. 4.7% est.
Ford September US sales up 8.7% vs. 4.7% est.