Ford’s Kumar Galhotra talks potential for cost-cutting, ICE development

Executives have said Ford has a cost disadvantage of about $7 billion compared to its rivals. What steps are you taking to cut costs?

Our cost is uncompetitive. We have to reduce both our physical costs as well as our structural costs. I mentioned how good our portfolio is, and you can see our per-vehicle revenue within the segment for our key products, but our costs should be down. We are adopting a multipronged approach. Let’s talk about contribution cost, which is bill-of-material cost. We’re benchmarking a lot of our competition and working with our suppliers to reduce that portion of our costs.

One of the ideas I just reviewed was changing the material spec on our front rails, mounts and exhaust manifolds – things like that. They are small thoughts but they add up. Those three ideas alone saved nearly $30 million. The team found a cable that was needed to pull vehicles through an assembly line that was separate between one of our truck plants and another. Removing just that cable and making some adjustments to the building system saved $11 million a year. We’ve come up with ideas that will reduce the material cost bill by over half a billion dollars this year, which is substantial but not enough. We’ll continue to work on that side of the business.

Then there are structural costs, anything that isn’t related to a specific vehicle rolling off the assembly line. We are attacking all those areas. For example, last year we lost almost all of our margin just from storing, moving around and moving unfinished vehicles, which is very significant. That’s why we’re removing that garbage.

In the coming months, we’re going to reduce the number of orderable combinations on the F-150 to a magnitude we’ve never seen before. Less complexity means fewer parts. From one model year to the next, we’re taking about 2,400 parts out of the F-150. This means fewer parts to engineer, test and manage quality. Let me give you another example. In Explorer, we have 500 different harnesses. We are going to reduce to less than 20 in the next few months.

Did you achieve what you had last year in terms of buyouts and layoffs or could we see more layoffs this year, particularly in North America?

We are going through a transformation as an industry and as a company that we haven’t seen in decades, and certainly not in my career. And the skill sets we need for the future are changing rapidly for a number of reasons. Software has become more important than ever for vehicles. Obviously, people are working on battery technology and motors and inverters. We need them more than before because there are more BEVs in the cycle. So if you take all the forces that are changing our industry, that skill mix has to shift. And that skill mix shift doesn’t happen in a quarter or a specific year. So it’s going to be an ongoing phenomenon for us and for the rest of the industry. As a company changes, there will be an ongoing mix shift that we will have to make. Unfortunately there will be some skills that the company doesn’t need. And only then we have to say goodbye to some of our comrades.

How do you make sure that the humanitarian approach doesn’t hurt morale?

From a human perspective, this is an extremely challenging situation. Retraining is one way we can do that. But some of these skills are so unique that retraining isn’t always possible. This is a potential lever for working through this transition. The second is helping them find other positions, other jobs. So in the past and even now, we’ve been thinking a lot about how to make that change in a different situation or a different company or a different industry. But in the end it is a very difficult thing to do. And there will be a transition and some people will not be part of the future. Today we have an extremely talented workforce. But the workforce skill mix will continue to change, and we will do our best to make the transition as smooth as possible for the employees who leave and the employees who stay with us.

uav Contract talks are on this year. New uav chair Has called companies like Ford “the one true enemy”. What is your reaction?

We’ve had great relationships with the UAW and other unions around the world. We value our employees. They are part of the Ford family. We will do what is right for the employees. We will work together with the union. What we won’t do is do things that will make us uncompetitive because in the long term, an uncompetitive company is at risk and everybody loses. We are a company that employs more UAV workers than anyone else in America. We export more vehicles from the US to other countries than anyone else. We make about 80 percent, maybe even more than 80 percent, of the vehicles that we sell in the United States in the United States, and that position comes with a cost. Our competitors have not chosen that path, but we have because we believe that the American workforce and the American industrial base are important to us.