Ford Motor Company (F) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Ford Media Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Mr. Mark Truby. Please go ahead, sir.

Okay. Thank you, Tammy, and thank you to everybody for joining the call this morning. Welcome. Obviously, most of you have probably seen our news release. But if not, just go to media.ford.com and you can pull it down from there. Today, we're going to have 3 speakers: Executive Chairman, Bill Ford; President and CEO, Jim Hackett; and our Chief Operating Officer, Jim Farley. After their remarks, we'll open it up for Q&A. We're going to be able to spend about 30 minutes total on the call. So as soon as we're done with the speakers, we'll open it up the -- for the Q&A. And with that, I'd like to turn it over to Bill Ford for some -- go ahead, please, Bill.

Mark, thank you, and good morning, everyone, and thank you for joining us. Today is an important day for Ford. 3 years ago, I introduced Jim Hackett as our new CEO. And I asked Jim to help modernize Ford and to begin the transformation that would radically change our company. But I also asked him on his very first day, if he would help me get the next generation ready. So you all know, Jim didn't need this job. He had a very successful series of careers prior to this. But he loved Ford, and he wanted to help. And he took on a huge challenge, and I'm so glad that he did. We have lots of work ahead of us to really complete our mission. But thanks to Jim, we are a very different company today than we were 3 years ago. He revamped our product lineup by cutting losing models, and we launched new groundbreaking products like the last 3 that we've introduced, the Mach-E, the new F-150 and the Bronco. We now have a compelling electric vehicle plan, and we're really well positioned in the AV space. We've established partnerships globally with VW, Mahindra and Rivian. And our brand image is rising across the world. And we are finally tackling underperforming global markets. And I'm especially grateful to Jim for his leadership during the COVID crisis. He moved us very quickly to protect our business and then he stepped up to help our country in a time of need. You all know Jim, and you know that he'd never sought credit. And it's my belief that he still doesn't get enough for taking on the tough issues and slaying the sacred cows that he has. He cared more about Ford's reputation than his own. And Jim has been an incredible partner, and I thank him for his brave leadership and also for his friendship. Well, I mentioned just a minute ago that I asked Jim to help me get the next generation of leadership ready. And so he set out to build a strong team and then to identify his successor. Well, in doing so, he first asked Jim Farley to run Ford's global markets and then dive into what we then called Auto 2.0 by running mobility and strategy groups. And finally, he asked Jim to become our COO. So Jim and Jim have worked side-by-side for the past 3 years. And as you saw in the release today, I'm announcing that effective October 1, Jim Farley will be our new CEO and President. And Jim and Jim will work closely on the transition over the next 2 months. And that's something that I'm very pleased with because it will be seamless because these guys have worked together so closely for the last 3 years. Jim Farley joined us 13 years ago, giving up a great career at Toyota. And he came really to help at that time to save Ford in a very different circumstance. And during the financial crisis, he was one of our very key players, and he did it because Ford runs deep in his family. He cares about this company, and he cares about the employees of our company and our company's image. Jim is a car guy through and through. You all know that. And it's his passion, and it's his love. And he can found, and as you know, he can be found on weekends, often at racetracks, racing his vintage cars, and it's his joy. But as deep as his passion is for cars and racing, his passion for our company is even deeper. And it's important, too, to understand that Jim is perhaps the singular executive who understands the integration of technology and autos. And he understands how profoundly technology is shaping our future. He's intensely competitive. But I watched him developed into a transformational leader with the values, and he's always had the values to lead Ford Motor Company into the future. I mentioned how much Jim Hackett loves Ford and how Jim responded in the COVID crisis. Jim Farley is the exact same way. He deeply loves Ford. And he also, during the COVID crisis, leapt in immediately and said, "How can we help our communities and our country?" So nothing makes me happier than to have a smooth transition. We have that now. This is something that we've been planning for some time. And it seemed like the right time coming out of the second quarter where we performed much better than I think the world thought we would. We set the stage with great new product introductions. And I think it really serves, therefore, as the right time to make this move and to let Jim Hackett have a well-deserved break and to elevate Jim Farley into this job. And with that, I'd like to turn it over to Jim Hackett.

Thank you, Bill. To the listeners today, from a distance, when I was running Steelcase, I saw William Clay Ford as one of the most inspirational leaders in the country in his day, talking about how you can make an industrial company sustainable, environmentally responsible. People that know my background, my father was a leader in agriculture in this area. And I hadn't really heard of a business leader other than my dad until I met Bill that thought the way he did. When I got a chance to join the Board, I jumped at it because it meant that I got to work closely with Bill. And then when Bill asked me to take on the CEO roll, well, I asked him to think about the question of, was I really the right fit? Because I was going to come at the business differently than others have. I came from outside the industry. I was going to bring new frames in a new perspective. He said, "That's what we need. I really would like you to do it." I knew that would test the patience of our stakeholders. Now I was okay with this because I had done this once before, and the -- I saw how the narrative plays out. Getting the product right in our case, connecting the vehicles, bringing the technology in, addressing unfit parts of the business, that's hard to deal with. We had to reduce bureaucracy, but I think as important was rekindling innovation. There's so much talent here at Ford Motor Company, so many inventions that have come from this place that could we withstand some static in the short term to build the company in the way we, the 3 of us, Bill, Jim and I believe it would be destined to be? So I aimed for moving ahead versus just moving fast. Could we aim for a longer arc kind of reward? And in this case, with 3 years, it takes kind of fundamentally to get new products to market, you're starting to see the fruits of our labor. With the Mustang Mach-E launch last November, and I mentioned this in the analyst call last week, I just test drove one of the early-build models. It wasn't supposed to be as fit as it was at this stage. It's ahead of plan. And then, of course, the Bronco, where we announced that our reservations are over 100,000. We know that the work that we've labored over and the approach that we've taken actually has potential to be really a great Ford Motor Company. And so I asked myself, essentially, when is the right time to retire? Because when Bill asked me to do this, I knew that I was in -- responsible for finding a longer-term solution for the company. And it presented itself in Jim Farley. When I first took over as CEO, I asked him to work closely with me on the product strategies. We made some significant decisions in the earliest days that were quite controversial, like getting out of the Sedan business was a difficult question. But as you see the Bronco success, it's being built in one of the factories where one of the Sedans that was unprofitable is yielding now way to the Bronco. Jim's grasp of the products is legendary. When he did work in a previous company, Toyota, he started a brand from scratch, was part of the Lexus launch and the Tundra pickup. So he's got a history and product, and that really matters in this industry in a very, very important way. And then he had some things to learn. And he jumped in with both feet. Over a year ago, we asked him to step out of the market's role and to look at technology for its disruptive potential. We've actually created some alliances that we haven't announced yet under Jim's leadership. We've started to really get our act together around the autonomous vehicle development with the alliance with VW. And I then witnessed as Bill and I kind of -- with great awe, the way Jim dug in with the pandemic. You see, a company like Ford has so much fixed cost with the factories. And when you turn those off, there's almost no way to avoid the kind of losses that we were likely to face. And Jim dug in with a really incredible team, and we were able to carve back a lot of the losses in very short time, which is a statement to his management prowess and his grasp of the business. He has an encyclopedic recall of what's going on in our company. In this way, we partnered really well together. And I think it bodes well for our transition to October because we really love working together around these kinds of topics. Jim has grown tremendously in the 3 years that we've been working together. And it just hit me probably in the spring, if you asked the question, "When is the right time to retire?" And I said, "We ought to do it now because the wind in our sails is really starting to pick up." Jim had a big role in that and I can feel confident that the things I was asked to do have actually started to take root. So I'm really pleased to announce and introduce to you today as Bill -- as our next President and CEO in October, Jim Farley. Jim, I'll turn it over to you.

Thank you, Jim, and thanks, Bill. Like so many, Ford Motor gave my family and opportunity. My grandfather, Emmet Tracy, first walked into Highland Park back in 1913, and we have found a better place as a family in our life, thanks to the Ford family. As Bill mentioned, Ford has endured for 117 years because our values are timeless. The courage to bet the farm on a big idea like building The Rouge or a new silhouette like Mustang or the integrity to provide equal opportunity to African-Americans and other minorities during the great migration. The desire to lift the standards of millions of working people who are depending on our commercial vehicles to get their job done. The strength to weather the 2007 crisis without a government bailout. The vision to restore a once-great train station to reinvent the future of transportation and be a positive symbol for the city we love, Detroit, and enough independence to battle COVID, as Jim and Bill mentioned, without ever being asked. My unbridled enthusiasm and humility in being asked to lead Ford at this time is rooted in the desire to serve our customers, our team and most of all, these values. To go forward, thank you for entrusting me to help you ensure Ford keeps changing the lives for the better for the next generation and far beyond. It's been over a decade, almost to the day that I joined Ford, and I've watched you lead with integrity, vision, courage. And I've never known a leader who cares more deeply about others than you do. I'm especially grateful to Jim Hackett for his leadership and partnership. Jim brought ambition and optimism to Ford, recognizing that we don't have to cede the future to anyone, but also challenging each of us with the reality that we were not moving boldly enough. He also helped Ford rekindle its connection with the customer, and we're now in a more curious and less insular culture today, thanks to Jim Hackett. He has laid a solid foundation for a vibrant future. We know our competition today, it's Amazon, Baidu, Tesla, Apple, Toyota and others. They're well financed and voracious companies, and I'm inspired by the positive momentum that we're now building. It's not our history that made the Bronco great. It was a small team of people who are obsessed with creating an insanely cool product and awesome experiences for a group of customers that our team love. So here's how I see it. Our mission is to improve the lives of our customers, and with our products and services, they can't simply live without. We will do this by honoring Ford's values from taking personal accountability to strength and never-give-up attitude. And step one is to execute our fix and accelerate priorities. That means: 10% margin in North America; immediate material and warranty cost improvements; restructuring our underperforming businesses; maximizing our commercial vehicle business opportunities; move to a large-scale connectivity for quality and internal value-creation for the new F-150 and the MACH-E that we're about to launch; and the best-in-class execution of our upcoming North America launches. And to fulfill our mission, we need to swing for the fences, just like we did when we built The Rouge, to grow and expand where we are already strong, like the transition of battery electrics for the commercial vehicle business to make software and infrastructure equal to our physical products, to expand our affordable lineup and also services and to take our AV technology in the market to bring down the cost of moving. I'm humbled to be selected to lead Ford Motor Company. Your relationship is very important to me and to Ford. As we continue our journey, we will keep you informed and keep you close. Thank you.

Thank you Jim, Jim and Bill. Tammy, could you just quickly repeat the instructions so the journalists can ask a question? And then we'll get started.

[Operator Instructions] Your first question comes from the line of Mike Martinez with Automotive News.

This one is for Jim Farley. Jim, I know your 2 predecessors have tried and failed to increase the stock price. I'm just wondering if that's top of mind for you. And if you feel that you will be the one who'll be able to raise it.

Mike. I think it's you, Mike, but we couldn't really hear your question. So I'm sure it was a great one, but maybe if we can get the line cleared a little bit clearer. If you could kindly repeat your question, that would be great. Thanks, Mike.

I apologize, guys. I was just going to ask Jim if you felt you could be the one to finally raise Ford's stock price and whether or not that was a top goal for you.

Yes. It's really hard to hear Mike, Jim Farley. But the question was related to how you feel about the prospects for Ford to raise the stock price and reward shareholders.

Well, Mike, my goal -- our goal as a team is for a smooth transition. Nothing changes. We're very optimistic about North America's performance improvement with the launches and cost work that we're doing. And as I said, as the growth initiatives come more in the focus for Ford, like commercial vehicle battery electric transition, we are so optimistic about the company. So I'm really excited to get going and dig in.

Your next question comes from the line of Matt DeBord with Business Insider.

Congratulations, Jim. Congratulations, Jim. But just a very quick question for both Jim Hackett and Jim Farley. Gentlemen, one of the important initiatives that Jim Hackett undertook at Ford was to redesign the company and to transform the culture there around the whole idea of thinking in a design way about how the company is -- this company is structured. So I'd like to know from both Jims, if you intend to continue that initiative. From where I sit, that's had a very transformational impact on Ford's culture, possibly one of the biggest transformational impacts in the history of the company. So I'm interested in your thoughts on that, both Jims?

Jim and Jim, sorry we're -- if we're having a little bit of trouble with the volume. Matt's question was related to design thinking. He believes it's a transformational tool that's been introduced to Ford. And with this transition, will we -- maybe start with Jim Hackett and Jim Farley, will we continue looking at design thinking and human-centered thinking as a transformational tool for the business?