Ford 4

Q&A with Ford's Jacques Nasser
''There's clearly going to be more consolidation in this business''

These are heady times for Ford Motor Co.'s new CEO, Jacques A. Nasser. Since he took the wheel on Jan. 1, Ford has acquired Volvo Cars for $6.5 billion, announced record operating earnings of $6.6 billion for 1998, and hired away top talent from DaimlerChrysler. Business Week's Keith Naughton caught up with Nasser as he headed for a Detroit luncheon in March, where he was named Automotive Industries Man of the Year. In an interview with Business Week, as well as during the luncheon, Nasser reflected on the good times at Ford and the road ahead for the world's No. 2 auto maker.

Q: With all the success Ford is having, how do you keep your feet on the ground?
A: The reality check for all of us is that although we've had many things go well for us, the majority of us have also been through times when it was tough. And we don't forget very easy. And although many things are going well for us, there are some areas where we're not doing that well.

Q: Such as?
A: You'd have to be disappointed with our performance in South America. [Ford lost $226 million in South America in 1998, including a $151 million loss in the fourth quarter of 1998. Nasser has said he does not expect to make money in South America in 1999.] Our overall results there are not what we'd like them to be. But when you get a 40% to 50% shift in currency values overnight, it's hard.

Brazil has been a bit of a shock. It is a lot worse than anybody imagined. As an industry, we did it again. We all rushed into a growing market. And then we all complained about overcapacity. There will be a shakeout there. It's inevitable.

Q: How about the difficulties you've had on the passenger-car side of the business?
A: We're not satisfied with our car performance. [Ford's car sales were down 6% in February, while sales of its sport-utilities, minivans, and pickups rose 20%] In the truck area, we have a connection with the customer that we've lost in the car business. We really did miss a beat there [with cars].

On trucks there has been incredible product innovation that just hasn't been there in the car business. Ideas like Chrysler's dual sliding doors on the minivan, four-doors on pickup trucks, and crossover vehicles have all helped to fuel the truck business. I think the truck people have connected with consumers far better than car people.

Q: It seems like you might get some help with your cars from hiring Chris Theodore from DaimlerChrysler to become Ford's VP of large- and luxury-car development.
A: I think he'll just be magic in that area because he's so creative. Chris's talents will fit very well with the rest of the team. He brings an enormous level of skill.

Q: Why are you bringing in outsiders into Ford, when the Detroit tradition was to "grow your own?"
A: We're going through a period where the world is going through an incredible amount of change. Globalization has affected almost everything we touch, from economies to capital markets to communications to trade policies to environmental issues. All these things are becoming much more global.

Also, there has been an incredible explosion of technology that has changed the way people live their lives and do business. The Internet, wireless phones, pic-tels. You are able to do things now that you weren't able to do before in business and in your personal life.

And what's becoming more and more important is the strength of brands and the relationship to consumers over a longer period. We've got to stop thinking of ourselves as a transaction-based business -- we sell a vehicle and then we wait until you want to buy another vehicle.

All of those changes, which have happened so quickly, give an opportunity to bring in different skills and different perspectives. It's helpful to have these different viewpoints and different cultures. That gives you diverse views to address the business. [Nasser was born in Lebanon and raised in Australia.]

There were times when it was difficult to attract people to the automotive industry. Now, we're seen as a very good place to be. Ford is a particularly good place. People really want to be part of a winning team.

Q: Why?
A: Because we are different. The brands that we have, the acquisitions that we've made and the type of people that we are and the attitudes we have. And the influence of the Ford family and Bill [Ford] as chairman.

Q: But you want Ford to try be even more different. What do you want Ford to become?
A: We want a company that centers its thinking around consumers and what they want, and allow that to filter through into all our business decisions.

We've been a very nuts-and-bolts and transaction-oriented industry. We've viewed customers as always telling us about our problems. We never thought about the customers' costs after the sales -- insurance, resale value, recycling.

We've been too engineering- and manufacturing-focused. We've only recently begun to look at distribution. That's the next generation of transformation for the industry.

Q: You are known as Jac the Knife for you ability to cut costs [Ford has cut $5.2 billion in costs in the last two years, and has set a goal of cutting another $1 billion in costs in 1999]. Can you just keep cutting costs forever?
A: We've been very successful in reducing our costs. But we've only been concerned with the costs within our walls -- manufacturing, engineering and so forth. We need to take the consumer's view of costs. If we start looking at cost the way consumers do, we can come up with different strategies. And that isn't meant to be a call to arms to run out and buy anything that says consumer.com. It's a change in the mindset of the company.

Q: You've had flat to negative revenue growth. How do you grow earnings and increase shareholder return in a flat revenue world?
A: One of the biggest challenges we've got is to grow the business with top-line growth. We've managed to improve our shareholder values over recent years primarily through earnings, and partly through some better positioning of the company.

For the future, we need to continue to improve the earnings potential of the company while at the same time growing. That is going to result from doing better with the businesses we have -- organic growth, geographic growth, acquisitions. We will be active in all of those areas.

Q: With the $6.5 billion acquisition of Volvo done, Ford still has $17.4 billion left in its cash stash. Who will Ford acquire next?

A: [Laughs]. There's clearly going to be more consolidation in this business. Whether you believe in the theory of five auto makers remaining, or five plus two, it's inevitable. I think that's good for the consumer. You are seeing acquisitions because of the continuing drive toward brand and improving the value for consumers. Those factors will only intensify.

Q: When will Ford overtake GM?
A: [Laughs]. Let me see. Tuesday.
Q: Are you interested in acquisitions outside the auto industry?
A: We've tried that in the past and it didn't work out very well. At Ford, we're just going to stick to our knitting. We're not going to run off and spend our money on business where we really don't have much talent. This business is tough enough, we don't need go out and tackle new ones.

Q: You had 1998 revenue of $144.4 billion and that will grow to $157.4 billion with Volvo. When you're that big, how can you make big percentage gains in revenues?
A: We had Michael Dell in to speak to us. I like his comment, "How do they expect us to grow at 50% forever. We're starting to become a big company." [Laughs] You can relate to that. You do get to a point a where you have to reinvent the whole business.

Q: How important is acquisition to Ford's growth plan?
A: Acquisitions are always difficult to predict. I would say it's a minor part of our plan. You can't predict them and you shouldn't really depend on them.

I think there's still a lot of growth in the automotive-related businesses, including what has been the traditional business for us. It's not going to be in any one particular spot.

Some of it will come from the newly developed markets growing and coming back from extremely poor levels. Some of it will come from our presence in these markets, where we haven't been. Some of it will come from the very strong position we have in the sport-utility segment and in the light- and medium-truck segments [pickups and minivans].

Some of it will come from what I think is an extremely focused premium-vehicle brand leverage. [Ford has Lincoln, Jaguar, Aston-Martin and Volvo.] Some will come from acquisition, and many of the acquisitions will give us opportunities to grow. For example, Jaguar was an acquisition. The revenue growth from the acquisition wasn't that great. But we've now got a brand and basis of building growth. [Because of new Jaguar models Ford has developed, Jaguar car sales are expected to grow to 200,000 units within three years, from around 20,000 when Ford acquired it.]

The same will apply to Volvo. It will give us the potential to grow beyond the level of the acquisition and beyond the level that we would have been able to grow with our of present brands. Volvo can go from 370,000 [unit sales] to something bigger than that. [Ford is expected to develop a Volvo sport-utility vehicle and minivan.]

Q: What kind of acquisitions are you interested in?
A: Something that would help our basic business and nurture our basic business. Not something that would require us to take our eye off the ball.

Q: Is Mazda [in which Ford holds a controlling 33.3% stake] enough of a growth vehicle to give you the presence you want in Asia?
A: We think the combination of Ford and Mazda is powerful.

Q: Do you grow fast in Asia with an acquisition, or do you take a slow and steady climb up the hill?
A: We're always open, but for us at this time, we like the measured, reasoned, steady course.

Q: There are some real bargains in Asia, right?
A: Oh, really? [Laughs.] You know better than that.

Q: But you bid for Kia, which had plenty of debt of its own.
A: Kia was very different. We had been dealing with Kia for 12 years, so we knew them. We had a very good relationship. We knew their capabilities. We knew their products. Also, Kia is a large company, but it's not [as large as Nissan].

And the Koreans were prepared at least to look at debt restructuring. So far, the Japanese have not been. There were three bids for Kia. We showed a lot of discipline. We went in with the bid and we did not change it. We felt that we would be good for Kia and Kia would fit with us. But it had to pass the business equation test.

Q: Do you worry about the stress acquisitions can put on a company?
A: Yeah. And look at our history: We took our first equity position in Mazda in '79. We purchase Jaguar and Aston-Martin in '88-'89. And Volvo is 1999. So it's been every 10 years. We're very careful about the digestive process. We're acutely aware of it.

NEWS: ANALYSIS & COMMENTARY

Nasser: Ford Be Nimble
He will give the company's brand and regional units more autonomy

By the time Jacques Nasser celebrates his first anniversary as CEO of Ford Motor Co. in January, there will be little doubt that a new regime is firmly entrenched in Dearborn. BUSINESS WEEK has learned that Nasser plans to announce in November a realignment of the sprawling $143 billion auto maker that, while not actually repudiating Ford 2000, the strategic vision of predecessor Alex Trotman, will put the company on a different path. Ford 2000 centralized worldwide responsibility for functions such as product development, purchasing, design, and manufacturing--and shifted other decision-making power to the home office.

Nasser wants to keep the efficiencies generated from central thinking about design and production. But he wants to reintroduce the market focus in regions across the globe that will give Ford (F) stronger brands and more appealing products. ''Ford 2000 was a good idea carried too far,'' says a source familiar with the new plan. And no, Nasser is not doing a reorganization. ''General Motors (GM) has given reorganizations a bad name,'' sniffs one Ford exec.

Nasser is ''trying to create the Ford 2000 that should have been created in the first place,'' as one exec put it. That translates into a new organizational chart that formally recognizes Nasser's heightened emphasis on the company's brands and gives the various regional and brand units more autonomy. The reason: Nasser wants his top managers to be more entrepreneurial, more accountable for the profits and losses they generate. He also wants each brand to crystallize its own identity with customers. The plan, which still could change, will be unveiled in November and implemented beginning next year.

In one respect, Nasser's move reflects the demands of a global auto business. DaimlerChrysler (DCX) Chairman Jurgen Schrempp acknowledges that he, too, is streamlining his management.

One of the clearest examples of Nasser's new vision is the plan to split up its North American auto brands, with sales totaling $87 billion, into ''strategic business units,'' including Ford Car, Ford Truck, and Mercury, say sources close to the company. ''If it's different in the mind of the customer, it will have its own [brand] group,'' explains another source.

AILING DIVISION. Nasser's goal is to make Ford more nimble and more closely attuned to customers. ''You've got to break down the business into the smallest possible units to give the employees in them authority and accountability,'' says one source knowledgeable about the plan. That applies to Ford of Europe and the company's ailing South American unit, which lost $226 million last year. Nasser aims to restore to regional Ford managers such as Ford of Europe President Nick Scheele the power that was stripped away by Ford 2000. It's not major surgery, stresses Robert L. Rewey, Ford's group vice-president for sales, service, and marketing. ''We're evolving, we're not reorganizing.''

Since late 1996, when he took over Ford's global auto group, Nasser has been quietly asserting the new vision and replacing key executive positions eliminated in Trotman's overhaul. He has also been showing the door to underperformers and recruiting all-star managers from outside--most notably former BMW exec Wolfgang Reitzle, who oversees all Ford luxury brands: Lincoln, Jaguar, Aston Martin, and Volvo. This Premier Auto Group ''was the first step'' in Nasser's plan, says one insider. Even earlier, Lincoln-Mercury's relocation to Southern California was a signal of Nasser's intentions. The division's marketers, designers, and engineers have been relocated to the West Coast, far from Detroit's stodgy mind-set.

Now, sources say, Nasser is even considering putting Ford's North American mass-market brand units Ford Car, Ford Truck, and Mercury under a single North American boss. One name being bandied about is James C. Schroer, Ford's global marketing vice-president.

Nasser's charge-ahead style may allow him to redraw Ford quickly, but it also may be upsetting the United Auto Workers, as the two sides negotiate a new national contract. Nasser's plan to slim down Ford by spinning off $18 billion Visteon Automotive Systems has rubbed workers at that parts unit the wrong way. Nasser and Ronald Gettelfinger, the buttoned-down UAW vice-president who heads the union's Ford team, are both newcomers to this pressure-cooker environment. This could complicate negotiations over Visteon.

Overseas, Nasser has already installed regional leaders for Europe, South America, and Asia Pacific. His new plan simply gives them a greater say in running their operations, and more responsibility if their efforts fail. Scheele says Nasser is giving him a free hand in Europe. He's cutting capacity by 25% and sharing back-office costs with Volvo and Jaguar. Nasser has also told him that the Ford brand must stand on its own in Europe. Scheele wants to burnish the brand by reminding consumers it is German-made, since most Fords are made near Cologne. To reinforce that prestige, Scheele has relocated headquarters and R&D there, as well.

Wherever Ford operates, the central idea is to create bite-size, highly accountable regional brand units that can get close to their target customers' tastes and needs. The goal, especially for Ford's money-losing passenger-car brands, is to bring out cars with brand personalities tailored to suit the younger, hipper buyers who have flocked to European and Japanese cars. Says one source knowledgeable about the plan: ''It's going to help them get the brand differentiation they want.''

Creating such virtual corporations inside Ford also provides another benefit: training grounds for future leaders. Nasser himself cut his teeth on a series of jobs running regional operations in Argentina, Brazil, Australia, and Europe. ''Ford 2000 eliminated the training ground for all of Ford Motor,'' laments one former Ford exec. Nasser's new ''strategic business units'' would give a new generation of Ford managers the chance to test their leadership skills with hands-on operating experience.

Striking the right balance between global integration and regional influence is extremely difficult, management gurus say. And auto analysts and industry watchers mostly applaud Nasser's willingness to adapt Ford's game plan on the fly. ''He seems to have a reasonably agile philosophy, not getting locked into one strategy forever,'' says David E. Cole, director of the University of Michigan's Office for the Study of Automotive Transportation. Ford is likely to remain ''a company that's continuously restructuring, so that tear-ups don't have to be traumatic,'' adds Merrill Lynch & Co. analyst John Casesa.

Such continuing change seems likely as Nasser puts his stamp on Ford. So count on more shakeups and new business plans from the nimble Jac.

By Kathleen Kerwin in Detroit, with Jack Ewing in Frankfurt

NEWS: ANALYSIS & COMMENTARY

Ford's Road to Beyond Year 2000

NOVEMBER, 1993
Alex Trotman becomes chairman and CEO

APRIL, 1994
Trotman announces his ''Ford 2000'' plan for integrated global operations that are divided along functional lines and not regional or brand lines

MAY, 1994
Trotman brings Jacques Nasser, then head of Ford Europe, back to Dearborn headquarters to run the new global product-development group

OCTOBER, 1994
The U.S. versions of Ford's so-called world car, the Mondeo, are introduced

JANUARY, 1995
Regional operating units in Latin America and Europe cease to exist as Ford 2000 begins to be implemented

NOVEMBER, 1996
Nasser dispatches James Padilla to Brazil to take charge of Ford's ailing South American operations

JANUARY, 1998
Nasser names James Donaldson to run Ford Europe

JANUARY, 1999
William Ford is named chairman and Nasser succeeds Trotman as CEO. Nasser begins brand push

NOVEMBER, 1999
Nasser is expected to realign Ford organization to strengthen brand and regional emphasis, reflecting his strategic initiatives