At a splashy news conference at the Detroit auto show last January, Ford Motor boasted about a slew of 40 new electric vehicles and hybrids coming by 2022, an $11 billion investment. As bolts of electricity flashed across a giant video backdrop, Ford teased one EV in particular, the Mach 1, a high-performance, battery-powered SUV inspired by the iconic Ford Mustang.
But Ford didn’t show any images of the Mach 1 concept car that day, and for good reason: it didn’t exist.
Just weeks earlier, the company’s newly installed chief executive, James Hackett, pulled the plug on Ford’s first dedicated EV, due in 2020, because it was too generic, urging designers to create something that would stand out in a sea of expected plug-in cars. Instead of a “compliance car” to satisfy regulators, he said, it needed to be aspirational. In his typical probing style, he asked: “How are we going to win?”
The answer played out over the next six weeks, as Ford designers and engineers, working nights and weekends, pivoted in an entirely new direction, creating an athletic-looking, battery-powered crossover utility with a targeted range of 300 miles that could compete with high-performance plug-in models from Tesla, Porsche and Jaguar. Ripping up a design that’s six months into development is rare; turning out a new concept in a matter of weeks is virtually unheard of.
Fast-forward to today and Hackett can’t wait to show Forbes how they did it during an exclusive interview conducted during a rare visit to Ford’s Dearborn, Michigan, design studios.
“That’s the money shot,” he says, pointing to the unmistakable Mustang-inspired taillights on a sketch of the new performance utility, a clay model of the real thing parked just 20 feet away, not far from the disappointing first effort. “That changed my body language when I saw that.”
A little over a year into his job as Ford CEO, Hackett wanted to pull back the curtain for Forbes to counter investor criticism that he is plodding along without a clear plan to fix the company’s continuing underperformance. “I’m not tone-deaf at all,” he tells me. “I know their expectations are really high.”
With $7.6 billion in net profit on $157 billion in revenues last year, Ford has run into serious problems in 2018. Profits are down about $1 billion in the first half, despite record sales of its best-selling F-series pickups, which, at roughly $10,000 profit per truck, account for virtually all of Ford’s yearly earnings. The rest of the company’s operations—Europe, South America and China—are unprofitable. Ford is losing market share everywhere it competes and its stock, which hit $17 in 2014, is languishing below $10 a share.
To be sure, the former Steelcase CEO inherited a tough challenge when he replaced the ousted Mark Fields in May 2017: transforming Ford from a traditional auto manufacturer into a mobility services provider without destroying the core business in the process. But it turns out Ford—heralded a decade ago for not taking a taxpayer bailout under former CEO Alan Mulally—was in worse shape than anyone knew. And since Hackett took over, the company has been hit with a litany of new problems: slowing new-car demand, higher commodity prices, an escalating trade war, and the utter collapse of its business in China, the world’s largest auto market.
“Our business is not healthy right now, not by any stretch of the imagination,” said one Ford executive who would speak only on background. “We’ve reverted to being a one trick pony again,” he said, referring to its dependence on F-series profits. “That’s been the story of our lives.”
Virtually all of Ford’s profits come from its F-series pickup trucks like the monstrous Super Duty. Ford Motor
Hackett claims he has a turnaround plan, but details are sparse and the goal posts keep moving, which is one reason investors are losing patience. In October 2017, the former University of Michigan offensive lineman announced $14 billion in cost-cutting “fitness actions.” Six months later, he nearly doubled the target to $25.5 billion by 2022. Then, in July, Ford said it would spend up to $11 billion to restructure its global business over the next three to five years, without offering any specifics.
During a testy call with Wall Street analysts in July, one asked the 63-year-old Hackett point-blank if he would be around to see the results of his still-hazy restructuring efforts.
“Hell yes,” Hackett replied. “There should be zero question about that.”
But there are questions—plenty of them—like whether Hackett’s Socratic management style is right for the moment. The industry has been changing faster than Ford can adapt, and it lost precious time under Fields, who was criticized for overanalyzing big decisions. Hackett, a director who briefly led Ford’s Smart Mobility unit, was Executive Chairman Bill Ford’s hand-picked choice to take the reins. But the clock is ticking, and many wonder whether Hackett can restructure Ford’s core business fast enough to generate the billions of dollars it will take to invest in future EVs and self-driving cars. It’s not that he doesn’t know what to do, Hackett assures me. “It’s architecting the business so it can happen.”
It’s pretty clear where the actions are needed: Ford’s underperforming businesses in South America, Europe and China. Following the same script as crosstown rival General Motors, Ford says it will redirect capital to parts of its business where it earns higher returns—trucks, SUVs and commercial vehicles, for example. Where it can’t fix a business, it will pull the plug as it did recently in North America with the decision to abandon traditional family sedans like the Ford Fusion.
“This type of profound redesign will take time, and we will communicate as decisions are made,” Chief Financial Officer Bob Shanks told analysts on the July conference call.
But the ongoing uncertainty has some investors worrying about the stability of Hackett’s senior leadership team. Ford’s top strategist, John Casesa, left last fall and its top lobbyist, Ziad Ojakli, departed in July. The former head of global product development, Raj Nair, was let go in February for “inappropriate behavior.”
Hackett has reshuffled senior management duties several times since his arrival and tried to streamline decision-making. “In the old system we used to have 24 officers sitting around a table together. I’ve got that down to 10.”
But in the interview, he admits it’s taken a while for his executive team, most of them Ford lifers, to adjust to his cerebral management style and to embrace methodologies he used at Steelcase. Among them: a process called “design thinking” which attempts to solve problems by getting into the mind of the consumer.
“We’re four or five months later than I thought we’d be right now,” Hackett conceded. But he said the team has gelled and there are signs that his changes are taking root.
As proof, he offered to meet me inside Ford’s design studio, where the new Mustang crossover took shape last winter and where product planners are now working to perfect a new user-friendly infotainment system.
Inside the brightly lit room, a string of eight-foot-tall movable walls are plastered with scribbled notes, drawings and a rainbow of Post-It Notes. The hieroglyphics are evidence of the decision-making cascade that Hackett pushed Ford product planners to pursue after learning that people in China want bigger screens in their cars. Instead of asking how much more that would cost—a typical CEO reaction—Hackett pressed them to find out why, nudging them to try to unlock consumer insights that would lead to a better product design.
Hackett pushed Ford engineers and designers to get into the minds of consumers to understand why they wanted larger display screens in their vehicles.Ford Motor
Ford had been an early leader in connected-car technology with its Sync infotainment system, launched in 2007, which was loaded with car-related apps designed by Ford and other third-party developers. Over the years, Ford upgraded the system to make it more user-friendly.
The need for a larger screen might have seemed obvious—you can fit more apps on the dashboard—but prodded by Hackett’s desire to know why, a cross-functional team of product developers, designers and human-machine-interface experts started probing the answer to his question.
“In the beginning, it was like cats and dogs,” said Darren Palmer, Ford’s chief product engineer for electrification. The discussion went in circles for days. “Then we started talking about ourselves, and what we were doing in our own cars, and suddenly we started understanding each other. We were speaking the same language.” A few feet away, Hackett smiled, his arms crossed in satisfaction. “I’m like a proud father,” he tells me. “Listen to the way he talks about this stuff.”
Over the next 90 days, the team designed an entirely new infotainment system, experimenting as they went along using fast-prototyping skills, like gluing an empty Keurig coffee pod to a piece of cardboard to simulate a knob on a dashboard screen. During biweekly visits to the design center, Hackett encouraged them to keep probing for insights. “It doesn’t need to be perfect. Let’s test this in real time.”
With each iteration, Ford planners tested the system with consumers, while a massive team of software designers watched remotely. Whenever a customer encountered something they didn’t like during the demo, they reprogrammed the software in real time to get immediate feedback on the change.
After three rounds of consumer research, Customer Experience Manager Phil Mason said the big takeaway from car owners was, “We want our stuff in the car; we don’t want your stuff!” That was especially true in China, where consumers are heavily dependent on their smart phones to manage all of their day-to-day tasks, including paying for goods and services through payment apps like AliPay and WeChat Pay.
Those insights led to a sleek new infotainment system that mirrors consumers’ smartphones, is easier to use and, yes, features a substantially larger screen. It will debut in the new Mustang-inspired performance utility.
In just 90 days, Ford designers created an entirely new infotainment system, experimenting as they went along using fast-prototyping skills. Ford Motor
A larger infotainment screen won’t fix all that ails Ford, especially in China, where sales are down 26 percent this year. New models geared to local tastes are on the way but won’t hit for a couple of years. In the meantime, Ford is trying to fix dealer distribution issues while modifying vehicles borrowed from its Chinese partners to appeal to first-time buyers with limited budgets. One example, the new entry-level Ford Territory SUV, goes on sale in early 2019.
But the Chinese market is getting more difficult for Western players, Ford included. Chinese government policies are rapidly changing, and there’s an aggressive push toward zero-emission electric vehicles. As the ground shifts, the government is naturally favoring domestic players. Ford was late to the market in the first place, but is hoping to catch up with a new joint venture with Zotye Auto, one of China’s leading electric vehicle makers.
In Europe, where Ford has a strong brand image, it must decide whether to stay in the passenger car business, or shift its focus to utilities and commercial vehicles, as it has in North America. Rumors are swirling about thousands of job cuts in Europe, which the company dismisses as speculation. Ford’s prospects in South America are darker, especially in light of recent economic volatility, but Hackett said his preference is to remain in the market.
“Hackett’s bias is that the Ford brand is iconic,” he said, speaking about himself, as he often does, in the third-person. “It’s associated with a history that’s familial. One of my last options is to shut down the Blue Oval in a market. I’d rather never do that.”
But he doesn’t have long to decide. The clock is ticking and it’s time to make a play.