Is Ford Back? We Asked CFO Lewis Booth

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Lewis Booth is far too humble to acknowledge it, let alone celebrate it. But, for all intents and purposes, his company stole the show at this year's North American International Auto Show (NAIAS).

Ford (NYSE: F  ) swept top honors for Car of the Year with its Fusion Hybrid and Truck of the Year with its Transit Connect -- just the third time in 17 years that one manufacturer has taken home both awards. And the positive reaction to the new 2011 Focus -- the centerpiece of Ford's exhibit and a cornerstone of its automotive future -- may well signal more prizes in Ford's future.

The new focus
To Booth, Ford's chief financial officer and a 30-year veteran of the company, last week's confetti was merely a small, but reassuring milestone in a long turnaround that is still many miles from the finish line. If Ford's turnaround does ultimately succeed, it will not be because of tough new labor contracts with the UAW, or a series of new Cash for Clunkers programs, or even an unprecedented revival in the U.S. economy. Rather, it will succeed because Ford stuck with its new philosophy -- its "new focus" as Booth put it -- that is just now taking shape:

We're trying to change the business model. We've sold off many of our premium bands. That has enabled us to focus on affordable, best-in-class cars, and concentrate on having a balanced portfolio around the world. We don't want to be just strong in a few segments, or just in the US or in Western Europe. We want to be strong around the world. This is a different Ford. We are changing the way we do business, completely dedicated to having great Ford products in all segments around the world.

This new focus began several years ago under the stewardship of new CEO and former Boeing (NYSE: BA  ) executive Alan Mulally. The company refocused on building smaller, fuel-efficient, best-in-class vehicles that were affordable and therefore more competitive in the global marketplace. This meant selling premium brands like Jaguar and Land Rover to Tata Motors (NYSE: TTM  ) , retooling factories to produce smaller vehicle concepts like the Focus and Fusion, and producing fewer large pickups and SUVs for which the company is known. It also meant winning major concessions from the United Auto Workers and bringing Ford's labor and manufacturing costs more in line with foreign competitors'.

Speed bumps ahead
If Ford's latest results are any indication, the strategy is certainly paying off, but plenty of challenges remain. Ford's balance sheet is still choked with debt, including some $13 billion the company owes to the UAW to rid itself of future retiree health-care obligations. The economy is still in a "fragile" state, as Booth put it, and the government's Cash for Clunkers tax rebate stimulus of last summer -- such a boon to the industry and auto retailers like AutoNation (NYSE: AN  ) and Group 1 Automotive (NYSE: GPI  ) -- is fading further into the rearview mirror. And despite its best efforts, Ford's labor costs, though on the decline, remain stubbornly above foreign competitors like Honda (NYSE: HMC  ) and Toyota (NYSE: TM  ) .

That said, the recognition that the Fusion and Transit Connect received at this year's NAIAS show that Ford is getting more than a few things right on the product side. That, according to Booth, is ultimately what will keep Ford's momentum going. "You can't cost-reduce your way to prosperity, you've got to have competitive revenues as well as competitive costs." More product successes like the Fusion and Transit Connect will keep Ford's top line in motion.

Straight from the man
The Motley Fool Stock Advisor premium newsletter service was on the scene at this year's NAIAS to check in on Ford, a recent newsletter recommendation, and sit down with its CFO Lewis Booth. Below is part of our exclusive interview.

Matthew Argersinger: You've had a lot of experience working for Ford abroad, any reaction to today's news that China has surpassed the U.S. in global auto sales?

Lewis Booth: Not surprising, U.S. is at a multi-year low -- we're "down in the dumps." China's manufacturing base has made leaps and bounds in recent years, and they're benefitting from lots of tax concessions from the Chinese government. But no doubt, China's going to be a very big market for us.

Argersinger: Any comment on Ford's international strategy? Setting up the Focus to be a brand in Asia, and Figo in India.

Booth: What we have to do at Ford is build cars that address every marketplace, instead of our traditional North American and Western European markets. We've had lots of success in South America with solid profitability over the last six to seven years. No doubt Asia, dominated by China, and to a lesser extent by India, is going to be a big market; we have to be involved there. Clearly, if we want to be a global player, we have to participate everywhere.

Argersinger: How big of a game changer is VEBA [Voluntary Employee Beneficiary Association]? How does it affect Ford's hourly labor costs versus its foreign competitors?

Booth: We were $55/hour compared to the transplants which [were] about $50 right as VEBA was being enacted. Changing the base structure of our UAW contract and getting VEBA should bring our costs in line with the transplants over time. So yes, VEBA was a real game changer.

Argersinger: You guys are still on the hook for $13 billion [for VEBA]. Any comment on the financing options there?

Booth: Because it's due over time (through 2022), it's valued at $7-$8 billion of our debt structure. It's another part of our debt burden, and we've made no secret that our balance sheet needs repair. The best way to fix a balance sheet is to make money. Our key focus right now is on generating cars that people want to buy to keep our top line growing, and be vigilant about costs so that we produce free cash flow on the bottom. That's the best way we can keep chipping away at our debt.

Argersinger: What have been the major product differentiations Ford's made over the last two to three years that are making, and will make, the most difference going forward?

Booth: The biggest change has been in our philosophy. We want to be best in class, not just average. In every market, we want to have the best in class vehicle, something Mr. Ford said at this morning's press conference. We want to be great in quality, great in safety, great in fuel economy, great in technology, all together in a package that normal people can afford -- a good value. There's just no point in having the best technology that only applies to premium cars that the average person can't afford. SYNC is the best example. Great technology to a large group of customers, we can really change people's lives.

[With] the products we've brought out in Europe beginning in 2004, and here in the U.S. since 2006, clearly we've made a big upgrade in our quality. You can do all the cost-savings you want, but you can't cost-reduce yourself to prosperity. You've got to have competitive revenues as well as competitive costs. The only way to get competitive revenues is to have great products. Obviously, having both the car of the year (Fusion Hybrid) and the truck of the year (Transit Connect) speaks to our progress.

Argersinger: Staying on the products. Ford F-series: still the best-selling vehicle each year in the U.S. How much of a focus is that going forward? Is it still a viable part of the business? Do you think you can get back to selling 800,000 F-series trucks in a single year, or is that a thing of the past?

Booth: Well, never say never, but clearly there's been a shift in sentiment from full-size pickups to smaller vehicles. At one stage, large pickups were up to 15% of the total market, now it's down to 11%, maybe with high gas prices it goes to 7%-8%. But our philosophy is that we have to have a best-in-class model in each major segment, because, with volatile gas prices and shifts in consumer sentiment, you have to be competitive everywhere, or the sentiment will shift against you very quickly. It's not about focusing on cars at the expense of trucks; it's about focusing on cars and trucks at the same time.

Argersinger: UAW [United Auto Workers]: Both sides have made concessions over the last few years. If Ford does get back to consistent profitability in a few years, what prevents the UAW from demanding a greater share of profits? What will keep the unions from being a future roadblock to Ford's turnaround?

Booth: I think we have a great working relationship with the UAW; they've been a responsible partner. I think both of us recognize that it is in our best interest to work together.

Argersinger: In your mind, what would make 2010 a successful year for Ford?

Booth: You'll have a better idea about that when we give guidance for the year with our 4Q results in a few weeks. Of course, it will help all of us if the economy continued to rebound, it feels fragile still. First thing, if we meet projections we lay out for us and the industry. Second, more importantly, we continue to follow the new direction [philosophy] we've taken, improve the business, create great products, and continue the momentum that we've picked up over the last short while.

Argersinger: Is Ford back?

Booth: We're on the way back. I'm paid to be paranoid. I think we did a lot in 2009, improved the business, grew market share in major markets, and have a number of great products launching. But we've got a lot of work to do. So I look at it as we're on the way back, we've got to keep our heads down and keep pushing really hard. Because that's what our competitors are doing. This is not an industry where you can ever relax.

For the full transcript of our interview with Lewis Booth, as well as our exclusive articles covering The Fool's trip to this year's NAIAS, take a free 30-day, no-obligation trial to Motley Fool Stock Advisor. Don't forget to sound off in the comments section below and let us know your take on what the future holds for Ford.

Matthew Argersinger doesn't own shares of any of the stocks mentioned. Ford Motor is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 21, 2010, at 3:18 PM, langco1 wrote:

    with the US now in its second year of a depression car sales along with everything else will decline more than last year .ford still has at least a 80% chance of going for its rivals chrysler and the disgrace GM its 100%...

  • Report this Comment On January 21, 2010, at 6:15 PM, RTFM2009 wrote:

    Ford is now Cool among Teens.

  • Report this Comment On January 21, 2010, at 11:46 PM, hugheja2 wrote:

    Looked at a Ford Explorer this week, and all I could think was that it was not as nice as my wife's Honda Pilot. There is just very little differentiation between cars (in terms of functions and capabilities). Mostly, they are all about the same these days. Quality is the key differentiator. Ford's quality just doesn't feel the same as other non-American car makers. When I drive my Honda, I feel the quality. When I drove the Ford, I felt it was a cheap imitation. However, I'm still long on Ford, and think that they will come back.

  • Report this Comment On January 22, 2010, at 12:04 AM, Br0oklyn wrote:

    Honda Vs. Ford? Hands Down you already know who.. Will ford ever have products as good as the other guys? hmm dont i know about that.

  • Report this Comment On January 22, 2010, at 12:50 AM, perryslo wrote:

    So, you went and looked at an Explorer (the oldest model in it's line up, scheduled for an all new model next year) and compared it to a Honda to determine if Ford is coming back. That was smart.

    I hope your stock picks are better then your analysis of the automotive industry.

  • Report this Comment On January 22, 2010, at 9:44 AM, Soup19 wrote:

    langco1 thinks Chrysler and GM will go bankrupt? They already did in 2009. As for Honda v Ford... Ford has higher 3rd party quality scores and outsells Honda. Honda is the one that needs to catch Ford, and they are falling further behind.

  • Report this Comment On January 22, 2010, at 10:47 AM, BobInDSM wrote:

    I'm buying more F stock!

  • Report this Comment On January 23, 2010, at 1:00 PM, Lloyd118 wrote:

    Just in case you do not think Ford is on the comeback. The company just gave thier salary employees a lot of thier benefits back to them this past week. You think, Ford is not a buy, this week?

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