Ford says $8bn cost disadvantage is weighing on profit

Ford is less profitable than its traditional competitors because it has a cost disadvantage of $7bn to $8bn (roughly R126.1bn to R144.1bn) annually, according to its top executives.

The carmaker plans to cut those expenses by mid-decade by changing the way it engineers and builds cars so that excessive costs don’t return, CEO Jim Farley said on Wednesday at the Wolfe Research Global Auto Conference. 

“We can cut the cost, we can cut people, we can do that really quickly and we’ll do whatever we need to,” Farley said. “My job as the CEO is to make sure, far after I’m gone, that it doesn’t grow back.”

Ford is cutting thousands of jobs in Europe and the US after disappointing fourth-quarter earnings. Farley has set a target to cut $2.5bn (roughly R45bn) in costs this year as the carmaker seeks to make its nascent electric vehicle business profitable while spending $50bn (roughly R900.7bn) to develop and build the battery powered models. On Monday, it announced plans for a $3.5bn (roughly R63bn) battery plant in Michigan with China’s CATL. 

The greatest challenge, Farley said, is changing the way the company operates in its traditional internal combustion engine business, which needs to be highly profitable to fund Ford’s electric future.

“This is really about redesigning what we do in the 120-year-old part of the company,” Farley said at the conference alongside CFO John Lawler. “Prejudice is so high for how we’ve done things.”

Ford’s shares fell 2% at 10:40am in New York.

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