ford (New York Stock Exchange:F) Chief Financial Officer John Lawler wants the company to better manage capital, which he sees as Ford's “Achilles heel” (F). So, to be more capital efficient, Ford (F) is going to encourage similar partnerships to those the company has adopted in China, and initiate greater efforts to reduce costs.
At Deutsche Bank's global auto industry conference, Lawler said he sees partnerships that will allow the company to be more capital efficient and improve margins. And through a better mix of products and markets, the Ford+ strategy will continue to increase the company's revenue by being less capital intensive.
Cost reductions are another factor in Ford's plan to improve profitability and margins. The company is on track to achieve $2 billion in cost reductions this year across the enterprise.
“When you look at the $2 billion, it comes primarily from materials and manufacturing. The material is highly dependent on the design changes we are making to the products, especially the launch of the model year (2025) in the second half of the year,” Lawler said.
Price compression has been significant this year, with a drop of more than 20% in the electric vehicle segment. As a result, cost reductions could not keep pace with price reductions. So for this year, the company will continue to see cost reductions in the Model e line. Ford also plans to reduce prices by 2% this year, taking into account the consumer's financial situation. And as the year progresses, Lawler expects some of that price degradation to be offset by the sale of new products that allow for greater pricing flexibility.
To become more resilient and less cyclical as a business, Ford (F) will continue to grow its services segment, which includes software, fleet management and telematics. The company plans to double its penetration in connected vehicles and growth services businesses from 30-35% to 50%, expanding gross margin in this category to 40%.
