CEO Jim Farley Wrestles With Ford's Long-standing Problems

The electric, high-tech future of Ford Motor Company has been a priority for Jim Farley since he became CEO more than two years ago. It seems that he is being confronted by old problems lately.

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Mr. Farley, Ford's CEO, has explained that despite cutting 3,000 jobs last year, the company still has too many employees, and also outlined plans this week for another 3,800 layoffs in Europe.

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Several executives have criticized Ford's factories for producing subpar vehicles and its supply chain management for falling behind competitors.

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The top finance executive for Ford says the company's annual costs are too high compared to rivals.

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During the company's fourth-quarter earnings call earlier this month, Farley stated the company has deeply entrenched issues in its industrial system that have proven difficult to resolve.

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In his analysis of Ford's woes, Mr. Farley pointed out that Ford, which invented the moving assembly line and built an industrial system that was the wonder of the world early last century, is handicapped by the basics of the automobile industry. 

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It is this that makes us unique. Mr. Farley referred to it as his legacy.

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Ford halted production of its electric pickup truck in the Detroit region Wednesday because of a fire in a battery in an F-150 Lightning. During its investigation of the issue, Ford says it believes trucks shipped to customers are not affected, but it will be shut down through the end of next week.

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As a result of the many changes Ford has undergone over the years, previous Ford CEOs have also noted deep-rooted problems in the company's industrial system.

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In a complaint about needless complexity, former CEO Alan Mulally complained about his eight-year leadership of the car manufacturer before he retired in 2014. While cutting thousands of jobs, Mr. Farley's predecessor, Jim Hackett, stressed improving operational fitness.

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As Morningstar analyst David Whiston pointed out, there are clearly costs that were not excluded. "I'm sure investors find that frustrating."

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In comparison, General Motors Co.'s share price has increased by 28% and Jeep maker Stellantis NV's share price has increased by 20%. Ford shares have lagged behind its competitors this year, increasing about 11% since the beginning of the year.

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In addition to fixing entrenched industrial problems, Ford must embrace electric vehicles and digital services as a means of transforming the company in the future. In order to improve their legacy operations and build new business models, other global automakers are facing the same challenge.

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William Clay Ford Jr., Ford's executive chairman, told reporters Monday that the company must pursue all of its goals simultaneously. 

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The problems were evident in Ford's fourth-quarter financial results, which failed to meet its expectations, causing its stock to plummet. GM reported $14.5 billion in pretax earnings for 2022, well ahead of Ford's adjusted pretax earnings of $10.4 billion. 

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With slightly less revenue and fewer employees than its rival, GM outearned it last year. Regulation filings show Ford has approximately 173,000 global employees, compared with General Motors 167,000. In addition to selling more vehicles last year, GM sold about 5.9 million compared to Ford's 4.2 million.

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At an analyst conference Wednesday, Mr. Farley said Ford's primary focus is improving efficiency through cultural changes. 

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It is possible to solve quality and cost problems by radically changing the way we engineer, source, and build something within a company, Mr. Farley explained. It is possible to solve quality and cost problems by radically changing the way we engineer, source, and build something within a company, Mr. Farley explained.

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It is likely that Mr. Farley's goal of establishing Ford as a global leader in EV production will be hindered by problems in Ford's core operations. More than 95 percent of Ford's sales in the U.S. are gas and diesel vehicles, and the company generates most of its profit from these vehicles, generating the cash necessary to fund the company's transition to electric and increasingly digital vehicles. 

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As Mr. Farley frequently explains in public appearances, Ford is not the only company producing electric vehicles. Tesla owns a cost advantage over Ford of more than $10,000 per vehicle, which he is trying to end. He cites areas where Ford is lagging behind. 

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As part of Ford's transition to electric vehicles, the CEO has recruited talent from Tesla, Apple Inc., and other tech companies to help the company accomplish its goal.

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There has been a need for Ford executives to simplify the organization throughout the company. As a result of Mr. Farley's remarks, there need to be fewer models offered by the manufacturer to simplify the choice of features for customers. 

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A review from Trade Algo found that Ford's Explorer SUV offers 57 options, compared with 24 for Kia's Telluride, a similarly sized SUV. As opposed to one powertrain choice for the Telluride, Ford offers three for the Explorer.

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It is due to that complexity that consumers often struggle to identify the right vehicle with the combination of features they require, according to Edmunds analyst Ivan Drury. Ford's system may be inflated by the additional options, and the system may incur higher costs since dealers order a broader variety, he said.

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He explained that on occasion dealers are forced to order vehicles with odd options and trims simply because they need them. 

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After taking over as Ford's chief executive in late 2020, Mr. Farley pledged to address its quality concerns. Despite high warranty costs, the company had the most recalls for a second straight year last year, which led to the highest warranty costs of any major automaker. 

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In an interview with analysts earlier this month, Mr. Farley said the company has started seeing improvement since hiring a new director of quality. Changes will continue, he said.

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In recent months, he said, he has spent considerable time analyzing where we need to go.