Original OEM Presence Continues to InvestMon, 09/01/2014 - 09:47
Q: You came to Mexico in 2010 when the automotive industry was mired in recession. What were your main concerns and priorities at the time?
A: The crisis was not over when I arrived, but we could see the light at the end of the tunnel. The industry was still in recovery, especially in North America, which is the market that affects Ford the most. Our main objective at the time was restructuring Ford North America along with the rest of the corporation. We had to undergo a strong restructuring in terms of engineering and production capacity. The second area of concern was to grow our presence in Latin America by increasing our manufacturing facilities and engineering capabilities. This plan has been very aggressive, and we have invested a little over US$5.5 billion in Mexico since.
Q: How exactly did you improve Ford’s production facilities?
A: We grew the capacity of our plant in Hermosillo, which used to be the sole global production facility for the Fusion. It will now also be produced in Flat Rock, Michigan, as Hermosillo can no longer satisfy production demand alone for two reasons. Firstly, demand has increased as the industry has recovered. Secondly, the Fusion has been more successful than we planned for, with our segment share in the US growing faster than expected. We also decided to build a second engine plant in Chihuahua alongside the one we have had there for 30 years. The second plant will produce the V8 engine for large and medium-duty trucks like the F-Series. That plant started up in 2010 and we have dedicated a lot of time to ensure it reached a stable level of production. We also fully refurbished our oldest Mexican plant in Cuautitlán. Throughout its history, that plant has produced a range of vehicles, ranging from full car assembly to a half truck, half car production until 2007. But the plant was inefficient and not of the quality Ford expected. We totally refurbished it and turned it into a car assembly plant. In 2010, it began manufacturing the Fiesta.
Q: Why did Ford decide to make such a large investment in Mexico?
A: In parallel to developing our plants, the most challenging undertakings were to grow our engineering capability and our local sourcing of materials. Ford has long had an engineering presence in Mexico, because plants need a support presence, but it was becoming more and more difficult to get good quality engineers in Detroit. This was largely because the financial crisis forced people away from Detroit and engineering careers lacked a glamorous perception in the US in the 1990s and early 2000s. The number of people in the engineering field has been dropping over the years in the US, Europe, and Japan. In contrast, the Mexican government decided to promote engineering as a career in universities, and the country is now producing more engineers than the entire EU. On top of that, the cost of an engineer here is about half of the cost in the US, while we knew that labor in our plants was highly skilled and disciplined. For these reasons, we decided to increase the amount of engineers we had in Mexico. Our objective was to have 1,000 engineers by the end of 2013, although it is also a matter of the work they are tasked with. An engineer straight from university understands the basics of engineering but not the unique complexities of the automotive industry. We put our engineers through a very aggressive and comprehensive training plan that includes time in the classroom, as well as time spent at Ford’s main engineering facility in Detroit. The complexities of the tasks being delivered by our Mexican engineering team have been increasing over time. Our local team will soon be able to develop the top hat of the vehicle, which is the main driver of the purchasing decision of customers. The team will be able to develop full top hats in 2014, which shows their capability has grown to be on par with other engineering facilities around the world. Ford’s core engineering is still done in Dearborn, Michigan, and Cologne, Germany, but Mexico is third in terms of capability. We have tried to replicate the same processes in Brazil and China, but the performance in Mexico has been the best.
Q: What advantages has Ford received from being an early investor in Mexico?
A: We have been in Mexico for 88 years, so it is natural for us to make regular investments as our need for extra capacity has increased. Ford has also wanted to take advantage of the competitive cost and quality benefits Mexico offers.
The availability of both skilled and low-skilled labor has been a major attraction. About 50% of the population here is younger than 25 years old, which will lead to a steady workforce supply over the next 20 years. Mexico’s 12 free trade agreements also offered many benefits for us. While other countries have built walls to protect themselves, Mexico really opened itself up to the free flow of merchandise around the world. The influx of investment is also bringing opportunities in terms of suppliers coming in, which gives us more options as there used to be only a few suppliers in Mexico. Five years ago, we were purchasing around US$500 million of production materials in Mexico, while last year we bought over US$9 billion of materials in Mexico. We have been investing in our plants but also in our suppliers. This investment has helped to grow their capacity so they can supply high-quality, low-cost materials to our plants in Mexico and around the world.
Q: What have been the key achievements of Mexican engineers that have forced the industry to recognise their strengths?
A: Firstly, our engineering management team in Mexico has a great deal of experience and has put together an excellent employee development plan. The team members are offered the chance to develop their management skills as well as their technical skills. Going from 100 engineers to 1,000 means you need to find those people that can make the right decisions and train them as supervisors, managers, and directors. Developing your business also means retaining the right people and removing the ones that will not get where they need to be. We were disciplined in implementing the required procedures to control operations and work flow. Discipline was built in from the bottom up to make sure that everybody knew their priorities and which issues needed to be tackled at the right point in time. We have very strict metrics to monitor performance, and when we measure these results, we see that the Mexican team has really outperformed other teams. We will move beyond the top hats and increase its ability to deliver sophisticated engineering and design projects.
Every single engineer in Mexico has some objective that Ford does not have elsewhere in the world. These objectives revolve around innovation, including very complex designs, like the surface of the roof trim. The roof trim may look simple but it is incredibly complex to design, as it must comply with safety and appearance requirements while also being high quality and low cost. This was done at our design center in the US where designing that one piece could take six weeks. We assigned this task to a group of young Mexican engineers and asked them to reduce the process time from six weeks to one day.
They created a process which takes thirty minutes using mathematical models in software that designs the piece itself. We have been using the same processes forever and suddenly these young engineers in Mexico are surprising us with new innovations. This has made Ford’s top product management developers stand up and pay attention.
Q: What is Ford’s strategy for investing in new technology?
A: Ford invests in technology because it is part of how it views the automotive business. We have always tried to innovate for our customers. This started way back when Ford was the first to use the assembly line. Ford’s main philosophy is not to have technology for technology’s sake, but to apply it to a wide selection of vehicles and make it available to the masses. We are not MercedesBenz or BMW that use technology to justify a premium brand. We want everyone to be able to benefit from better safety, lower emissions, and lower congestion. We are also working on telematics, data exchange, and alternative fuels. The future of propulsion systems is a matter we have been tackling for some time. We are asking what the engine of the future will be like, whether it will be electric, hybrid electric, or the fuel cell. Nobody knows for sure. It will depend on which technology becomes affordable for the masses and meets their requirements. Electric vehicles have the lowest level of emissions from production to end user, but their limited cruising range and lengthy refuelling time does not make them useable for the masses. The battery life and capability is increasing but we do not know how far they will improve. For now, hybrids are the most viable choice, as drivers can use the electric or gas modes.
Q: Mexico has a young population, which is great from a sales perspective. What should make Ford the car of choice for these new consumers?
A: There is a lot of potential for growth but many things need to happen for it to materialize. For the last few years, local sales have stalled at around 1 million new units, dipping to 700,000 during the deepest part of the recession. By comparing the Mexican market with the Brazilian market, Mexico should be selling about 2 million units. In 2013, it sold near to 1.1 million so we have a long way to go. As for why customers should choose Ford, we have the right strategy in terms of product. We offer the same products all over the world, so no one feels left behind. Why should consumers in Mexico not have access to the same model of the Fiesta as those in Paris? The other elements center around our core areas. Safety is key and we are the only manufacturer in Mexico to offer airbags in all of our units. We are constantly working to ensure we have the best fuel economy and the best quality. We have made vast improvements in these areas but a lot of work remains to be done.