Ford Motor Co. sees its vehicle prices in 2024 coming down to levels comparable to 2019, with more incentives and smaller dealer markups, Chief Financial Officer John Lawler said Thursday.
In remarks made during the Barclays Global Automotive and Mobility Tech Conference, Lawler said the company wants vehicles priced to take a smaller portion of consumers' monthly disposable income. In 2019, car payments on average accounted for about 13.5% of a buyer's disposable income and that grew to 15.7% in 2022 and then dipped to about 14.5% in 2023, he said.
Ford closely monitors pricing and spending levels, Lawler said
"We expect that it's going to revert back to that run rate of about 13.5% as we move through 2024. That's about another $1,800 per vehicle," Lawler said. "Dealer margins are still high, so let's say that $800 of that will have to come out of the dealers. And incentives will probably increase by roughly $1,000. ... So that's how we're thinking about 2024. That's all in the plan that we've set up, how we're planning for 2024."
Ford doesn't see any pent-up demand for gas-powered vehicles, Lawler said. "We don't think there's any pent-up demand left. ... We think pricing is going to be important, that's why we see over the next year or so prices coming down."
Ford expected its 2023 UAW contract costs would end up being about two times more than its 2019 contract but, instead, it ended up being four times the previous contract, with the historic gains, he said.
As a result of the new contract, Ford said in a news release earlier Thursday, its labor costs in North America will increase by $8.8 billion over the life of the 4½-year contract due to gross wages, accelerated wage progression for workers and cost of living adjustments.
John Lawler, Ford chief financial officer, speaks from Dearborn in March 2022 when the automaker unveiled its plan to create Ford Blue and Ford Model e, two divisions designed to fuel electric vehicle and technology development.
Still, the company is confident, Lawler said. Ford is planning for higher profit margins with simpler vehicle design, faster vehicle build times, improved quality protocols that reduce warranty issues and growing digital support for business clients. Ford Credit will see its role expand from providing vehicle loans to offering loans for other services, such as building charging networks, Lawler said.
And commercial business is strong, he said. "Our order books are beyond our production capacity today. Pricing remains strong."
Financials move in the right direction
From 2018 through 2021, "Ford's free cash flow in international operations was $9 billion negative and in the past two years? Two billion dollars positive," Lawler said. "We made the decision over a year ago ... we were sinking close to $1 billion a year in autonomy. And we said, 'Hold on, we don't see how that technology is going to be there' ... We backed off on them."
Meanwhile, Ford is focusing on its successful Blue Cruise assisted driving operations.
The company did lose $1.7 billion in production in 2023 due to the UAW strike that began Sept. 15 and ended with a tentative deal in late October. It included an 11% wage increase the first year and totals 25% over a 4½-year contract, plus a $5,000 ratification bonus and cost-of-living adjustments. Ford employees ratified the contract in mid-November.
Electric vehicle plans tweaked
Another area of savings, Lawler said, is in battery production and building electric vehicles. While buyers are buying EVs, they are selling more slowly than originally expected. So, Ford is adjusting its investments in real time: The Marshall plant in Michigan will be about half the size of the original plan, the Kentucky plant will not immediately be outfitted with equipment, and efforts to speed up electric vehicle production will slow down for now.
Ford is focused on capital allocation and how best to spend its money, when and where while adjusting to a "dynamic environment," Lawler said.
"You have to adjust as you see what's happening with the customer," Lawler said. "It's not about not moving forward on our electric plans. ... We're matching capacity with demand."
The company is not changing strategy but rather tactics of executing the strategy, he said. Being out front on hybrid production, specifically with the F-150, is generating significant revenues that can't be matched by competitors who build trucks but failed to develop hybrid versions.
Ford F-150 Hybrid trucks shipping.
Perhaps Ford became "complacent" in talking about its hybrids because the company has been quietly building them for happy customers, Lawler said, but not fully appreciating the role they play for pickup owners who haul such heavy loads that an electric vehicle isn't an option at this time. Hybrid vehicle sales continue to make gains, based on third quarter data.
High-tech execs at the helm
Ford has seen commodity costs come down, improved supply chain management and a renewed focus on harnessing the "opportunity" to cut warranty, material and structural costs, Lawler said.
"For the first time in a number of years, I really believe that we are having the right conversations about the root cause issues in this space," Lawler said. "Now, is it going to turn around overnight? No. You're going to start to see progress. I fully appreciate this is a show-me situation. I can talk up here for hours and I don't think anybody is going to really believe it until we start driving it home."
From supply chain and the way the company sources and the issues about concentration and "being completely exposed to individual suppliers on key commodities where we have absolutely zero leverage? That's impacted us significantly for the past two years," he said. "We're going to fix these problems."
Ford CEO Jim Farley took the helm in October 2020 and is credited with hiring Silicon Valley talent with experience in battery technology and electrification. Currently, the company counts on its highly-profitable gas-powered vehicle unit Ford Blue and business unit Ford Pro to subsidize the electric vehicle operation known as Ford e.
Ford has studied its early technology adopters, as well as new customers attracted by battery-operated vehicles. Lawler said EV customers will not pay premium prices and that the gas and EV vehicles will see prices more closely aligned.
"Pricing has come down much quicker than we expected or I think than anybody else expected," Lawler said. "... Eventually, over time, you're not going to see a premium for electric vehicles. And that's very important as you're setting up your business equation. We've learned that this year."
