Ford Canada CEO Says Auto Industry Needs to Become Flexible

“You can not buy a bad car in North America any more,” said Ford Canada CEO Bill Osborne, ’01 (XP-70). “Everyone makes a good product. There really is no basis for differentiation for product quality anymore.”

Osborne, who spoke with a group of students from the Executive MBA Program at Gleacher Center October 20, said globalization and the demise of market fragmentation play major roles as quality and costs converge across the industry. And now, with 380 nameplates in North America for the consumer to choose among, product competition is based on “innovation, features, styling and newness.”

But what does this mean for Osborne’s company and his competitors in what, he concedes, is a challenging industry to be in?

“It’s no secret what it takes to make money in the auto industry,” he said. “Because it’s a very capital intensive industry it’s all about asset productivity. And the typical model for an automobile manufacturer has always been scale: produce as many as you possibly can and keep the assets going.”

That model is shifting, however. Osborne suggests future success comes from changing the manufacturing chain. “Our feeling is the future is going to belong to those who are fast and furious,” he said. The company now is moving into “flexible manufacturing,” which takes advantage of technologies allowing Ford to learn to build vehicles in small batches in short production runs.

“The life cycle of products in the industry in shrinking,” he said. As a result, Ford has had to shift its financial modeling to invest in flexibility. “If you invest in flexibility, you’ll have something that I learned here at the GSB—real options.  In other words, it may cost you more to invest in the first model with flexibility, but you get the second and third model, which are the real options, for much cheaper than you would investing in an all new vehicle.”

Also, companies now must work harder to build an emotional connection with customers. The “explosion of information” available to possible purchasers about fuel economy, safety ratings, and automobile reliability is eroding brand loyalty, he said.

Yet addressing the consumer’s self expression and emotions can make a difference. As an example, Osborne showed a commercial clip featuring Canadian hockey icon Wayne Gretzky, explaining how it appealed to the country’s loyalty to the sport following a prolonged strike. He then credited the advertisement as one big factor in Ford Canada’s 10 percent increase in sales and gain of an additional one percent market share. “You can move customer consideration and actually drive market share with a positive emotional connection with consumers.”

—Jenn Q. Goddu