Subcommittee on the Automotive Industry in Canada Committee on March 9th, 2009

[David Mondragon]

Okay.

[The Chair, Conservative, Michael Chong]

You have the floor, Mr. Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Welcome and thank you for your testimony. Last week, the media reported that Ford would not be taking part in the Salon de l'automobile in Quebec City. What message do you think the automaker's absence is sending to Ford dealers, and also to Ford's Quebec customers?

[David Mondragon]

We were in the Montreal auto show, which for us covers the Montreal-Quebec market. We had a great presence there. We introduced our new world B-car, the Ford Fiesta.

The Canadian introduction was in Montreal, which is a very important market for us. It's a very car-driven market. The mix of cars far outweighs the mix of trucks sold in Montreal and Quebec versus the rest of Canada. It is an important market for us.

Due to financial constraints--and we are managing our finances very closely at Ford--we are cutting back in areas where we think we can cut back. Rather than make a poor showing, we will make a no-show at some of the events. We felt that the coverage at the Montreal auto show went extremely well, with over 200,000 people in attendance, and we felt we could represent the Quebec market at that auto show. As well, we had most of our dealers from Quebec come to Montreal for the introduction of our new vehicles as well as some dealer meetings during that time.

[Robert Vincent, Bloc, Shefford, QC]

I see. Mr. Himanshu Patel, an analyst with JP Morgan Chase, maintains that while Ford may not have immediate liquidity problems, the lack of a marked turnaround in the U.S. auto sector means that Ford is only 9 to 12 months behind GM in terms of needing financial assistance.

In your opinion, is this analyst close to speaking the truth when he talks about Ford lagging 9 to 12 months behind?

[David Mondragon]

I guess we at Ford would beg to differ with the analysts. We feel that we have a good financial footing today. We have over $24 billion in liquidity today, and we feel we have a financial footing to weather the storm. We are also working very closely with all stakeholders to try to find other avenues to strengthen our financial position, thus strengthening Ford Motor Company in total.

As a matter of fact, I handed out one of our cards, which is the fundamental plan at Ford. It talks about four key components. It's under “One Plan”.

And I apologize, Robert, that it's not translated. We will get you a translated copy.

It says we will be “Aggressively restructuring to operate profitably at the current real demand and changing model mix.”

Next it says that the second key component of our plan is to “Accelerate development of new products our customers want and value.” And that's happening today, as we bring out seven new vehicles over the next six months. They're resonating with Canadian consumers, and that's evident in the fact that our share has grown over 200 basis points in the last three months.

We also plan to “Finance and to improve own balance sheet.” We'll finance our way through these very difficult times and manage it through the very, very tough decisions that we're making at Ford.

And then we will “Work together effectively as one team.” That's the Ford Motor Company, our dealers, and our suppliers.

If you look through some of the actions Ford has taken, they're pretty substantial. We've cut over $5 billion in costs over the last three years. We are well positioned to manage our business going forward. We've eliminated excess capacity, closing 17 plants to right-size our production capacity in line with real customer demand. And we've right-sized our workforce, drawing down 60,000 employees over the last three years. Since 2005 we've retired 60,000 employees, 15,000 of them salaried and 45,000 of them hourly employees. We've reduced our labour costs, negotiating favourable agreements with our UAW and CAW partners. We've continued to invest in advanced technology while doing this. And we're leading on fuel efficiency in the market, with quality, safety, and technology that has really differentiated our brand in the marketplace.

Again, we've made very difficult decisions, and this plan at Ford started three years ago. These cards have been in place for over two years, so it's not something that just came about when the economy turned south and the industry got tough. We've been planning for this and we've built ourselves a financial reserve so that we can manage through difficult times ahead, and that's what we're doing as a company.

[Robert Vincent, Bloc, Shefford, QC]

Today, the UAW and Ford reached an agreement in Detroit. Do you expect that an agreement will be reached shortly with the CAW?

[David Mondragon]

First off, we heard tonight that the UAW agreement was ratified, and we're very pleased with that. We have great working relations with the CAW and a long history of good relations with the CAW. The conversations are starting now, but outside of those conversations, we're not free to discuss any of those negotiations.

We do not, as a manufacturer, have a production or cost advantage today in Canada versus other North American jurisdictions. And we're hopeful that through these discussions with the CAW we'll be able to bring our costs in line with other areas in North America.

[Robert Vincent, Bloc, Shefford, QC]

If we continue on the same path and lose 25% or 28% of our market every month, at some point, Ford will no longer be able to get by without asking for government assistance. You said that everything was going well, from the standpoint of restructuring your operations, plant closures and layoffs. However, if new car sales continue to slip dramatically, what do you expect to see happen in the coming months?

[David Mondragon]

Our plan is to make the difficult decisions we have to make as a company to finance our way through this difficult economic time. We are working with key stakeholders, we work with some bond-holders, we're working with the UAW, and we're working with the CAW to manage our finances very closely. We're making very difficult decisions inside our company, so that we do have the stability, so that we do have the liquidity.

The key to Ford, though, is staying on our plan, not veering one inch from our plan. If you ask anyone at Ford, they'll tell you, they'll recite these four key tenets we have, and we are moving our business forward.

At Ford, it's a product-led transformation. If you look at our product and you look at where we've been and where we are now, things are a lot different just from the past few years. We used to sell a 60% mix of trucks and a 40% mix of cars. By 2010, our sales mix will be 60% cars and CUVs and only 40% trucks—far less dependent on trucks and big vehicles on the road, and taking advantage of smaller cars that are more fuel efficient, with better technology and better safety, to drive our business and meet the needs of consumers, especially here in Canada, and especially in markets like Quebec and Montreal, where they demand the utilization of smaller cars that fit the needs of their infrastructure.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Mondragon.

We'll now go to Mr. Lake and then Mr. Masse.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

I have a few questions. Obviously, I'm not going to ask you why you're in a different position from some of your other competitors, because you've kind of answered that question a little bit.

One of the things I'm interested in, in terms of where we're going from here, is that in late February, in your 10K filing, Ford indicated the industry sales volumes below 9.2 million in the U.S. may trigger the need to draw on public funds. Do you anticipate you'll come forward with a request for assistance in the future? It sounds as if various suggestions are that we might be in the neighbourhood of 9.5 million units. We're getting pretty close. Is 9.2 a trigger point?

[David Mondragon]

I wouldn't say right now. I think it's not healthy to speculate on what a trigger would be.

There are a lot of difficulties in the industry. Our plan is to finance our way through it. Again, we're making difficult decisions. We're working with all our key stakeholders, and we want to make it through on our own. We've got product that's viable, that's relevant to today's consumer, and we think with the introduction of these vehicles we'll stabilize our market. We're looking in Canada at a market that's going to decline 13%. The U.S. decline is far more exacerbated than the Canadian decline. However, we're following the same trajectory as the U.S. If we don't stem the tide here in Canada, we're going to fall into that same sinkhole they've fallen into. We've got to anchor at sea; we've got to stabilize our industry and start growing from there. We're hopeful we'll be able to do that.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Of course, you're far more affected than just the 13% drop in sales in Canada. What percentage of vehicles that you manufacture in Canada are actually sold in the United States?

[David Mondragon]

Approximately 80%.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

So you're significantly affected by the drop-off in the States. I think it's a relevant question for us as we move forward. We're trying to make key decisions for the industry. It is important for us to know what the chances are that you're going to come to us for help in the future. I'd like to maybe hear a more specific answer to that.

[David Mondragon]

Our intention, again, is to finance our way through these difficult times. Based on what we see today, in the economy today, as turbulent as it is today, our intention is to finance our way through it. We have ample liquidity today. We're working with key stakeholders to strengthen our financial position, and we can manage our way through some very difficult waters.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Manage your way until when?

[David Mondragon]

It's not helpful to speculate. It's not helpful for us to speculate, nor for our employees, for our consumers, or for our dealers to speculate. It's not helpful for the economy for us to speculate.

Based on what we see today, based on the environment as difficult as it is today, and given the fact that our vehicles are resonating more today than they have over the past three years with consumers in Canada and in the U.S.—our market share is growing in the U.S. and in Canada, which means we're growing in an economy and an industry that's declining—we're getting a bigger piece of that pie. And I said, in Canada we're up 200 basis points in terms of our share of the market. We think there's great opportunity to grow that even further as we introduce seven new vehicles over the next six months—more than any other manufacturer. We have that same leverage in the United States as well.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I do want to follow up on that. You talk about your sales relative to other companies, and I think there is an important point to be made there. How much of that advantage that you have in terms of market share--let's be clear, you're still dropping in sales but your market share is a little higher--is because of the perceived strength?

I think one of the challenges we have is that the more we talk about the weakness in each individual company, the less likely people are to buy cars. That is one of the dangers of going through the process we're going through. How much does your perceived strength help you weather the storm to an extent?

[David Mondragon]

Can you elaborate on what you mean by perceived strength?

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

You're not asking for money when everybody else is.

[David Mondragon]

Let me pass around what we'll call article F-1. You can take a look at it. I like to use this as an example.

[An hon. member]

Can we introduce articles like this?

[The Chair, Conservative, Michael Chong]

If we're going to distribute documents, they have to be in both official languages. We do have members of the committee who use the other official language.

So unless it is in both languages, I'd ask that you read it into the record.