Ford Motor Company (F) Earnings Call Transcript & Summary

Good day, and welcome to the Bronco fireside chat. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to John Murphy. Please go ahead.

Thanks, Sandy, and thanks, everybody, for joining us. This is a very exciting call for me. First -- and all of us, I think, especially the Ford team. But first and foremost, we just want to hope that everybody is staying safe and productive in these tough times. This is a bright star in these tough times. So hopefully, this cheers people up amidst some of the mayhem that's going on out there. Today, we're very happy to host the investor reveal of what I believe is one of the most important product launches in decades for Ford and potentially for the industry, and that's the Ford Bronco and the Bronco family. We'll start with a presentation from the Ford team, transition into a fireside chat to cover what we think are some of the really big questions that we think investors should look at and from a product standpoint, I think everybody should be looking at. [Operator Instructions] There's also slides that are available on the Ford IR website. And if for some reason, you can't get to the Ford IR website, please send an e-mail to Aileen Smith, aileen.smith@bofa.com on my team, and she can get the slides off to you as well via e-mail. Now admittedly, I am personally a bit of a Bronco junkie myself. I own a 1970 uncut, largely original truck and also a functionally restored 1972. So it's actually in even better shape than the '70 with a Stroppe roll bar. So it's -- they're really fun trucks. They're both 308 -- 302 V8s, 2.5-inch lift. They're a beast to drive, a total blast. People think that they're tough to drive, don't understand what this truck really is. It's really just a joy and a great product in these old trucks. And I can't wait to drive the new one, so I'm going to keep wrangling the Ford team on that. The buzz over the last few days since the launch has really been amazing. I would certainly encourage anybody who has not seen it yet, you can hop on YouTube or the Ford website to look at the global unveil. It's a really great few minutes. It gets you really excited about the product and what it's going to deliver to the consumers that want it and will pay for it and the market, which is largely white space to where Ford is playing right now. So it's a really, really exciting time, I think, for Ford and this product launch. Now to discuss the Bronco and the new Bronco family, I'm very excited to have Jim Baumbick, Vice President, Enterprise Product Line Management; Mark Grueber, Manager of U.S. Consumer Marketing; and Lynn Tyson, Executive Director, Investor Relations. And with that, I'll be quiet, let Jim give us really the magic around the new product. Jim?

Thanks so much, John. Appreciate you for having us today. If I go to Slide 2, I know everybody's here to talk about Bronco, but I think it's really important to put Bronco in the context of the broader transformation happening at Ford and our ongoing efforts to build a much more durable, winning portfolio for the future. Today, we have incredible strengths in the portfolio and they're the foundation of our playing to win strategy. We know work and we love our customers that rely on us to help keep their businesses thriving with our world-class trucks and commercial vehicles. We absolutely love bringing families together with our 'go anywhere, do anything' capabilities of our utility portfolio. Now these everyday adventures are what bring families together and make memories that we all have. We love connecting customers' passions with exciting performance products like the Mustang. And one of the reasons, the consistent kind of connectors between these products and -- is that these customers have a human connection or a bond with these vehicles, as do we. The customers just absolutely love these vehicles and that's what we're really trying to create at Ford. If you go to Slide 3, last April, I shared with you how we're shifting and changing the way we work at Ford using Enterprise Product Line Management, or EPLM, as a catalyst to institutionalize a change at Ford. We're shifting from doing traditional research to much deeper customer insight leverage and design thinking, doing things in a more iterative co-creating way with customers to get to know our customers in a much, much more intimate way. We're shifting from kind of traditional, hierarchical decision-making to a much more agile, empowered and accountable teams to kind of drive speed, fitness and better solutions for our customers. We're moving from kind of a willingness to subsidize underperforming product lines to a clear implementation of a playing to win strategy that's built on a fundamental of a fresh product portfolio with new product news every single year. And we've organized the business around these product line businesses to ensure that there's clear end-to-end accountability from the strategy to the product execution to the performance in the marketplace. These product line teams have a crystal-clear mission: win with customers, move fast, stay fresh and own the outcome. If you go to Slide 4, and this is a chart that I shared when I was at BAML in April of 2019, and I expressed at that time our ambition to add to this list. A fundamental tenet of our approach, our strategy, is to ensure that we're channeling the capital to the strongest businesses, and in many cases, where we've created a competitive environment inside the company where the best ideas win, and those ideas are anchored to results. There's a really famous quote for me, something that's always stuck with me, from our Founder, Henry Ford. And the quote is, "Your reputation is not built on what you're going to do". The last time we spoke, I showed the Ranger was the #2 medium-size pickup outside the U.S. So quick update for the team. We've upgraded that to the global #2 and there is 0 ambiguity on our overall ambition in this space. There's another big change on the page and that's the Bronco that we're here to talk about today. And hopefully, you did catch the reveal on Monday night. And if you haven't, I would highly encourage you to check it out. We think the Bronco perfectly represents what I mean about more deeply understanding our customers and channeling all that energy into what matters most for those customers to play to win, so I say it's game on. If you go to Slide 5. Now fresh products are central to the health of a winning portfolio. We're very excited that we'll be replacing and have one of the freshest lineups by replacing 80% of our portfolio through 2020 and this is key. What's really important is maintaining freshness over time. One of the metrics I'm most proud of over the last 2 to 3 years is that we've architect and tweaked our plans to maintain freshness at BIC levels. And we just want to keep the pedal down with new product news every year and that's a statement post-COVID to the extent that we're trying to look forward on our plan. Our efforts to refresh will continue throughout the plan, where we'll replace over 100% of our portfolio by 2023. We'll have an average showroom age of about -- right around 3 years, 3.1 years in 2023. And in fact, in some cases, we're going to turn some of those products to fresh twice in that 6-year period. Fresh product is absolutely essential, but it's not sufficient to actually win in the marketplace. We have to continue to drive deep customer centricity in every aspect of our business, certainly in the products, but the opportunities are even larger on accessories, services and experience, the entire ecosystem focused on winning with those customers. So let's shift to the Bronco and maybe bring it to life with that as an example. On Slide 6, all you have to do is go look. And John, you can probably attest to this, the average price for a vintage or even a well-used, late '60s or early '70s Bronco, to see passion and emotion, you heard it in John's voice. We looked at all demand spaces and found that the rugged adventure utility space has more than tripled in volume and doubled in retail share of industry since 2010, incredible growth. Now in that time, 6 nameplates made up nearly 65% of the volume of that space. And here's the cool part: Gen Xers are driving the growth in the vehicle class. They've almost doubled since 2016. And you add to that an outdoor recreation industry of nearly $900 billion that is growing at an annual rate of 4.3%, an explosion of Gen Xers and millennials driving growth in camping and overlanding. And you wrap that up with the fact that without truly playing to win in this space, the #1 cross-shopped brand to the Jeep, is Ford. Enter the Bronco family. If you go to Slide 7, our human-centered design approach on Bronco get us very close to Bronco customers, allowing us to learn what they want and it really came down to a couple of key things. You've got to have capability. These customers want to cut new trails and limits are really not for them. And that's where you see it in the Bronco's class-leading capabilities. Customization is incredibly important. They want these Broncos to represent who they are as individuals. They want to be able to make it their own and customize it in their own way. We've been thinking about this from day 1 and architected that into the Bronco platform. Open air, they want to push the boundaries, feel alive and they want the air. They want to feel free. And they want simplicity. The new Bronco needs to have the latest technology, but just enough, not too much. And you see that in the way we've offered the various different trim levels, so we could speak to those that want something a bit more pure to the 1960s or those that want a lot of technology. And most importantly, and we heard this from every single person we talked to, and this is why we wanted to make sure we had to get it right: it had to be authentically a Bronco and nothing else. If you go to the next slide, Slide 8. Now our EPLM team has been working very differently, in much more agile ways. This is a collection of photos using non-precious prototypes, foam, wood, things like that, in some cases, cardboard, interacting with customers using these types of non-precious prototypes to test out ideas. Some of them actually weren't great ideas, but we actually learned something. We got insights from those customers and we iterated that, turned it into new and different ideas or better executions. Just about every one of the features we've shared about Bronco has started somewhere in this context, with an idea that we tried to [ rough prototype ] and countlessly iterated it to just get it right. In the picture on the upper left-hand corner, I was joking as my team was pulling the slides together. It's probably the most endearing photo of that prototype. It was pretty rushed. But it's an example of a concept buck that we built in the very early days, making architecture choices with wood and foam and [ bar stack ], where we're trying out different roof and door concepts. And what's really important, we really wanted to go wide and be divergent in our thinking. We looked outside the industry to push the boundaries of modularity, so customers can truly make the Bronco their own. And we have a lot more to tell on that story. If you go to Slide 9. With all those customer insights, it was clear. As I said, customization was critical. We'll have well over 200 OEM accessories available to cater your individual Bronco to you and even more to talk about as we get closer to Job 1. We needed to stretch our thinking for our customers to address pain points that we see in competitive products in new and different ways. I have a place on the west side of the state that's near an ORV park, and you don't have to work very hard to walk outside and see kind of doors leaning on a tree or chained to a tree. If you think about that, what's lost about the spontaneity of doors off and open air? Why not take them with you? That was the simple question that we started with on the 4-door model. And that's where the doors onboard, EZ AIR stowable doors concept really came from. Now when you remove those doors in a competitor's vehicle, you lose your mirrors. So like that's the question. Why should your ability to see what's behind you or next to you be compromised with an open-air experience? That's why the Bronco mirrors are mounted to the cowl, so they're with you, doors on or off. And one of my favorites is open air. We spent a lot of time talking about this and working through different iterations. Our open air ensures unobstructed views of nature for everybody, regardless of where you're sitting. So just like if you ever watched a baseball game sitting behind a pillar, this won't happen in a Bronco. If you go to Slide 10. Not everyone has the confidence to rock up to Johnson Valley and run a top trail, but our goal with the Bronco was really to flatter the novice and enhance the expert's experience. Things like trail mapping system that we've got available on Bronco works online or off. It allows the users to download hundreds of available curated trail maps to drive and then enables you to track, capture and share those adventures with your friends. Trail management system with G.O.A.T. Modes, a Bronco exclusive and allows customers to adjust the tuning of the vehicle to the specific type of terrain they're traversing and then just a whole host of trail-assist technologies to make the overall experience better. And just to give you a couple of examples: an available 1-pedal drive to manage acceleration and braking control in various different maneuvers versus a 2-pedal actuation, something much easier for the novice to use, but actually, as an experienced driver, a fantastic feature to just augment the capability and the attention traversing a challenging terrain; or a front-wheel spotter camera that gives you more precise and confident control when you're doing slow-mode rock crawling on those tough off-road conditions to avoid piercing the sidewall of your tire; and one of my personal favorites, Trail Turn Assist, the ability to avoid the need for 3-point turns off-road. You hit a switch, the rear inside wheel locks that serves as a pivot point, accelerate or rotate the vehicle. It's awesome. Last but not least, Bronco has over-the-air update capabilities that will allow all of our customers to keep their vehicles up-to-date in a very convenient way without significant downtime, reduce service trips and most importantly, a really important part of this, improve their vehicle experiences over time with new content. If you go to Slide 11 and I'll wrap up. I want to wrap up by kind of sharing an update and a preview of things to come as well as to give you a progress update on our portfolio plan. Last time I was with you, I mentioned that we were looking at Michigan Assembly Plant, just put a boundary diagram around it. And the application of our strategy moving from products like C-MAX and Focus at the top, shifting to more targeted, differentiated and winning products like the Ranger and Bronco resulted in about $1 billion EBIT improvement. Well, there's much more to the story. And as we execute a similar change over in Hermosillo from the Fusion and MKZ, on the bottom left, to the Bronco Sport that we just revealed and the all-new, affordable, white space vehicle that I shared with you last time and I'm dying to talk about it, but I can't share any details on it today, we see the EBIT improvement climbing to over $1.5 billion for both those locations combined. To me, that's what a winning portfolio starts to look like. All in all, the changes we've made with our EPLM approach, our laser focus on customers using human-centered design and an incredible cross-functional, product-creation team are really truly starting to bear fruit with products like the Mustang Mach-E, the new F-150 and then this week, the Bronco and Bronco Sport and we got much more to come. At the moment, we're very focused on -- laser focused on execution and methodically implementing that play to win strategy. So with that, John, I'll turn it over to you, and we can kind of transition to the Q&A.

Well, Jim, thank you very much for all of that detail and we're looking forward to hearing more as it seeps out as we get to closer to Job 1. But maybe just to start and talk about sort of the details of the vehicle. There's been a decent amount that's been released. We see 6 models, ranging from the base at an MSRP of $28,500, I think up to the Wildtrak at -- a little over $51,000. Then the first edition, I think, was over -- just over $63,000. Those are MSRPs. And as you mentioned, there's a lot of option packages that I would imagine consumers in this segment are going to take. So I'm just curious if you have a view, maybe sort of in the launch phase and then maybe steady state, on actual transaction prices or maybe mix that you're expecting? Because the MSRP is a guide, but it's really just a guide at the moment. There's a lot of layers to what the ATP ultimately will be.

Yes. I can start with that, and then, Mark, you may want to add to that. We -- I think what's really important is in a launch year and given the pent-up demand for Bronco, I think, certainly, we expect to launch very strong and we're getting incredible response since we've opened up reservation. And the Bronco is going to have a starting MSRP of $29,995, which, for its capability, we think is hitting the sweet spot. But certainly, when you look at this segment, there's an incredible amount of customization and ability to augment and add to your vehicle. And so we think you'd expect this bandwidth and that's why you see kind of the tailored different packages that we're offering as we segment a vehicle and a vehicle package intended for a customer's purpose. Mark, I don't know if you want to add anything to that?

Sure. I think just adding to that, the reservations will certainly provide us a great opportunity to match our production with demand. Like a lot of new vehicles, you would expect that, at the start, some of the customers will be more what we call a rich mix as far as some of the higher-priced trim series. As Jim mentioned, really, our approach on Bronco is to offer a wide range of different series, different packages and content and powertrain to satisfy all the different types of customers that are out there because everybody wants to make it their own. And I think a real strength of Bronco is that it's set up to appeal to so many different customers. We'll be able to adjust and target each of those different customers.

Okay. So I mean it sounds like these -- like once again, these are guides and things are probably going to be very rich to start with. It will be interesting to see where it settles in. When we look at the option packages, there's a number out there. And the Sasquatch is the one that's probably the most interesting and most appealing, I think to -- I mean a lot of people that are looking at the truck. As you look at those, I mean is there any way to kind of give a range from high to low of what might be charged on the option packages. And these are distinctly different than what the aftermarket accessories are, which we'll get into in a second. Is that correct?

Right. So these are all from the factory, John. And the Sasquatch package is the one that we're really proud of. Essentially, it's our package that includes the 35-inch tires. That's a segment that -- exclusive to offer tires of that size. Typically, customers have to do that in the aftermarket and it can be expensive to do that. So not only are we offering 35-inch tires on the new Bronco, we're offering it on every single series. So even if you want a kind of a back-to-basics kind of base series or the high-end series, you can get those 35-inch tires and it includes some functional content like front and rear lockers on that. So we're going to be announcing pricing on some of the options and more details on that coming soon. Today, we've simply just announced the pricing for each of the series, a starting price range of the 7 different series.

Okay. And when you look at the 200 aftermarket accessories that you have in the pipeline as things stand right now, I don't know if you can give us an idea of what those are. And could there be anything in the aftermarket accessories that might be included in an OTA update where some functioning on the truck or something in the HMI system may change or be upgraded? Could that be part of the equation over time?

Sure. Maybe I can start, and then Jim, I'll pass it to you on some of the over-the-air piece of it. But there's a number of different accessories that I could point to right now that will be available at Job 1, part of the 200-plus accessories, it will be available at your Ford dealer at the time of launch. One of my favorites is what we call internally is bring your own device. So basically, what we would see with our customers is they would be mounting their phones or their GoPros or navigation devices and they would have to figure out how to attach that to their vehicle. So we've got an attachment device that mounts right on the top of your instrument panel and it's even powered and so you can easily attach any of those devices to your vehicle without tearing up the interior. We'll have a ton of different functional content like rock rails and modular bumpers, different top options for the customers, things such as winches and off-road lights, a slide-out tailgate when you just kind of want to hang out in the back and maybe at a football game or out at a campsite, so just a bevy of different options, in addition to all the traditional options such as roof racks, et cetera. So just an enormous amount of accessories for the Bronco. And I don't know, Jim, if you wanted to touch on some of the over-the-air in the future?

Yes. Just maybe 2 additional comments. This is a space that I am incredibly excited about. We think the accessories opportunity is enormous and this will be an evolving story as we get closer to Job 1, a lot to tell here. This is where we actually look, not just internal to our industry, our competitors. We said some of our customers there, 25% of those that buy our competitors' products spend more than $5,000 on their vehicle. In our own experience on things like Ranger and F-Series, we see customers spending between $700 and $2,000, on average, to customize their vehicle. So the key here was we've really thought about Bronco, the Bronco platform and the way we've architected it as a platform. And we want that to actually evolve and build out over time. And we sought some inspiration outside. When you think of the UTV space, incredible amount of customization in that marketplace. So there's a lot of opportunity and a lot more to tell about how we're approaching on Bronco. And on the OTA side of this, absolutely, to your question, John, the intention is that your vehicle will get better over time. And it will be another channel of post-Job 1, after you buy the vehicle, to enhance your experience with features and services that we can make available and deployed through over the air.

And when you look at these accessories and OTA updates, how will they be delivered to the consumer? And how will the economics be shared or not shared necessarily with the dealer group? I mean will this be sort of FordDirect with some of these aftermarket accessories, where you're ordering them online and installing them yourselves? Or would these be items that -- or accessories that would be the dealer will participate in the installation and the economics? Or is that still TBD?

No. I think we're going to play in both camps. But when I said we're thinking of Bronco as a platform for customization, many of these will be available to order as you order the vehicle.

Okay. That's exciting, at least for me, hopefully. And over time, we're launching with the 6-model range, plus the first edition, which are limited. So it seems like it will be 6 models to start. But over time, sort of in your mention of product freshness and replacement rates, will there be other models that are released, maybe like a Baja version or a Raptor version? Is that the kind of thing that we can expect to see over the years?

We think Bronco has a lot of bandwidth. We're not in a position to talk about future product plans, but we think there's a lot of life in Bronco and we're constantly looking at a wide range of possibilities.

Okay. And then just lastly on the vehicle details. There's been some discussion and some people have been critical that you don't have an EV variant. That's obvious, which I -- on this truck, I actually don't think you need it, but that's a larger discussion. But it does seem like you have talked and clearly made it clear that you're going to have a hybrid version. Is that correct? And is that something that would be available in the near term? Or is that sort of a mid-cycle change in the product or addition to the product lineup? I'm just curious what you think about that.

Yes. At the moment, we think we've got the right powertrains for our customers and the way to use the vehicles. That's how we ultimately made the decision. We're constantly looking at how we can enhance and grow the Bronco, but it has to be authentic and hit those needs and capabilities. So we're really excited about our 2.7 and 2.3. We think that's the right powertrain for the way these vehicles are being used, especially for our off-road customer.

Okay. And then the Bronco Sport, which is getting lost in the shuffle. It's another very good product, but maybe a little bit less flashy than -- or exciting than the Bronco itself, but still a very, very good vehicle. I'm just curious. I mean that's going to launch by the end of this year, so it'll launch ahead of the Bronco itself. How are you kind of differentiating and marketing that to get airtime as you're seeing just the air sucked out of the room by the Bronco, the Bronco itself, which is a fantastic, high-class problem to have. But you've got this new smaller product that's coming out ahead of that. What's the sort of the marketing plan there? And how are you pushing and differentiating the Bronco Sport in the market?

Sure. So we're really excited about the Bronco Sport. I like to call it the Bronco of small utilities. It's an extremely capable product that's really, I think, going to surprise a lot of people. It's -- as you mentioned, it is a different product than the larger Bronco 2- and 4-door and we see a distinct customer that still wants the Bronco but needs potentially a little bit smaller vehicle, may not need quite the level of capability and cargo carrying of the larger Bronco. So the Bronco Sport will be arriving at dealers late in 2020 and it's got the same DNA as the larger Bronco. It's for those customers that want to get back out into nature. They want to get to the trailhead and that's where their adventures begin. And they might go biking or hiking or what have you then. And so the team really spent a lot of time understanding that customer experience and made sure this Bronco Sport is ready for fun, ready for adventure. So it's got just a lot of great details and designs on the vehicle, things such as a cargo system in the back, where you're able to have a foldout table. You can store a couple of mountain bikes even inside the vehicle, mounted straight up, because of a safari-style roof and just a ton of capability in this vehicle that again, is going to get you to that adventure and get you back with confidence. And then it's just -- it looks like a Bronco. It's every bit of a Bronco and it's ready for adventure.

Just to add to that, John, I was just going to say, the other part of this is outside of it's a really capable vehicle. And one of the things that I would add to Mark's comment is it's even got a twin-clutch rear deferential unit. And with torque vectoring, it does amazing on sand. But when you think about where the Bronco and more of the Bronco family, one of the things that we've seen over time, and I think this is where the positioning of our utilities becomes really important. So if you think of an Escape, it's a bit more of a design-oriented, self-expressive type of target customer. And that's very different than a customer that aspires to be rugged, outdoor, that desired imagery and capability to get back to nature. And we saw 2 very distinct customer groups in that rough size of vehicle and that's really what inspired us to actually go in 2 different directions. Because you can try to thread the needle down the middle, but then you're not really being authentic to one or the other. And this is where we thought we can really amp it up. And when we talk to customers, those that actually more aligned with that more self-expressive desired imagery, how they want to be seen, it's polarizing to them. They love the Escape and they're not so interested in the Bronco. But the exact opposite happens and that's where you get this match between imagery and capability. And we think there's 2 very large constituents of customers that we're going to serve uniquely.

Yes. No. It's interesting when you start cutting the consumer segments and the demand. And I guess that gets to sort of the next question, or question group, is what are the target customer demographics, income levels or regions that you're going after? And I'm just curious if you're getting any insight early on in the reservation process that maybe you could talk about what you're seeing in the reservations as well.

Sure. So the reservation data, again, we've been very pleased with the high demand for the Bronco and Bronco Sport. We're really seeing broad appeal across the country. California, Texas, Northeast, Southeast, we're seeing demand throughout the entire country. And I think it really speaks to the Bronco's positioning. The original positioning of Bronco was -- the original code name was G.O.A.T., which actually meant goes over any terrain. And Bronco has always been great at all different types of terrain, whether it be mud or sand or rocks. So Bronco, we think, is going to appeal to customers all across the country and the initial reservation data is supporting that.

Yes. I mean I don't know if you can disclose this, but I mean -- and we can certainly see this for some of the things like the first edition being shut off for reservations at the moment. I mean I'm not sure if you can disclose exact reservation numbers or reservation numbers relative to at least your expectations. I mean it seems like the interest is through the roof, at least from what we can tell anecdotally.

Yes. It's -- we've been very pleased with the amount of demand and the reservations. There was so much demand at the time of the reveal on Monday night that even though we anticipated a lot of it, it caused some of our servers to really be challenged there. So we are still taking reservations on both Bronco and Bronco Sport. And it's been extremely high demand that we've experienced on both of these products. And -- but again, we've been happy with it, and we continue to take reservations on ford.com.

Yes. I would encourage anybody to go check it out and put a reservation in because it's a fantastic product. But if you think about the competitive position and the potential for brand extensions here, obviously, the Wrangler and Jeep are what I think a lot of people are looking at. But just curious, as you think about the demographics of who's coming in, the strength of the product, could Land Rover ultimately be considered as well? And when you think about brand extensions here, I mean how far could this go? I mean what we're looking at is the 3 -- or the 2 Broncos, the 4-door and the 2-door and the Bronco Sport at the moment. But could this become a whole brand lineup that might go a little bit further than that and be something more similar to what Jeep has as far as its portfolio or even Range Rover -- Land Rover?

Yes. So John, I think you're touching on a really important point. My comment, I'll just -- and I'll repeat it. I think the Bronco brand, Bronco family has incredible bandwidth, and we are certainly looking at a wide range of possibilities. That being said, we are laser focused on getting the Bronco we just announced out and out with quality and on time and using that focal point, incredible response. We're blown away by just how much energy there is this week and it's not a small task to blow up a bunch of servers. So there's a lot of excitement around the brand. And I think that just fuels opportunity of exploration for the future.