Ford Motor Company (F) Earnings Call Transcript & Summary

Good afternoon, and welcome to today's Ford media conference call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mark Truby, Ford's Chief Communications Officer. Please go ahead.

Okay. Thank you, Becky, and thank all of you for joining us today. Since the strike was escalated last evening to include Kentucky Truck plant, we wanted to provide a little bit more insight on to all of you on the impacts that we will be feeling and what this means for our business. Today's briefing is on the record. The materials and slides you see will be available for download, and the recording will be posted online. We'll have some brief speaker remarks, and then we'll turn it over to you for questions. Our speakers today are Ford Blue President, Kumar Galhotra. We know Ford Pro CEO, Ted Cannis; Vice President, Americas Manufacturing, Ford Blue, Bryce Currie; our Chief Supply Chain Officer, Liz Door; and Rhett Ricart. He's a Dealer Principal and CEO of the Ricart Automotive Group. So with that, Kumar, let me turn it over to you.

Thanks, Mark. As Mark said, the UAW escalated its strike strategy this time to the Kentucky Truck plant. This plant builds Super Duties, expeditions and Navigators for us. It is the biggest -- it's one of the biggest auto plants in America and the largest truck plant in the world. But this goes way beyond just hitting Ford's profits. This is a significant new development in our negotiations with the UAW. We know UAW leadership set out to wound forward for months, but this goes way beyond just hitting Ford's profits. We'll address what this means for our customers, for our economy and our employees. But before that, the question really to be asked is why escalate against Ford in the first place? Just to keep few key points. The Wall Street Journal recently reported that UAW workers are the best paid auto workers in the world. The record effort we have made would widen that gap substantially, making it even better. Our offer includes unprecedented improvements in wages. This offer would put employees among the top 25% of all U.S. jobs, hourly and salary, provide great benefits. We provided product commitments for every UAW factory and provided job security commitments. It would change the lives of our employees for the better. So all things considered, it's an incredibly positive offer. Now as a company, if we go further, we risk the ability to invest in the business and profitably grow. And profitable growth is best -- in the best interest of everyone associated with Ford. The UAW themselves publicly described our offer as the best offer on the table. And we bargained in good faith this week on joint venture battery plants, which are slated to begin production in the coming years. But as we've said, it does not make sense to do a deal that would ultimately not give -- ultimately not only agreed -- not agree to a deal -- that does not allow our business a chance to survive and grow. Board wants an EV transition that preserves jobs and is committed to reaching an agreement that allows for that. We are demonstrating that we want to achieve a record contract and a strong future for our employees. The UAW responded to our efforts by taking down our largest truck and SUV plant. Kentucky Truck plant is one of the most important manufacturing plants of any kind in America. It's certainly in the automotive industry. We want to take a moment to take you through the various aftershocks that happen when a plant like this is taken down. So let's take it from a few different perspectives. For customers, Super Duty is the work truck of choice for top industries, and this strike hurts their ability to get the trucks they need. For employees, 8,700 workers are now earning strike pay instead of full pay and taking down Kentucky Truck plant will hurt profit sharing. For suppliers, over 600 suppliers feed into Kentucky Truck plant, they will have to lay off workers. For dealers, Super Duty is more than 10% of their sales. Navigator is more than 20% of sales for Lincoln dealers. This immediately impacts their Super Duty customers who range from small to large business owners because they rely on the Super Duty for their livelihood. For all the jobs that exist because of Kentucky Truck, we're talking well over 100,000 families potentially feeling the impact. For the economy, Ford employs more than 12,000 people in Kentucky and supports a state GDP contribution of nearly $12 billion. And that's a good thing. Being profitable benefits everyone associated with Ford. Kentucky Truck plant sustains jobs and factories that aren't as profitable. It's part of how we maintain the full portfolio of vehicles for our customers. It's also part of how we fund our EV investments and the modernization of our company. If Kentucky Truck plant were a stand-alone business, that revenue would be more than Southwest Airlines, more than Marriott International, more than Nordstrom. Much of that is driven by Super Duty. We're talking about F-Series, America's best-selling truck for 46 straight years, best-selling vehicle since 1981. And all of our full-size trucks are assembled in America with UAW labor, which is unique to us. So that's what we want to take you through today so that everyone understands the true impact of taking down this plant. We have some of our leaders here, but we also have Rhett Ricart to walk you through all these impacts. So Ted is going to kick us off. As you know, Ted is the CEO of Ford Pro. Ted, over to you.

Thanks a lot, Kumar. Super Duty has woven so deeply into every community across America. It's really hard to imagine life without it. Super Duty pickups and chassis cabs are the #1 choice in the utility, mining, forestry, construction and service industries. And you might be surprised to know that at Kentucky Truck, we've already built more than 1,500 Super Duty trucks this year for uses as ambulances and first response vehicles. America's first responders rely on our heavy-duty trucks more than any other brand. And Super Duty pickups and chassis cabs are the #1 in that emergency response vehicle market. And if we can't ship new Super Duty trucks or produce the replacement parts, we're jeopardizing more than just board profits. And it's not just first responders. F-Series is the backbone of work for the people who build our country's infrastructure and keep it running. These are the utility trucks that crews used to restore power outages and the construction trucks that help build our roads. These are the trusted trucks for a whole host of basic industries and working in neighborhoods and cities around the community. If they're not being built and if they're not available, they're not working. This strike is going to impact all of those customers and by extension, the people who rely on them. And those customers don't get their heavy-duty trucks from Ford. There are other options from our competitors that build many of their heavy-duty trucks outside the United States with non-UAW workers or they're not going to get a vehicle at all and many have been waiting for these vehicles. To share more on the impact to our production system, I'm going to turn it over to Bryce Currie, leading our manufacturing side. Bryce?

Thanks, Ted. We're focused on keeping our customers running and supplying them as best we can. But really, I want to talk a little bit more is about the implications for our people and the families and particularly our Kentucky Truck plant today. Kentucky Truck employs nearly 9,000 people. There are very few factories in America that have more than that as Kumar has stated. Nearly 85% of our permanent employees -- permanent hourly employees at Kentucky Truck earned the top wage rate of $32 an hour. And so for most of our employees on strike or on strike-induced layoffs, they go from earning approximately $1,500 per week on average to $500 a week in Strike Pay. So you can see how the disparity is growing for those who have been in strike for 4 weeks now, such as Michigan assembly plant and Chicago assembly plant. It's affecting people. And since Kentucky Truck plant is responsible for about 16% of Ford's global revenue, we can also assume the profit sharing for '23 will be impacted for all of our UAW representative Ford employees as the strike drags on. Previously, we've also explained how the ripple effect when a strike targets part of our interconnected production system. The work stoppages at Michigan assembly and Chicago assembly have also forced more than 1,900 layoffs from interconnected plants. So when we go to Kentucky Truck plant, it's even more. It's a major piece of our production footprint. We have 13 facilities that are either upstream or downstream of Kentucky Truck. We anticipate at 9 of those plants in the coming weeks will have as many as 4,600 people affected by the strike. And I want to stress that this will be a prolonged impact. Even if the strike is short lived because bringing a plant back up is much more difficult than taking it down. And that's not just on the manufacturing plants within Ford, but it goes likewise for our suppliers. So normally, a vehicle rolls off the line at Kentucky Truck every 37 seconds, but it will be a slow ramp up before we can return back to that level. We're dealing with the cold start. And what I'm going to do is turn it over to Liz Door, who runs our Supply Chain to explain the effects that, that we'll also have on our suppliers.

Thank you, Bryce. The ripple effects of the UAW strike are extending far beyond Ford. So far, the work stoppage at Michigan assembly plant and Chicago assembly plant have forced more than 13,000 layoffs so far at nearly 90 supplier sites. The fragile supply chain will be nudged further toward collapse with this strike at Kentucky Truck plant. In the U.S. alone, over 600 parts supplier locations and thousands of supplier jobs support Kentucky Truck plant. We're hearing from our suppliers as they evaluate the restart process that it will take up to 4-plus weeks to achieve our full production rate. Some suppliers will have to recruit for new hires to replace employees who leave for other work. The replacement workforce will need training if this matter does not resolve itself quickly. While suppliers are only one piece of the puzzle that is hurt by these strikes, every Ford job supports 11 other jobs from dealers, suppliers to commercial customers and community businesses according to a study recently done by Boston Consulting Group. That means that this strike has the potential to reach much further than the 9,000 jobs at Kentucky Truck plant, impacting approximately 100,000 in the broader economy. Now I'd like to turn it over to Rhett Ricart, a Dealer Principal and CEO of Ricart Automotive Group, and he has another view on these ramifications.

Thank you, and good afternoon. I appreciate the opportunity to speak with you today from the 3,000-plus Ford and Lincoln dealers in every community throughout the United States. Our commercial vehicle business for ourselves here in Columbus, Ohio is about 20% to 25% of our business, very significant. But it has to do with the emergency, the police and other communities that were under -- actually under contract to not only maintain the servicer vehicles, but also when it comes to ordering and supplying them in the future. Ford Motor Company is the 900-pound gorilla when it comes to the commercial industry when you saw on the video earlier, but the key is that those are customers out there, and those are communities. So we hope, the dealers hope and pray that they can come together with a conclusion to this because it not only affects our union workers and the workers on the assembly line, it affects the 3,000 dealers throughout the United States as well as their families and as well as the community's customers, all of the people that we touch every day to bring their vehicle in, to get them back out on the road so they can keep our communities safe and protect it. Those are our main concerns, and we are all 4, as I said before, hope and praying that we can come together with an amicable solution to this.

All right. Thank you, Rhett. We have our whole panel here, everybody that you heard from: Kumar, Ted, Bryce, Liz and Rhett, and we have a few minutes for questions. With that, I'll turn it back to the operator. Betsy?

[Operator Instructions] The first question today comes from Mike Wayland with CNBC.

Two questions. Just first, what was being discussed. I mean, what are the sticking points currently for the negotiations? I think you mentioned the retired benefits on the EV plants. But I mean, are we still talking to find pensions and things that the Union wanted to get back? And secondly, how quickly do you expect the ripple effects to occur from Kentucky Truck to other Ford plants as well as suppliers?

Maybe Kumar take the first one and then Bryce, if you can take the second.

So we've been working with the union quite intensely for -- obviously, for the last several weeks. And this last week, the 2 areas we were talking about, you're correct, was pensions and also the battery plants. And frankly, we thought we were making progress on both, and we're quite surprised at the escalation. As I said earlier, we've made an outstanding offer. It's great wages, it's great benefits. We've been bargaining in good faith. It's a -- the battery plants are not a straightforward proposition, unfortunately. It's a very complex area because these are joint ventures. The plants aren't even built yet. We haven't hired the workforce yet. So workforce isn't unionized yet. Yet, we are very open to working with them on the way forward on the battery plant. So those are the 2 key items we're working on, and frankly, we're surprised by the escalation yesterday.

Bryce, do you want to take the second question?

Sure. With respect to the ripple effect, we expect within the week there will be impact on some of our component plants that supply to KTP. As you know, you have engine transmissions, stamping axles. So they will have effects throughout the week and into next week if this were to continue to go on. And that can also have outward effect on some of our other assembly plants because of our stamping that is within the Kentucky Truck plant.

The next question comes from David Shepardson with Reuters.

I just wanted to follow up on the battery plant question. I understand the constraints you referenced about where the plants are in terms of being built and they haven't started production. Do you know yet what GM has apparently agreed to with the UAW? Is that a template that you think you could embrace or something similar, some framework with the UAW, but including workers under the master agreement? And on your economic offer, I mean, is that -- is the offer you made -- is that it? I mean do you see any potential room to move up? Or is this basically your final offer to the union?

Thanks for the question, Dave. On your question about are we aware of what GM has done. We're only aware of what's been said publicly by the union. We, on our part, have come at this in multiple different ways and made several proposals to the union on how we could move forward on it. As I said, fairly complex from both JV perspective as well as legal perspective. And we were -- we thought we were working through those potential proposals. But clearly it wasn't good enough for them because they escalated it yesterday. On the economics, I would say, yes, we're pretty much -- we have reached our limit. We've actually stretched ourselves to get to this point. That wasn't done in a vacuum. That was done in multiple discussions with the union leadership, both the union and international leadership as well as the Ford department leadership. And we're still working on to get this done. But broadly, I would say, when I say we're working to get this done, we're open to moving some money around within the deal that might fit the union's needs better. But broadly speaking, from an overall cost of the deal perspective, yes, we're there.

The next question comes from Keith Naughton with Bloomberg.

Perhaps Bryce could address this. But the union is saying that actually forward over the -- since last proposal 2 weeks ago or I think it's actually 10 days ago. Ford has been indicating that there would be more to come on the economic proposal that there was room to improve it, and that's what they were asking for yesterday. What do you think of that characterization? And how would you counter that?

We have been very clear that we are at the limit. And like I just said, Keith, we stretched to get to this point. Going further, will hurt our ability to invest in the business like we need to invest. I am surprised -- I haven't heard that directly from them. But if refused, if you're saying that they're saying, we were indicating [ their re-movement ], we have given no such indication. Now we're open and like I said, again, open and willing to work with them within that framework within a certain amount of total cost of the deal that might fit their needs better.

The other thing I would say is the strong focus for us and guidance from the Union over the last week was to focus on our battery language back and forth as well as what we were working on with respect to retirement and coming up with some creative solutions. So that's what we did.