Ford CEO sees good outlook for U.S., hot prospects abroad

By Maria Bartiromo, special for USA TODAY, One on One
Updated 3h 10m ago

Ford Motor CEO Alan Mulally predicts a comeback for the U.S. economy, but the booming demand in emerging markets overseas is why he's hiring thousands of U.S. workers to ramp up production. Mulally calls manufacturing the foundation of the economy and job growth, and says tax reform and new trade policies would encourage other U.S. companies to build factories here to meet the demand abroad. Below is my conversation with the man who left the cockpit at one American manufacturing icon (Boeing) for the driver's seat at another: Ford. The interview has been edited for clarity and length.

One on One By Maria Bartiromo

By Mario Tama, Getty Images
Ford CEO Alan Mulally sits in a Ford Mustang GT outside the New York Stock Exchange after ringing the opening bell on June 7.

Q: The economy seems to have entered a soft patch. Things feel as if they have gotten worse. What are you seeing?

A: We see a gradual recovery in the U.S. The first quarter was an expansion of around 1.8%. We see an expansion of around 2.3% of GDP in the second quarter, then a further expansion in the second half, around 3% of GDP. The main reason is that we're getting the Japanese disaster behind us economically. We see the oil prices receding. Those two things have clearly had a dramatic impact on the economy in the second quarter. So, further expansion in 2012 and, long term, the takeoff of the middle class around the world, we see a 3% to 4% economic expansion worldwide mid-decade, and a 2% to 3% continuing expansion in the U.S. because of population growth.

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Q:How significant has Japan been for the auto sector and for Ford?

A: Japan was a terrible disaster, and had a very big impact on the automobile industry worldwide, especially the Japanese producers. We were very fortunate to be able to work around most of the shortages as we got the supply base back up and operating. It hasn't affected our operations significantly, although we are in shorter supply of many of our vehicles that consumers want. We're gradually working our way through that.

Q: Have you boosted production because of the volume disruptions?

A: Yes, we increased our production in the second quarter, and we'll continue to set our production to the demand as the economy grows.

Q: What can you tell us about the quality survey recently where Ford's rank slid to 23rd from 5th last year? What happened?

A: These results are mainly associated with two things that we were doing that we absolutely believe in, but it takes a bit more work to get them right. One was Sync and MyFord voice-activated communication navigation system in the car. There was feedback that we could do a better job on that. We incorporated most of that feedback, and we think we're making great progress on improving the system.

The other one was, as we develop even more fuel-efficient vehicles, we're moving to more five- to six-speed transmissions, especially the dry clutch. We found an opportunity to improve the shifting more to the likings of the way the consumer expected it to operate. Those two areas are the areas we reported recently that we had an opportunity to improve. But we feel like we've got solutions in hand, and we're on our way to moving back up.

Q: You say this is a real manufacturing story. A lot of people worry, with India and China growing the way they are, what does the U.S. manufacture? Do you have any ideas in terms of creating new jobs in this country, not just for the auto sector, but throughout manufacturing?

A: We have to make manufacturing a priority. Seventy percent of all the research and development investment in the U.S. is associated with manufacturing. It's the foundation of everything associated with the economy. Everything needs to be looked at through that lens. How do we create an environment that allows manufacturing and business to grow? Our tax policies, our trade policies, our education policies, everything that we do needs to be looked at through the lens of competitive manufacturing worldwide, competing with the best in the world, and growing our economy.

In Ford's case, we are now making that full family of vehicles here in the U.S. We're doing it profitably. We're competing with the best countries in the world. We're going to be hiring 7,000 new employees over the next two years. One example is in Chicago, where we're making a new Explorer, which has a 30% improvement in fuel efficiency. And we had just announced that we're going to be creating nearly 1,000 jobs there. We're also going to be exporting that vehicle to 93 countries around the world. There is no reason the U.S. can't compete with the best in the world when we decide that that's important for us as a country.

Q: Do you worry that while you have been beating everyone in the U.S., that your competitors have been ramping it up in China, and that you're late in this huge market?

A: No, we're not, because we have a good presence in China. But we are relatively new there compared to some of our competitors. In most of the emerging markets, we have a good presence. The most important thing that we did was to fix our European operations, fix our U.S. operations, then use our global Ford brand to bring these fantastic vehicles to the consumers in the emerging markets.

The neatest thing about China is that you're not taking market share away from somebody else. You have a chance to serve lots of new customers, because they are growing so fast. The Ford brand is one of the strongest, most aware brands in the world. In Brazil, with our new products, we're going to be covering nearly 82% of the market. In Russia, we have six new models over the next few years. In India, we have eight new models, and we'll be participating in nearly 70% of the total market.

Over the next five years, we're introducing 15 new vehicles (in China), and we'll be increasing our participation in the total market from 22% to 50%. We're increasing our production capability, as well as Henry Ford's vision that we operate everywhere around the world.

Q: You said recently that you're going to spend more on commodities in 2011 than you did in 2010. We're seeing the price of rubber and aluminum and steel and, of course, oil, move higher. Will those prices stay elevated for a while?

A: Yes. It's being driven by the higher growth economies around the world, and bringing those raw materials to the market and matching the production to the real demand. We are seeing continuing increases in commodity prices and also anticipate that going forward. Our fundamental plan is to work with the entire extended enterprise to continue to work on quality and productivity together, and make the products that people really do want and value, and offset those commodity increases.

Q: What are the hottest sellers right now? What are consumers gravitating toward?

A: They are interested in the full family of vehicles. Our plan five years ago was to have a complete family of small, medium and large cars, utilities and trucks. Today, especially with fuel prices moving up, quality, fuel efficiency and safety are a reason to buy. And we're seeing a gradual shift to smaller and medium-size vehicles, but also very strong demand on the larger vehicles and the trucks. They want the best quality, fuel efficiency and safety, no matter what size vehicle that they choose.

Q: Are we finally seeing real acceptance on the part of the consumer to fuel-efficient vehicles? It's taken a long time to get traction.

A: Right. The smaller and medium-size vehicles are taking hold in the U.S., and Ford, over the years, has made great small- and medium-size vehicles around the world. The new Fiesta, the new Focus, the Fusion, the Taurus, the Escape.

Q: How does new population growth work into your five-year outlook and plan?

A: This is a very exciting development, because China is growing tremendously. It's the largest automobile market in the world. If you look at the projections this last year, in 2010, we had 74 million vehicles sold. Our projection is in 2020, that'll move to 112 million vehicles. In China alone, it'll go from 18 million, which is about 25% of the entire market in 2010, to 32 million in 2020, which would be 28% of the market. Solid markets in the Americas, very solid markets in Europe, and then tremendous growth in Brazil, in Russia, in China. Ford's strategy is to serve all these markets and also to utilize our resources worldwide so we have more global platforms.

Q: What's happening in Europe? How has the debt crisis affected business?

A: Europe is still in the 15 million industry range, very strong market. Over time, to the mid-decade, we anticipate Europe will be in the 15 to 17 million (range). That compares in the U.S. to 15 to 17 million by mid-decade. Of course, Brazil, 4 to 5 million; Russia, 3 to 4 million; India, 5 to 6 million; and China, 24 to 28 million, we think about in the mid-decade, which would be an industry globally of 95 to 100 million vehicles. The basic assumption that's made on a trend of economic expansion in the U.S. (is) of 2% to 3%, and 3% to 4% globally.

Q: You're talking about a very strong mid- and long-term outlook for the company and the industry. In the near term, do we need to get through some of these hurdles, such as what's going on in Europe, what's happening in the U.S., the possible soft patch?

A: We definitely have challenges around the world. Asia Pacific is aggressively dealing with inflation. You mentioned the European issues, the issues in the U.S. with the budget and trade deficits.

But the encouraging thing to me is that the leadership around the world is clearly focused on economic growth and expansion. That is creating an environment that enables businesses to grow and the consumers to have the confidence that the economy is expansion, bringing down the employment rate so that we can further grow the economy. I'm very encouraged by the attention and the focus that the leadership is planning on paying to economic development.

Bartiromo is anchor of CNBC's Closing Bell and anchor and managing editor of nationally syndicated Wall Street Journal Report with Maria Bartiromo. Follow on Twitter: @mariabartiromo. To see previous columns, go to bartiromo.usatoday.com.

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