Trimming the production suppliers that drastically will not only have a good impact on the bottom line, but it will also increase Ford’s leverage. The amount of parts in the vehicle won’t change, and when suppliers are consolidated, it means a larger piece of the pie for each supplier. That, in turn, means more companies will fight for each of Ford’s production budget, causing production costs to decrease.
This all clearly aligns with the first bullet point of the “One Ford” plan: Aggressively restructure to operate profitably at the current demand and changing model mix.
Along with sharply reducing the amount of global suppliers, Ford is decreasing its amount of vehicle platforms. Right now, Ford’s plan is to trim the number of platforms that all of its vehicles are made on down to nine by year’s end. The plan also aims to have 85% of global sales come from these platforms. Ford is attacking efficiency at every possible angle, and this approach will ensure that bottom-line profits will increase quickly with top-line growth.
Ford’s goal is clear: to be the most efficient profit-producing machine on the planet. It’s on track to do so by following Alan Mulally’s vision. The most important thing for Ford is to increase its revenue by selling into emerging markets and cashing in on its popular vehicles in North America. With the profitable U.S. market surging, Ford has a great opportunity to grow its revenues over the next few years. It’s already extremely efficient, and it will only become more so as cost reductions continue to play out. When revenues increase, the bottom line and stock price will surely follow.
Don’t be afraid of the stock price’s recent run-up. Ford still has a lot of room to run.
The article 2 Things for Ford’s Stock to Keep Soaring originally appeared on Fool.com and is written by Daniel Miller.
Fool contributor Daniel Miller owns shares of Ford. The Motley Fool recommends Ford and General Motors and owns shares of Ford.
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