The Derry man putting Ford back on the road to recovery in Europe

New car sales may be on the rise after five forlorn years of pain on the forecourts, but the motor industry still needs to face up to a simple truth: it is producing too many cars for the European market. That’s the diagnosis of one of the highest ranking Irishmen in the industry globally.

According to the chief financial officer for Ford of Europe – Derry native Lyle Watters – the level of overcapacity across the European market is somewhere between five million to six million units – roughly a quarter of the 20 million units a year production capacity estimated to be in play in Europe at present.

“You have got to look at where we came from: the industry is running this year at around 13.6 million units, but you look back to 2007/08, the industry in Europe was running at 18 million units,” he says. “I don’t think we will see the industry back to the 2008 levels in the next five years. You may get back to the 15 million range by then.”

The only solution for the long-term viability of the European motor industry is to take out production capacity. However, that is easier said than done.

As Watters explains: “The US took care of it because there is effectively one government and they had the ability and the political will at that time to do it. You don’t have that same level of political will in Europe.

“You have different countries, different governments and I think, on balance, they support capacity coming out of the market, they know it needs to happen, but ‘not in my back yard’.”

Despite this, Watters and his colleague Steve Odell, chief executive of Ford of Europe, have grappled with the issue head-on since the board gave the go-ahead for a five-year restructuring plan for Europe.

"In 2013, we closed Southampton, we closed Dagenham stamping and tooling, and we took the decision to close Genk in Belgium. That took about 18 per cent capacity out of Europe for us and we expect it to generate gross savings in the order of $400-500 million annually."

The softly-spoken Northerner is clear about his focus on returning Ford’s European operations to profit. The efforts are starting to bear fruit.

Results for the third quarter of last year showed Ford reporting record third-quarter pretax profit of $2.6 billion, up $426 million. It was the company’s 17th consecutive profitable quarter.

And while it continued to lose money in Europe, with a pretax loss of $228 million for the quarter, this figure was 51 per cent less than a year ago, suggesting the losses are easing.

Closures are just one part of the restructuring plan; new product is equally important.

Mulally remodels Ford
"A while back we talked about launching 15 new models in Europe in five years; we have now moved that to 25 new models and, as part of that we are bringing in the EcoSport from South America, the Edge and Mustang from the US. First and foremost in my view you have got to get the product right," says Watters.

Putting models on a global stage – selling Fiestas in the US and Mustangs in Europe for example – is at the heart of the firm's "One Ford" strategy, largely designed by chief executive Alan Mulally, who had been headhunted from Boeing in 2006.

Mulally’s arrival is credited with changing much more than the firm’s model strategy, however. He has also overhauled its corporate culture.

“You will have read about the fiefdoms that existed within the firm at that time and the power within each of those,” says Watters. “What Alan was able to do was to get them to work together, to create a culture where people weren’t afraid to say, ‘I’m off track’.

“There was a landmark management meeting where, just after he came in, he was going around the boardroom table, using his traffic light scorecard for issues and projects, and they were all green. He said: ‘How come the metrics are all green and the results are as they are? Is everybody really green?’

That's when Mark Fields (head of Ford North America at the time and now chief operating officer) held his hand up and Mulally stood up and applauded.

There was a real message in that: it’s okay to bring bad news. “What we have now is a greater culture of openness and transparency, because if you don’t get a problem on the table, you’ll never be able to deal with it.”

Watters describes how this new culture operates in practice.

“Every Thursday, Alan has the global business plan review. We have the environmental scan of what’s going on outside in each region politically, economically, in the industry and then have a run through all the functions.

"You see what's happening globally, and that's what One Ford is about. With the financial markets as they are, something happening in Asia could quickly impact here and vice-versa."

Derry to Dearborn
Taking a global perspective seems well-suited to Watters, who consistently speaks with a world view. That's understandable given his globetrotting career within Ford.

One of seven children – four boys and three girls – Watters grew up next door to the family’s funeral business in the village of Tobermore, Co Derry.

His father started the business in the 1950s. Now a sprightly 81, he is still deeply involved in the firm, although one of Watters’ sisters now runs day-to-day operations.

“His incredible passion for what he did, the sense of purpose and drive he still has, influences me to this day,” says Watters.

Given the nature of the business, the Watters family saw first-hand the consequences of the Troubles. “Those were difficult times in the North and, though none of us want to dwell on it, it does have an impact and it does form something about who you are.”

After studying accountancy at Queen's University in Belfast, he was awarded a Wilforge Scholarship to do an MBA at Queen's, where he finished top of his class, winning the Sir Charles Harvey Award.

“I didn’t really have a plan at that point, but I knew then that I wanted to do something different. It was too comfortable to go into the family business.

“For my parents, it was still a given, but for me I think it was the sense of purpose, the sense of wanting to cut my own way in life and make my own choices from there.”

As part of a “Milk Round” at Queen’s, he opted to join Ford. “I did my driving test 16 days after my 17th birthday. But it was just a mode of transport. I liked cars but I never envisaged I would have a career in this industry.”

After seven years in the treasury department of Ford's British office, Watters moved to the global headquarters at Dearborn, Michigan, in 1994 to work at Ford Credit. Within two years, he turned down a posting in Los Angeles to move instead to Minnesota as the financial controller for the Ranger truck assembly plant.

“I think I was the first person to go there as part of a foreign service posting. It was bitterly, bitterly cold and I don’t think my wife has forgiven me for landing her there.”

No bailout
After returning to Europe in 1998, Watters became part of the core team that set up Ford's Premier Automotive Group (PAG).

"We had acquired Jaguar, Land Rover, Volvo, Aston Martin, and Lincoln was in the mix as well. Ford had hired Wolfgang Reitzle, then second-in-command at BMW, to come in and get it started."

The idea was simple: protect brand individuality but leverage synergies behind the scenes.

“We made huge inroads into getting that, because you get scale and you get leverage, while at the same time you keep the brands separate for the customer.”

Ultimately, this multi-brand approach didn’t marry with Mulally’s strategy of One Ford and, when the financial crisis hit in 2008, the PAG brands were sold off. By then, Ford was reportedly just months away from running out of cash.

The US Congress had offered all three Detroit car firms a bailout. General Motors and Chrysler took the taxpayer lifeline, but Ford decided to save itself and implement the One Ford strategy with the backing of a $26 billion loan – described at the time as the biggest home loan in US history – secured before the crisis hit.

Was a bailout seriously discussed at the time?

“A lot of things were discussed at that time. We were constantly looking at cashflow, the level of cash burn, it was a big concern at the time.

“Having that loan in place created huge resolve to get the business back on track. But those were days we hope we don’t have to go through in the near future.”

Personal growth
Ford's cash position is now stable. At the end of the third quarter, it had gross cash of $26.1 billion against a debt of $15.8 billion, giving a net cash position of $10.3 billion.

While Ford must continue to repay its debts, its Detroit neighbours have rebuilt their balance sheets, partly with the aid of debt write-offs from the US taxpayer. Is there any antipathy towards bailed-out rivals?

“At the time that happened we weren’t opposed to them [GM] getting the bailout, because you have to remember the whole industry was at risk and if you ended up having no bailout, you faced the risk of a huge number of suppliers at that time going into liquidation. That would have been potentially catastrophic for the industry.

“But there is also an element of pride about avoiding a bailout. Going into liquidation is not something any company will do lightly.

“You’re right, it does to some extent clear the balance sheet and get that behind you, but at the same time that happened, we were able to sit down with the union (UAW) and have a very sensible discussion, and come to a very good arrangement with them to make sure that over time the other companies who did get the bailout didn’t have a competitive advantage.”

After the disposal of PAG brands, Watters was promoted to the high-profile role of chief financial officer of Ford in South America, one of the regions targeted for significant economic growth in the midst of the global recession.

“For me, it was probably where I had most personal growth. It was a complex region, politically, economically, with the trade issues between the different countries.”

In April 2012, Watters returned to Europe to take on his current role as the region’s CFO and vice-president for strategic planning. That October Ford announced its new plan to return its European operations to profitability.

“We’re looking at being profitable in Europe in 2015 and then longer term we’re looking at operating margins of 6 per cent.”

However, he takes nothing for granted. "You never really fix things in this industry, it's always a moving target with new challenges coming up, but the focus now is on getting Europe back to profitability and to the level of returns we need to see going forward."

CV: Lyle Watters
Name: Lyle Watters
Job: Chief financial officer and vice-president for strategic planning, Ford of Europe
Age: 48
Family: Married to Rhonda, with two children, Olivia (17) and Amelia (12)
Lives: Monday to Thursday in Cologne, the rest of week Essex
Something we might expect: Given his role he spends much of his time in the air. These days he takes commercial flights after deciding in 2009 to get rid of the firm's dedicated Boeing 737, used to transport staff around its European operations. "We took that off for economic reasons. It was the right thing to do. We had a Boeing 737 and I'd take it weekly, but again you do it when it makes economic sense to do it. It was a work tool."
Something that might surprise: One of his first connections with Ford was through the family business and its first hearse, a Ford Zephyr. The car went on to feature in the 2004 movie Mickybo and Me starring Julie Walters and directed by Terry Loane.