Freakonomics Radio - 357. Can an Industrial Giant Become a Tech Darling?

Episode Date: November 8, 2018

The Ford Motor Company is ditching its legacy sedans, doubling down on trucks, and trying to steer its stock price out of a long skid. But C.E.O. Jim Hackett has even bigger plans: to turn a century-old automaker into the nucleus of a “transportation operating system.” Is Hackett just whistling past the graveyard, or does he see what others can’t?

Okay, so if I'm looking at your resume, I'm not seeing CEO of an auto firm. Oh, God. You and me both. And yet, he is. I'm Jim Hackett, President and CEO of Ford Motor Company. I have to ask, how did you get to our studio today? A Lincoln Navigator. When's the last time you rode in a vehicle that wasn't made by the Ford Motor Company? Probably a year before I was the CEO.

I actually had three other vehicles in my garage when I was on the board, and I got rid of all of them. Hackett became CEO of Ford in May 2017. But we begin with a big shakeup at Ford. Mark Fields is out and Jim Hackett is in. I mean, look, let's face it, Jim Hackett wasn't on anybody's radar when it came to automotive succession here at Ford. One reason Jim Hackett wasn't on anyone's radar is that he is not what they call a car guy. In Detroit, the world is pretty much divided into car guys and everybody else.

Hackett is a 63-year-old Ohio native In Detroit, the world is pretty much divided into car guys and everybody else. Hackett is a 63-year-old Ohio native who started out in sales and management at Procter & Gamble, then worked for many years at the Michigan furniture company Steelcase, including 19 years as CEO. And after that, he was interim athletic director at the University of Michigan, his alma mater, where he hired the football coach Jim Harbaugh. He did join the board of directors of Ford in 2013 while he was still at Steelcase. But like we said, not an obvious candidate for CEO of one of America's big three automakers. However, as it is often said, desperate times call for desperate measures. And the old line auto industry definitely has an air of desperation about it. Consider the challenges. Decades of foreign competition, the rise of rideshare services and autonomous vehicles, environmental concerns and the rise of electric vehicles, especially the ones made by Tesla. The rise of urbanization with all that bothersome

walking and biking and public transportation. The steep decline in car ownership among young people specifically, and more generally, the fact that we seem to have passed peak motorization, as one transportation scholar puts it. So yeah, welcome to the Ford Motor Company, Jim Hackett. Most CEOs we've interviewed for our Secret Life of a CEO series told us about their challenges and dramatic turnaround efforts long after the fact, like Indra Nooyi of PepsiCo. A few months after I became CEO, there was a financial collapse. You know, the retail environment changed, the U.S. market slowed down. So one had to learn in a hurry how to run this company through extreme periods of adversity. And there's no book you can read. But Jim Hackett and Ford aren't reminiscing about tough times. They're in the middle of it right now. What's wrong with Ford? What's going

on in Dearborn? We're now learning What's wrong with Ford? What's going on in Dearborn? We're now learning more from analysts who believe the turnaround is going to get very painful. They did close under $9 a share for the first time in six years. What's going on with Ford? What's going on is a lot. Hackett recently announced a huge restructuring plan,

hoping to cut $25 billion in costs. This includes a lot of layoffs and a realignment of how Ford does business in Europe, South America, and China. Hackett also announced that Ford will cut way back on making cars. Audios to the Fiesta, Focus, Fusion, and Taurus. Ford says it's going to focus on SUVs and trucks. Hackett said at the time that Ford would, quote, focus on products and markets where we know how to win.

What will those products and markets be? Hackett, for all his old school credentials, has long been enamored with the Silicon Valley growth mindset. Over the past decade, Ford's research and development spending has nearly doubled, and Hackett shows no sign of slowing it down. This has led one industry analyst to say Ford is burning a lot of cash

in a lot of places. Another argued that Hackett will, quote, keep bleating buzzwords like fitness and mobility without any real plan to remake the blue oval. It's recently been reported that Ford is considering some sort of merger with VW, the German automaker that's got its own mountain of troubles. If you had to make a bet on the future of Ford, well, the people who do make bets, stock market investors, they've been pretty decisive.

They did close under $9 a share for the first time in six years. So how does Jim Hackett plan to turn things around? It's beyond vehicles to transportation and actually a transportation operating system. A transportation operating system sounds an awful lot like something a pure technology company might talk about. This leads to several questions. Can a traditional manufacturing company like Ford really turn itself into a modern tech company? What makes Ford think they can succeed when the companies whose turf they're invading, Amazon and Google and Uber, are already so good at what they do?

And what exactly is Ford good at these days? Finally, will Hackett's vision for Ford turn out to be a brilliant repositioning or a desperate grab for relevance? Well, there's a long answer to that. And we'll hear the long answer right after this. From Stitcher and Dubner Productions, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Duffner. Ford CEO Jim Hackett was visiting New York in late September when we sat down with him in our studio. Okay, so the late Gerald Ford, the 38th president of the United States, was a great athlete and played center on the Michigan football team. And an All-American as well. An All-American, MVP of the team. They won two national championships. You also played center for Michigan and are now the

president of Ford. Tell me that's just a coincidence. Come on. That's hard, isn't it? That sounds like conspiracy to me. Yeah. And you know, there's a history there quickly with President Ford because he was sitting in office when I played at Michigan. He loved the team. So he landed Marine One on the practice field, came and talked to the team, went to training table with us. X years later, when I'm running Steelcase in West Michigan, there happens to be a portrait of that evening. Someone brings it in, and it's he and I sitting together. And so I became very close to him after he was president, would talk to him often, always before the high estate game would call him. And the one Ford story I love to tell is that when he was negotiating arms agreements with Brezhnev in Helsinki, they stop the negotiations so he can find out what the score of the Michigan-Ohio State game is. Okay, so this is a parallel out of nowhere, but I think it's appropriate. One of the reasons that football has become dangerous on some dimensions and less on others, you know, the helmet was invented to

prevent skull fracture, and it's done a great job at that. Unfortunately, the helmet is such a good protector that it began to be used as a weapon. Interestingly, with auto travel, cars have gotten so much safer over the generations. Highways have gotten safer, et cetera. I don't know if drivers have gotten any better. That's hard to prove. And yet there's still, last numbers I saw, somewhere in the neighborhood of 35,000 traffic deaths a year in the U.S., more than a million a year globally. You know, it's funny, when you talk to people, people are worried about terrorism, they're worried about murder. But if you ask people how many people they know have been connected with one of those things, very few have.

Whereas auto fatale, we all know someone. So I'm curious, you've taken over Ford Motor Company fairly recently. And this is a way of transportation that totally changed the way that we live our lives in many positive ways and some negative ways. So what I'd like to ask you is consider for just a moment all the positives of auto travel to date and all the negatives and kind of where you see the industry at the moment and what are the big problems or what are the big challenges to address? Well, only with you would I make a connection to football with that question. But like what happened in football, if we studied the mass of the players over that period, mass equals force, right? So the size of the players and your wise observation

that they could move faster and not knock themselves out, cause the brain to take 100% of the concussive shock. So all the design now in the future is about trying to push that outwards and then change the techniques. Mass found its way in automobiles too. So the earliest ones, 1903, 115 years Ford is, Henry worked on a electric vehicle with Thomas Edison. He was a foreman in Edison's factory. And the early models are really light, very small, because they're trying to use bicycle components and things like that. And then as we see in history, as the mass gets bigger, mass production allows stamping tools to take really large sheets of metal. And for a fraction of the cost, if you had to do this by hand,

you get to have them wrapped around those skeletal structures. What's cool about its evolution is that the drive to get the vehicle more fuel efficient means we got to get rid of all that weight. In trying to do that, we actually are making the structures safer for crashes. And then, of course, this isn't a reach prediction, but we won't have crashes in the future. Because of autonomous vehicles and software. And sensing. And a third thing we'll talk about, which is the cloud. Right.

The system that's mediating the interactions of these objects. So we have in computing, there's packets that move really quickly. It's at an atomic level. They could run into each other and do harm, but they're mediated in a way at the speed of light. So we can do this with the design of transportation. At the 2018 Consumer Electronics or ces hackett and other ford executives unveiled several components of what hackett calls the living street and ford's vision of a transportation operating system now the power of artificial intelligence the rise of certain autonomous vehicles they're all going to be

connected. For the first time in this century, we have a mobility technology that just won't incrementally improve the old system, but it can completely disrupt it. So a total redesign of the surface transportation system with humans and community at the center. But he began by addressing the question that a lot of people had to be thinking. You might wonder why a furniture guy would be asked to run an automotive company. We did wonder, and we asked him. So Steelcase was regarded as a great company to work for, which I'm guessing maybe you had a little something to do with.

It was also regarded as, and you were regarded as, the Wall Street Journal called you a pioneer of the open office. And it really did change the way that we began to think about idea to encourage every company in America and the world to redo their offices so that you could sell more furniture. Well, I do need to – And there's nothing wrong with that. No, no, no. I'm going to endorse that notion. But I was not the father of it. By the time I come in as CEO in the late 80s, Herman Miller was really the early purveyor of the open office, and it came from Germany. And the real movement really

started here in New York, which is as the rents went up, it allowed you to get more density. That was really the underlying thing. If I want to take credit for a movement, it was shifting the amount of space that you actually devoted to cubicles and moving that to teams. So I called that the shift between I and we. But to make team spaces really cool and attractive, we had to do some unique things that weren't being done. And I want to give credit here. I buy this really cool little company in Palo Alto called IDEO. And I'm inspired when I- And they're like a design consultancy? How would you describe them? Yeah, that's fair. And noted, David Kelly, its founder, noted for architecting the mouse with

Steve Jobs in its first product. So, Jobs hires IDEO to do design work from outside of Apple forever. So, you know, right until when Steve passes away, he's using IDEO. I meet them and I start learning about the nature of way work might be different watching how they work. I want to tell you I was right about that. It actually changed the way teams work. And there's another hour on that whole thing. But it leads to an important conclusion, which is that Steelcase needs to see itself beyond furniture and be about work. And if there's anything that's enticed Bill Ford, I think, about me was the notion that the company, almost as long-lived as Ford, finds a higher purpose that makes its market now bigger. I've known Jim a long time, personally.

And that is Bill Ford, chairman of the Ford Motor Company, announcing Hackett's appointment. And, you know, we've always clicked in terms of thinking about the future. But make no mistake, he's not just a futurist. He is a very good operating executive. Bill Ford said that Hackett had shown himself to be a transformational leader at Steelcase, that he'd made the company more profitable by seeking out a higher purpose. And so I'm saying the same thing about Ford. I think our higher purpose is that the smart vehicle and the smart world have an interaction in the future that's much bigger

than it was in the past. Right. So as Steelcase is to being beyond more than work, even though it's making office furniture, Ford is beyond transportation, being a mobility company, a tech, et cetera. It's beyond vehicles to transportation and actually a transportation operating system that we can talk about. Hackett's involvement in the Ford overhaul began a few years ago when he was just a Ford board member.

And it's really straightforward. I'm on the board. I'm in Palo Alto with a meeting with the board and Bill. And we're trying to get ourselves around the question of how can we manage the kind of the core business and this emerging thing in parallel. This emerging thing would come to be known as Ford Smart Mobility, a unit meant to boost the company's role in ride-sharing and autonomous vehicles. And I tell the CEO, Mark Fields, I have a great relationship with him, I say, you know, you ought to get somebody to help you manage the emerging business. Your job is too big. You need to do this.

And he said, how about you, Jim? Within a half a day, Bill came and said, that's a great idea. Why don't you do it? And I thought, I ran a company. I don't want to run a company. So it's like two guys playing office. He goes, well, just be chairman and you can hire a CEO. And as I look back on that, I was naive about, because I couldn't go in there and help invent it without running it. And so then running it led to, I had nothing to do with Mark's situation. I wasn't in the boardroom anymore. I wasn't reporting to them. So Mark's evolution out surprised me. You business guys in your business speak.

His evolution out. That's a very general. He was fired, right? The Dearborn automaker parting ways with CEO Mark Fields. If you look at shares of Ford, since Mark Fields took over in July of 2014, it's down 36%. Yeah. But he was ahead on a bunch of ideas. And I would have loved the reverse role. Could I mentor him? I was the old guy. Could I teach him what we're talking about? I mean, I miss having him right now with some of the issues that I'm facing. He really had mastery of.

Well, let me ask you a kind of central of the issues that I'm facing. He really had mastery of it. Yeah. Well, let me ask you a kind of central question here. And I guess this speaks to your ascension as CEO as well because, you know, we tend to attribute failure and success often to individuals or to single events when, in fact, the world is much more complicated than that. That's for sure. Plainly. So here you are, the older guy, as you said, coming in to the company, taking over when Mark Fields was put out. And you mentioned earlier that the big concern for the Ford Motor Company and Bill Ford was how to balance or how to run in parallel the core business, making vehicles, and the emerging business, which is this smart mobility,

cloud-based, et cetera, et cetera. My big question for you is what made all of you think that Ford needed to be in that emerging business? Well, there's a long answer to that, but I'll tell you in the way you've got to think about competitive sets is the nature of what makes a business win over time is not unlike any other kinds of system. The way our bodies win in the battles of the things they have, or the way a football team wins, or the way a market moves. I'm a student of this in complexity theory. And what that tells you is that over time, you have to mutate and evolve because the nature of random things are going to cause more fit things to come at you. So let's just be specific. In the auto industry, it's the randomness of climate conflict.

I mean, it's a real science thing. We're in support of meeting a really high standard. So this starts to birth Tesla, you know. And then you put a rocket scientist, truly, in charge of that, who has a computer background, understands design, I think, really well, and he starts to question the model of the way a vehicle is ordered and built. So he's got a lot of that right, and it's just one, and then he gets copied. And then all of a sudden, there's a company called Lucid Motors that Chinese companies put a lot of

money behind. We looked at it. These are people that are redesigning the car business. So the board sits there and sees this happen over and over again in other industries. And so you don't want to be the one that does that. So the story I tell is let's play Kodak for a moment. And you have to start with the board is smart. They're not dummies. They have the patent for digital photography. They made one of the first digital cameras, right? They were there, yeah.

I know a board member who was there. And the issue is you make more money on chemicals and paper than you do this new idea. So if you're just doing pure investment comparison, stay with the old. So a guy like me, having gone through this in another company that's happened to Steelcase, I'm trained now to look at that problem differently. And I frankly didn't get to talk about that much in the boardroom, but maybe Bill picked that up. And so now I've got to prove, I'm very confident here,

but I've got to prove to a lot of people that we can make the core business really profitable. We're working on that. And the disruption shouldn't scare us at all because we can lead in some areas there. So when I'm done, no date on that, but I want to make sure we're on the right track in both of those areas. Before we get into the specifics, let me just not challenge, but question the premise a little bit more. Because if you look at business history, just look at legacy firms generally, you see that technology and time are really tough on companies.

Most companies don't stick around for too long. And when the technology changes enough, most companies, many try to adapt with the changes and very few do well. I mean, we're watching right now GEs and a really interesting example on a number of dimensions. They went very broad and so on. What makes you think that with that substantial history that Ford is special or that any legacy automaker is special and can adapt and add on the technologies that are so strong and powerful, but not get beat by the companies that are tech firms and telecom firms and so on. Yeah, you've grabbed the essence of the challenge. Here's the affirmation is it did it before.

We just forget. What do you mean? Well, it didn't always have computing in the way a factory was run. It didn't have, you know, the telephone wasn't, I don't think in 1903 was highly pervasive, right? So think of people being paid in the factory out of a paddy wagon with cash, you know, real cash instead of the direct deposit. So I actually have a theory about this, and I've not written, but talked to other CEOs, and I'm getting, I get support. The notion is that over time, you have to think about the business over phases. You can say past, but let's hold that off. You think about now and

far, and I'm going to sneak a word in near, now, near, far. Now, what separates those time spans? Because we could just make up, what's the future? Is it a year? Is it 25 years? What I've bought into, it's science derived. In other words, what makes the increments grow in time is Moore's law. Reed Hastings is on a Charlie Rose interview, and Charlie says, Reed, what do the people in Palo Alto know that everyone else doesn't know? And he said, Moore's Law. And Charlie goes, well, I know what Moore's Law is. And he goes, yeah, but Charlie, you don't understand. We're designing for the next iteration now. That changed me a number of years ago. So, Moore's Law only swallows you up when you don't think about it.

So imagine we're in meetings right now where people are talking about technology in the vehicle. They go, Jim, can't afford it. It's too expensive. People won't pay for it. Well, I know from my friend David Kelly that Steve Jobs would say, I want it in now because I know the price is going to be one-tenth very quickly. So he forced the design to adopt the next iteration. And then, of course, in Apple's case, they made money right away. You know, Ford's got to find a way to make money faster on that kind of theory. So in parallel, you're not just trying to make the product adaptive. You're thinking about the business model is going to be under attack

because the economic principles have totally changed over that time. So what you're describing now are the real economics, but added to your challenge running a company like Ford is stock market psychology, which is a whole other realm. It's based on economics to some degree, but then the market, you but then the market has its own ideas. So I've read, and tell me if I'm wrong, I've read that one thing that led to Mark Fields' firing from Ford was when Tesla, which makes many, many, many, many fewer cars than Ford does, beat it in market cap. I never was in a discussion where that was cited. But let me just cite, I know about myself in this regard, there's a fair amount of stress around, does Jim Hackett get that the market's got to be rewarded for these great ideas? And I totally do, because I did it once before, first of all. And the question is, is the design of the business such that there's a patience factor here and you get rewarded?

So let's talk about Amazon's profitability and its history. I mean— Took a while. Took a while. Let's talk about Apple's—if you look at Apple's stock price when Steve came back. Took a long time. Yeah. And what they want, which those two guys gave, which I know I've got to, is believable momentum.

You know, they could show the compounding of the number of customers. They could show the case of add-on revenue. They could show the case of users, you know, being delighted with products. Because their products were new, though, I'm curious whether they get a novelty premium that you don't get. Fair. I think that happened with the automotive competitor. So we should say, as we speak, Ford market cap, Ford motor market cap is about $37 billion, and Tesla's market cap is about $53 billion, which I'm guessing as the CEO of Ford,

whether you're going to say it or not, is a little frustrating perhaps? We make a new vehicle every four seconds. There goes another. And so you get to observe in their business model, they're trying to get 20,000 of them or whatever the number was built in a quarter or something. But if you were doing the business case, let's say you're teaching at Harvard Business School right now, and the case that you want to study is Ford Motor Company versus Tesla for the moment. And we know what Ford does, what they represent, how they make their money, and we know what Tesla does, da-da-da. And we try to project

it into the future and see what the stock price is really all about. Make the best case that Ford is undervalued right now. And I really believe this. You're not supposed to, as a CEO, speculate on stock price. So all I can say is I'm really optimistic about the PEs understates the real value. First of all, we got an industrial P of six or seven, something like that. A PE is a company's price to earnings ratio, a key metric used by investors to assess how the company's share price relates to its true value. And I asked Jenny Rennetti today what theirs was at IBM. And I think she said 11 or 12. And we were discussing Microsoft's probably in the 20s, right? Now, these three companies, all of them are actually dealing with bits and cloud structures and data, right?

But one's in the 20s, the other one's in the 60s. coming from vehicles or from users in those vehicles or from cities talking to those vehicles as the other competitors that you and I would be talking about that have monetizable attraction. Now, I talk to lots of investors and they go, got it, boom, thumbs up, Jim, go for it. Can you just prove to us that you've got that working? And what you and I just agreed when we saw some of the early tech startups, they could go to market with investors only seeing a fraction of what they were going to become and that caused belief. I do think that's, I mean, you know, who am I speaking to, right? I think that's unfair for industrial companies that are 115 years old. We have a lot of talented people. We can generate returns on that invested capital. And so my belief is we have 100 million people

in vehicles today that are sitting in Ford Blue Oval vehicles. That's the case for monetizing opportunity versus an upstart who maybe has, I don't know what they got, 120 or 200,000 vehicles in place now. And so, just compare the two stacks. Which one would you like to have the data from? I hear you entirely, but I also think, well, who are the companies that have been good at monetizing customer data? And we can name them. There's Facebook, there's Google, et cetera. And have they already mastered or owned that market?

So what makes you think that Ford can monetize that in any significant way, enough to invest in developing that whole scenario? Well, first of all, we already know as a proxy that those really wonderful firms you talk about, like Facebook, we're a great customer of Facebook. They love us. Google loves us, you know, because Ford's a big advertiser. So we talk to these folks all the time. But they don't own the healthcare data market. They're not controlling aviation data today. They may be doing flight reservations. I mean, we can find proxies where there's data and they don't own it. Now, let's let that just be an argument that says they're not everywhere. They're very powerful. The issue in the vehicle, see, is we already know and have data on our customers. By the way, we protect this securely. They trust us. We know what people make. Now,

how do we know that? It's because they borrow money from us. And when you ask somebody what they make, we know where they work. We know if they're married. We know how long they've lived in their house because these are all in the credit applications. We've never, ever been challenged on how we use that. And that's the leverage we've got here with the data. So the question I have is whether Ford necessarily has not only a big role in that, but a big opportunity to monetize. So at the CES presentation, you rolled out a couple components of the living street. One is called the Transportation Mobility Cloud. Our Transportation Mobility Cloud, or TMC, will support the rapid development of services

and applications that will enable people to move more efficiently and have access to smart, connected transportation. Another was called CV2X. CV2X, or Cellular Vehicle-to-Everything Technology, has the potential to enable a city's various components and applications to share information with each other, from vehicle-to-pedestrians and bicyclists to the whole infrastructure, enabling collision avoidance safety systems, traffic signal prioritization, and much more.

And one of the examples that your team gave was on the CV2X component. They described a scenario in which a vehicle without requiring a network can communicate when a driver needs help. Maybe he has diabetes and is going into shock, etc. CV2X can coordinate the response. The system can recognize the driver's distress, send a signal to emergency responders, etc., etc. The vehicle can even send medical records for drivers who have opted in for that.

So when I read that, I think, why is this wonderful-sounding but very complicated-to- solution, having the vehicle diagnose a medical emergency, for instance, rather than, say, a wearable medical device, which I'm wearing. I mean, my smartwatch is that now. of that in your vision, whereby it seems like Ford is describing itself as a major player in this reimagining of the public square, the public space. I don't understand what you bring to it that makes you think that you can be a big player in that space beyond the transportation component. You mentioned the diabetic thing. I'll give you a real one that's working right now. The Los Angeles Police Department drives Ford Explorers. We have a high market share of police vehicles. In an application that is one of our tests, they have this terribly sad story where an officer's on a mission, gets in a wreck, and the airbag knocks him out, so he dies. They can't find him because they're radioing him. I don't know why they didn't have GPS or something like that positioned him. What we've invented with them is that every time the airbag goes off,

it's communicating its location. And now we have a team sitting inside LAPD right now working on a dozen other ideas that we get monetized for because of the data they're willing to share that helps build a response system for them. Okay. So that's in a very use, like a person in their vehicle to the cloud. The promise of the diabetic is, in India, this is really extreme. You can't get an ambulance into somebody that's in trouble. The traffic's too congested. The theory here is the vehicles give priority to that. So they'll know where to go. So if you've been in an environment where the siren's on, you go, do I go right or left? The command will be the way air traffic is. They just tell a plane if it's on a collision course, you know this, they just go up or down. They don't tell them to turn right or left. Our commands will tell you go right or left and everybody's moving the same way and

it knows what the oncoming traffic's doing. But the simple transactions are Ford's reducing the friction in somebody's life. Has Jim Hackett been persuading you that Ford Motor Company is really on the upswing? After the break, we'll hear more, including why Ford doesn't call autonomous vehicles autonomous, and what was behind Ford's decision to stop making cars. So the sedan, you'd be shocked at how the sales have dropped off globally for everybody. And if you want to hear earlier episodes from our Secret Life of a CEO series, visit Freakonomics.com or Stitcher. We'll be right back. Just a decade ago, Ford Motor Company

was the most stable of the big three U.S. automakers. General Motors and Chrysler both declared bankruptcy during the financial crisis and received a government bailout. Ford didn't, although under then-CEO Alan Mulally, it did accept some federal assistance. From both a financial and business perspective, Ford seemed to be in relatively good shape, but that's no longer the case.

Despite a strong economy and stock market, Ford has been struggling even more than the other U.S. automakers, as evidenced by its battered share price. Ford is still the king of pickup truck sales, but Moody's investor service in a recent downgrade of Ford cited, quote, erosion in the company's global business position and the challenges it will face implementing its fitness redesign program. Fitness redesign is Ford's way of saying it's downsizing and restructuring, a fate that Chrysler and GM had forced upon them during their bankruptcies, but which Ford, paradoxically, was able to avoid.

Until now. One big part of Ford's restructuring has been Jim Hackett's recent decision to phase out nearly all Ford sedans currently on sale in North America. Ford has decided to get out of the car game except for its iconic Mustang. Ford says it's going to focus on SUVs and trucks. So the sedan as a platform, you'd be shocked at how the sales have dropped off globally for everybody. It's worth noting that just a couple decades ago, Ford's Taurus was the best-selling car in America. But consumer preferences have changed.

The price of gas is relatively low. And there may be something of an arms race among consumers who feel that SUVs and trucks are safer, especially when you're on the road with so many other SUVs and trucks. Yeah, well, definitely. I know with women buyers, they prefer the height. They just see better. You know, it's a function of seeing where you're driving and the car's relative position. But the other thing is, in the past, you would have to hedge if fuel prices went up. And the vehicles have gotten so fuel efficient.

Our F-150, I give Alan Mulally a lot of credit for this, he aluminized the body of it. Right. Very controversial at the time. At the time. It was one of the largest- We should say he was an airplane guy. He was an airplane guy. He knew aluminum. He knew riveting. It was a really hard problem to rivet the panels. We have a lot of patents on that. But guess what? The vehicles, so this is a hard way to understand, but in the CAFE standards that are calculated for the world's fleet, or in this case, the U.S. fleet, the vehicle that made the most progress in making it better is the F-150.

Now, it's not as fuel efficient as a smaller vehicle, but in contributing to global climate, it's less of a problem. But what about the profit margin trucks and SUVs versus sedans? Well, the reason you make more on them is because your price point's higher. Really? I thought pickup trucks were cheap. We don't have any pickup trucks in New York City, as you've seen. That's the issue.

But you come with me to Texas, and there's— No, no, no. I understand. I've seen the numbers. I'm driving a King Ranch, which is the nickname of a luxury F-150. Yeah. And, I mean, the leather seats and the ride— That could run over the whole Ohio State defensive line, I'm guessing.

Well, yeah. Not that you would do that. And the cool thing is that frame, I don't mean the physical frame of the vehicle, but the idea of people sitting in vehicles like that, there's another series below that called Ranger, and it's much smaller, and it's global, and it's very profitable. And we're working on other ideas in that category because people love these things. This is the part of the Ford reboot story that you may find confusing,

which many investors seem to find confusing, or to be fair, concerning. On the one hand, Ford talks about remaking itself as a technology firm with their living street model and their transportation operating system. Earlier, you heard Hackett comparing Ford's price-to-earnings ratio to those of IBM and Microsoft, which are actual tech firms. So that's the forward-looking part of the reboot mission. On the other hand, Ford's increasingly heavy reliance on truck and SUV sales has more than a little throwback feel to it, especially in how the company markets itself. Jim Hackett says Ford is eager to collaborate

with the Silicon Valley heavyweights in order to get a piece of their pie. But one TV ad in a new campaign called Built Forward Proud opens by mocking Silicon Valley. The actor Bryan Cranston, looking very Elon Musk-y or maybe Steve Jobs-y, he takes the stage in front of a backdrop labeled Future Talk. Thank you. Now let's get started. But then Cranston, switching out of that character, confides to the viewer. The future isn't created in a keynote address. What does create the future? Building does.

Building like we have for the last 115 years. And building for the next century. Building cars. New technology. And transforming cities. And by now, Cranston is barreling through the desert in a Ford pickup truck, windows down, engine roaring. So let the other guys keep dreaming about the future. We'll be the ones building it.

The ad ends up looking like pretty much every other pickup truck ad you've ever seen. It doesn't seem like the most convincing way to declare that Ford is the company that's working on what Hackett calls a total redesign of the surface transportation system. By the way, these promises of new technology and transformed cities all happen atop an orchestral version of the Rolling Stones song Paint It Black, which came out more than half a century ago. So one of the big changes in the world, but especially for your industry, is the oncoming autonomous vehicle scenario, which is, look, I think incredibly exciting and will probably have a lot of effects that many people can't quite imagine yet, pro and con. But it strikes me that Ford is a little bit late to the starting line. And I'm curious to know, again, what makes you think

that you're going to do well in that realm? Yeah, I actually think it's a myth that we're behind. So robotics is not new. Of course, they've been in the factories for years. Mark Fields deserves credit here. He decided that to get there faster, he was going to invest in a group of people who wanted to leave some of the notable firms working on it, Google, Uber, some others. They came to us and said, we want to do our own startup. So we've created that. It's called Argo AI. It's in Pittsburgh, near Carnegie Mellon, of course. Pittsburgh's become the capital of autonomous vehicle research. And we're the sucking sound there because this is the who's who from that alumni.

The guy leading our company was the number two guy at Google working on Waymo, which I give lots of credit to Google. I think, you know, they've done a great job. But we are, we believe we're behind them, but the velocity of the vehicle's learning's ahead because we have people that work there. So we've taken a different tact with the design of the software. Just a quick lesson for the listeners. It's only three years old that neural networks actually found their way into AI. So before that, robotics were making progress, but this is the breakthrough. So let me ask you this. You recently, you led a team of Ford executives making a big presentation at the 2018 CES Consumer Electronics Show. And it is a huge multidimensional vision of how what I think of as an auto company is creating a large ecosystem that includes all different kinds of inputs.

And I want to know, is that the kind of presentation you make at CES because it's kind of good for business to invite those technology firms who come to come and play in your sandbox? Or is this a real part of your business model? Yeah, I mean, and I did that in January of this year. And I'm really happy I did it because I was trying to get out the three parts of the technology evolution, which is the nature of propulsions changing to electric and hybrids. There'll be gas, hybrids, and electric. There's a robotic system. Let me give you the three letters. It's called SDS, self-driving system is what they're called. They're trying to get away from autonomy

and have it be labeled this way. And then the third is this cloud. Because autonomous is a little too scary in the... I think so. And I call it, it's not human-centered. It's making the vehicle the celebrant, and we want the people inside. The third technology is this cloud structure. Which you call the transportation mobility cloud. Yeah. That's your, right. That's our phrase. But all we're really trying to do is orchestrate these three technologies to have an advantage for customers. So the mere fact that 70% of the world's population is going to be

in city centers by 2050, it means we'll be paralyzed. So I'm in New York this week when the UN is going on, and you can't get around with the rain. President Clinton told me that he had to stay in town last night because he couldn't get out to his home. So we've got to choreograph the system so that you reduce all this friction. And so the study after study that's done about what causes jams and things like that show that a fallacy is if you add more highway capacity, you get more throughput. The opposite happens. So there's a famous story in China where there's a month-long traffic jam on their biggest superhighway.

Can you imagine getting in a car and you can't get out of it for a month? So Chinese government and other places are dealing with it. You've done a piece with Sidewalk Labs about smart cities. But Jim Hackett is saying something different. He's saying it feels utopian to talk about a smart city. Let's start down the ladder and just get the transportation system to be smart. Let's just coordinate mass transit, microtransit, and your vehicles, and then the Uber-Lyft combinations around what's really going on in the lives of people.

And the opportunity here is enormous to change the way your life is in a city because that system gives you the permission and the force of having what you want when you want it. Now you go, how does it do that? We took off 45 minutes earlier to come to you today because we thought, you see what I mean? So I'm adding to the congestion. If I actually knew when I needed to be here and the city mediated that, it would take all the people who are trying to get ahead out. Another quick one is parking. You lose more fuel efficiency trying to find a spot.

And then there's just the real estate question. The real estate question of parking. The real estate parking. I actually think a cool thing is the origami of parking because the way lines are designed in parking lots, we're going to be able to park really weird ways because the vehicles will negotiate their packing. Well, and theoretically with autonomous or whatever we're calling it, SDS, we don't need to hang on to our cars anymore, right? If you're selling the next one to some degree. Well, we've taken away the streets from the people. You know, I mean, where's your favorite city

you like to visit? I mean, this is one of mine, but when I go to Paris, you know, and the way the food spills out, the vehicles kind of destroy that. So what we've painted a picture is there's more green space,

there's more human interaction with the streets. And so, how's that happen? It's because this transportation mobility cloud smart cars. Before you have to go, I do want to ask you, in a recent interview, you said that Ford has lost about a billion dollars in profits from metals tariffs. So, A, just confirm for me, I heard you right. And B, tell me if that's true or if it's even half true. What are you doing about it? Well, the number's true if you add, and the way I did the model in my head, and I should have been clearer about this, if you add the time the tariffs have started through next year.

Okay. But still, I mean, it's a billion dollars. And, you know, this is a really interesting thing. In my lifetime running another company, I never thought about trade. I never worried about it. So now the CEO's time is tied up in something that they didn't have to worry about. It needs to be updated because what happened is those were emerging countries that are now, you know, and the deficits got bigger and bigger. So, I think the administration has momentum from other administrations who likewise want to address it.

All I've been asking for is that if you go in and you attack this problem, the winning state is a state of equilibrium, not a constant fight. A trade war will take away, this is stats that maybe you've read, the tax cut benefit to our citizens right now is going to get wiped out if this current inflation on what they're calling the Walmart effect. So the goods that people are buying in stores have now been hit. So two-thirds of the tax benefit could be actually wiped out if we don't get this fixed. And as the CEO of a car company, the uncertainty, I would imagine, can be not crippling, but very difficult. Because we all know it's hard to make even a personal decision when there's that much uncertainty. So let me just really finally ask you the final question. When you look forward, do you see less uncertainty than I do?

Do you see a clear path toward what Ford can actually accomplish based on these rather large dreams that involve everything from cloud computing and telecom in cars and so on? Well, this gives you insight into me. My dad never had a bad day and he had a lot of challenges, but the optimism when he got up every day, that's the way I was raised. As opposed to someone who heard, you know, the life's going to hell in a handbasket. I never heard that. So I told a story to one of my colleagues today that said, you know, why do you think there was a milkman in the day? And well, it was because we couldn't refrigerate milk in our homes.

So, and then they could get it to you because it had to be fresh. And then what happened is we had refrigerators and to get scale, they moved the dairy farms further away. Then they started adding chemicals to them so they didn't spoil beyond homogenization. And today, the average distance from farm to market is 1,500 miles. So, the world's looking at that and saying, was that the best design for humans? What I'm optimistic about, based on the way we've talked today, is the transportation system caused some of that. It now can actually go backwards so that you can have produce very close. You can send these objects of intelligence on missions for you. You can know where anybody you love is at any given time if they want to tell you. And we can kind of know that now, but what you're

going to be able to know is going to be incredible and in a way that I think is safe and helping humanity. So we can make Ford a really cool futuristic company in just building and making cars and selling them. And so we have a lot of great ideas there. Whether these ideas are truly great, whether Ford will buck the trends of history and reinvent itself as a firm for the middle of the 21st century, I have no idea. Thanks to Jim Hackett, though, for taking the time to explain his vision for the Blue Oval. Coming up next time on Freakonomics Radio, Jim Hackett, as you heard, played a role in popularizing the open office design. If you work in an office, there's a good chance it's an open one, at least to some degree.

And you love your open office, don't you? I was contacted by a number of friends about their open offices and their deep, deep emotional scarring from them. We'll get into the history of the open office and the latest research. So the study had two main conclusions. And should we all just work from home? You know, the three great enemies of working from home is the fridge, the bed, and the television. That's next time on Freakonomics Radio.

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