Ford Motor Co’s call today with chief financial officer Bob Shanks on the No. 2 US carmaker’s sustainability efforts showed that going green is falling into the laps of those who control purse strings at more of the world’s largest companies.
Shanks, 60, spoke with analysts and reporters about today’s release of Ford 14th annual sustainability report. The Dearborn, Michigan-based company is targeting a 30 per cent reduction in carbon dioxide emissions per vehicle from its factories by 2025 after a 37 per cent cut from 2000 to 2010.
Chief executive officer Alan Mulally’s mantra, established soon after joining Ford from Boeing Co in 2006, was that green needs to be among four attributes for all of the automaker’s vehicles, along with quality, safety and smart technology. The onus for improving Ford’s environmental standing is spreading, with Shanks contributing a letter to the sustainability report.
“I don’t think we look at those types of actions as just purely cost,” Shanks, who joined Ford in 1977, said in a telephone interview. “These are the right things to do and they will have a business case around them over the longer term.”
Authority over corporate sustainability is increasingly being taken on by CFOs, according to a Deloitte LLP survey last year of companies with at least $1 billion annual revenue. In interviews with 250 CFOs, 26 per cent said they had authority for sustainability efforts, up from 17 per cent a year earlier.
Authority transfer
“This shift represents a transfer of sustainability authority from line sustainability managers and ‘face of the brand’ CEOs into the hands of those empowered with operating authority — and substantive budgets,” Deloitte said.
Financial stability should be viewed as part of Ford’s sustainability plans, Shanks said. The company wants to boost its credit ratings further into investment grade after being upgraded from junk by Moody’s Investors Service and Fitch Ratings last year. Accomplishing that will require that Ford maintain profitability through economic cycles, he said.
“We can do very, very well during the good times of an economic cycle, but historically we’ve had a great deal of difficulty in maintaining a level of profitability throughout a cycle,” Shanks said. “If you look at the stronger competitors in the industry, they have been able to do that.”
Ford also wants a better balance of sales and profitability geographically, as North America has been the company’s only consistently profitable region in recent years.
Regional profitability
The company earned a record $8.34 billion pretax profit in its home region last year. The only other area of the company that was profitable on an annual basis in 2012 was South America. That region swung to a loss in this year’s first quarter after Venezuela’s currency devaluation.
“I would expect us to always have an extremely strong position in North America; we just need to do better elsewhere,” Shanks said.
Ford’s Asia-Pacific unit, which is adding five plants in China and two in India, is poised to contribute profit faster than other regions, according to analysts at Citigroup Inc and RBC Capital Markets.
Ford Asia-Pacific could be the next region to earn $2 billion in annual profit, Joseph Spak, a New York-based analyst for RBC, wrote in a May 30 report. Earnings of $1 billion from Asian operations is “not unreasonable” by mid-decade, Itay Michaeli, a New York-based Citigroup analyst, wrote in a research note two days earlier.
Asia plans
“We have strategies in place, particularly as we put down all these new facilities in Asia-Pacific, to make sure that we’re also applying a lot of the standards that we have anywhere in the world around waste treatment, energy efficiency, water management,” Shanks said.
Ford said that it plans to reduce the amount of waste sent to landfills for each vehicle that it builds by 41 per cent as part of a five-year plan through 2016, the company said in February. The automaker is targeting a reduction of waste generated per vehicle globally to 13.4 pounds (6.1 kilograms) per vehicle, from 22.7 pounds in 2011.
The company already reduced the amount of waste per vehicle by 40 per cent from 2007 to 2011, with the amount sent to landfill dropping to 22.7 pounds from 37.9 pounds. That was accomplished in part through pilot projects such as a paint solid recycling programme at Ford’s assembly plant in Flat Rock, Michigan.
Instead of going to landfills, paint solids from Ford’s factories are sent to nearby utility companies that use the material as a fuel source. The programme, which started in 2011, has been replicated at Ford assembly plants in Chicago as well as Wayne and Dearborn, Michigan.
Ford fell 1.3 percent to $15.37 at the close in New York. The shares have gained 19 per cent this year, compared with a 14 per cent increase in the Standard & Poor’s 500 Index.
