The flags of the United States, Canada and Mexico.

Crossing Borders with Ford's Joe Hinrichs

Tariffs, Nafta and Ford's restructuring get airtime at U.S.-Canadian suppliers gathering.

For thirty years, U.S. automotive suppliers have hosted their Canadian counterparts in a friendly annual crossborder luncheon hosted by the Original Equipment Suppliers Association and its Canadian counterpart, the Automotive Parts Manufacturers Association.

This year, with the outcome of Nafta negotiations between the U.S. and Canada still anybody’s guess, the crowd in the ballroom of The Henry hotel in Dearborn on Monday was low-key, talking in their inside voices and applauding appropriately. Any bloviating by world leaders hadn’t riled them up.

Guest Speaker Joe Hinrichs, executive vice president and president, global operations, for Ford Motor Co., checked all the boxes for an audience concerned about tariffs and the Canadian-American supply chain. Prior to his current role, Hinrichs served at different times as President of the Americas for Ford, the CEO of Ford Motor Company of Canada, and the leader of Ford’s Asia Pacific growth plan.

In an hourlong Q&A style chat with OESA President Julie Fream, Hinrichs said that auto industry leaders such as himself anticipated that the Mexico-U.S. portion of Nafta negotiations would be the toughest. After that, they thought, it would be smooth sailing between the U.S. and Canada.

That wasn’t how it went. “I think it’s fair to say the challenges with the U.S. and Canada aren’t really around the auto business,” he said. He added that he “can’t envision a future of the North American automotive industry where Canada’s separated out. We’re too integrated; there’s too many issues.”

Here are some other highlights:

Ford’s Restructuring

Hinrichs couldn’t reveal hard details of Ford’s recently $11 billion restructuring plan, but he gave suppliers a preview of what to expect: a swifter, more streamlined purchasing system and product development processes that bring new models to market quicker.

Hinrichs said vehicles currently in development are timing out 20% quicker “than vehicles we’re launching right now."

Ford’s processes, he said--not just in purchasing and R&D but in manufacturing and delivery as well--need to be more competitive in an on-demand world.

“Global order and delivery is a perfect example,” he said. “It’s the same amount of time today as it was in 2003 for our dealers to order a vehicle, us to process everything, give the supply base the schedules, build the vehicle and ship it to the dealer. It hasn’t evolved; but technologies have evolved—lots of things have.

“I’ll ask this simple question: As an industry, how fit are we when we basically have 70-day suppliers sitting on the shelf, waiting for customers to buy. What other industry do we know of today that has a 70-day supply, other than the U.S. oil industry?”

Tic-Tac-Tariff

Hinrichs had this story to share on the current U.S.-China tariff madcappery:

Ford exports Lincolns, Ford Explorers, Mustangs and Raptors to China, he said. On June 30, those vehicles had 25% duties. “From July 1 to July 6, we had 15% [duties], and July 7, we had 40%. And we had boats on the way over there.

“So we tried like heck to get [the vehicles into China] on those six days. We even had a few boats slow down and stop over a few places on the way, to make sure everything was OK so we could get them in that July 1 to July 6 time frame. That gives you a feel for how crazy things are right now.”

All the ping-ponging and uncertainty makes it nearly impossible to plan, said Hinrichs. “We export a lot of Lincolns,” he said. “We’re going to look at localizing next year, but how fast do you go—how do you allocate your capital? And how do you plan even in the near term, for vehicles that have a 40% tariff. There’s no business case. But you can’t starve your dealers; you can’t exit the market and come back in, so it’s a very complicated time right now.”

Trouble in China

Ford saw tremendous growth in China from 2010 to 2015, going from 14th in market share to 5th. But in the past 18 months, Ford’s sales in China have “dropped dramatically,” said Hinrichs. “Some of that’s due to the product. Part of the issue I talked about earlier was making sure our product development system can be competitive in both time and cost. But we’ve also had some internal issues that we’re working through.”

Hinrich noted that he’s been spending more of his time in Washington in the past year, talking with politicians. “It’s a very different time,” he said. “The number of significant trade conversations that are going on all at one time is a big deal, and unlike anything I’ve seen. Typically, administrations would be negotiating a trade agreement with [South] Korea for example, and they’ll focus on that and get it across and move on.”

Not so anymore—the tariff battles with China, EU conversations, Mexico and Canada negotiations—it’s all happening at once. “The totality and complexity of all these is really unlike anything we’ve ever seen,” he said.

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