Ford’s CEO on the Essential Economy and Its Untapped Potential

Please welcome to the stage Ford CEO Jim Farley.

Hi everyone, and thank you for welcoming me back to Aspen. I love this gathering because a lot of ideas are flying around, but it seems like a lot of them also take root here. And that's what I wanted to say quickly before Walter and I have a discussion. I wanted to make a few comments to everyone about the essential economy. How I would define that is everything that gets built or moved or fixed. It's about a $12 trillion economy in the US and involves almost 100 million jobs. It's really the backbone of our society, and it's important, but not everyone notices it until it doesn't work. I'm interested in this kind of work, this economy, because like so many Americans, I had a paper route and I swept floors in a car shop. I put myself through graduate school at a car restoration shop. I still love working on my cars, no matter what my job is. It's kind of who I am. And my friends, when you spot a lineman in a bucket truck, or a plumber on a service call, or an EMT racing to the emergency, odds are they're driving a Ford. So these are our people at our company too. And yet, the essential economy is in a world of hurt, maybe more than most people expect. We're short 600,000 factory jobs in the US, almost half a million construction workers, 400,000 auto technicians that work in dealerships to fix the cars that we all drive. And white collar productivity in the last few years has jumped almost 30%, meanwhile the productivity in this essential economy has actually fallen. So not only do we have a huge hole, the productivity is getting worse, and we can't ignore it. On a personal level, a cracked bridge or a blown transformer or an understaffed construction site have a huge impact on our daily lives. And with so few people for these jobs, this is going to be painfully expensive to fix when it all falls apart. Meanwhile, obviously AI, battery plants, they all seem really exciting, but they all need HVAC installers, they need electricians, they need welders. And in many of these boom towns around the country, half of the new jobs are these essential economy workers. The Bureau of Labor Statistics sees up to 60% growth in skilled trades. And if productivity in these sectors had simply matched our historical levels for the overall economy, our GDP would be 10% higher and the average worker would be making about $5,000 more. So what do we do about it? I think there are a couple of pretty simple things, but they're hard to do. Modernizing permitting in this country is very, very difficult, and red tape is absolutely the bane of this economy. Rewiring our working people funding — we spend less on vocational training in our country than every one of our peer countries, and we aren't training for 2050, we're training for 1950. Robotics, AR — this is what plumber productivity needs to focus on. Just think about how cloud transformed coding, but we don't have the same plan for the essential economy. My dad grew up on the GI Bill, my grandfather was part of the WPA, we had the Ford Trade School, but these don't exist anymore. Henry Ford trained all of his workers like my grandfather. They didn't know anything, but they were skilled and they had a great future. And with all the American manufacturing, it would be great to have something for the essential economy in our country. Ford is doing what we can. We're funding trade school scholarships, technician boot camps, we have financial support for people who want to go into the HVAC business if they're an HVAC professional. But we can't solve this ourselves. And the idea festival is that, and actually I'm here for a specific reason. Talk to the EMT, talk to the person in the booth, ask them what their life is like, how they're trained, what are they going to do, what is the opportunity. And my only comment really is that we're going to bring the best thinkers in this area to Detroit this fall and have a get together at Michigan Central Station, which if you haven't heard about, you should go do research on it, because we want to really rev up this part of the economy and we don't want to delegate it to someone else like the government or academia. We want to do something ourselves at Ford. My grandfather, Emma Tracy, that's a picture of him in 1918. He was the 389th employee at Ford. He was an orphan, he didn't know his parents, he grew up in Dearborn, he rose through the ranks as an hourly worker. He had enough money to barely buy a dealership, and then he became a supplier for Ford. He worked until he was 95, and his Ford job put my mom through college and really changed our whole life. So look around the room at some point, almost all of your families came from these kind of jobs. Maybe it's one of your parents or grandparents, maybe you worked a job like the essential economy like I did. There's more than one way to the American dream, but our whole education system is focused on four-year education. Hiring an entry worker at a tech company has fallen 50% since 2019. Is that really where we want all of our kids to go? Artificial intelligence is going to replace literally half of all white collar workers in the US. You know what job is safe? Putting up that power line, building that factory, laying a new water system. Every day we see more and more stories in the news about people that are finding their own way into skilled trades. The new Harris poll even found that a third of Americans now would recommend trade school over a traditional four-year college degree. We all sense that America can do better than we are doing. We need a new mindset, one that recognizes the success, the importance of this essential economy, and the importance to our vibrancy and sustainability as a country. So with that, I'd like to invite Walter up on stage and we can have a conversation about this and some of the other things that's going on at Ford. Thank you.

I would say similarly. When I came into the business community, it was like free trade. And now I look, I've worked all over the world in the auto industry for multiple companies, and I've seen so many countries put their foot on the scale of the economy and focus on local manufacturing. Japan, Germany, now China, and they created all these great jobs. But the argument is that well, we don't want to be a manufacturing company, it's only 8% of the economy, we'd rather do the services and the software. Tell me what's wrong with that argument. What happens if you have to defend yourself? What is Google going to make the tanks? To be totally frank, we've forgotten a lot about that. And I think we've talked a lot about energy independence, we need to start talking about industrial independence. It's very, very important. People do not realize how dependent we are as a country on making things in other countries. We cannot get any high-powered magnets without China.

We shut down plants for the last three weeks because we cannot get high power magnets that go into your speakers and the order system, your seat motors, your wiper motors, your door motors. And we can't make that stuff.

And also other countries do it, so we are fighting with our hands behind our back in many cases. Our competitors have $5,000 to $6,000 of incentive that they're exporting today. China has a 20 million unit market domestically, but they have 40 million units of capacity. They can export.

Okay, they can make. They don't have to build one more plant and they can serve all of North America and part of Europe without any more plants. So we are in a global competition, and these jobs are really great jobs. A job at Ford is $150,000 to $200,000. It's a transformational job for people's lives. And we have to really understand what it's going to take to not just have modest tariffs to have an even playing field like you said, but also to recreate critical minerals, battery raw materials, manufacturing grade semiconductors. Oh, it's so exciting we have all these new semiconductor plants in Arizona. They're making advanced nodes for AI, but most of the silicon that goes into industrial products that we all buy are manufacturing grade, they're 10-year-old technology. That all comes from Taiwan and increasingly from China. We won't be able to make anything if we get in a serious conflict.

Oh, I would say six to seven.

It's the most humbling thing I've ever seen. 70% of all EVs in the world are made in China. They have far superior in-vehicle technology. Huawei and Xiaomi are in every car. They have facial recognition, cell phone technology connected to their cell phones. You get in, you don't have to pair your phone, automatically your whole digital life is mirrored in the car. You have an AI companion that you can talk to, a ChatGPT equivalent in China. All the automatic payment is already there, you can buy movie tickets. It has facial recognition so it knows who's in which seat and which media you like.

Yeah, because Google and Apple decided not to go into the car business. And even beyond that, their cost, their quality of their vehicles is far superior to what I see in the West. We are in a global competition with China, and it's not just EVs. And if we lose this, we do not have a future.

I would say we're just changing our profile in line with demand. We've been number two to Tesla for three years, but we're also number three in hybrids to Toyota and Honda, which people don't know. We have 80% market share on hybrids for trucks. The F-150, which is the bestselling vehicle in the United States for 47 years, 25% of all of them have a hybrid system. And why are people buying F-150 hybrid? Because with Pro Power Onboard, with a hybrid F-150, you can power your house for six days when the grid goes down. People are really interested in energy independence in Texas, Florida, and California. So I would say we're putting more energy and more investment in hybrid, and we're redirecting our capital because we saw what happened in this first inning of EVs. We're going super affordable and commercial. We're not going to be investing in $50,000 to $60,000 SUVs. $30,000 EVs and commercial EVs, because that's where we think the market is going.

No, there aren't. There's actually really none. And the ones that are here are kind of compliance vehicles that manufacturers create to get EV credits so they can sell trucks. They're not great cars and they lose a lot of money. So we have a challenger project in the company, which hopefully we'll talk about publicly soon, where we're going to build the Model T of EVs with a small group of skunk works team in California.

He did. When Henry Ford decided to democratize the V8 in 1932, he took 10 people and they quit the company. He put them in Greenfield Village and they developed 20 or 30 different versions of V8 until they settled on the one. They had to quit the company, then when he got the design right, he threw it back into an industrial system at Ford and we were the first one to industrialize the V8.

Yes, we'll build it in America. It's been engineered in America. Our supply chain though, you know this is one of the big debates about the tariffs. Look, it's $800 a month for an F-150 now. And if we built every part here, not sure we could even get a wiring harness or fasteners, there's no suppliers in the US. But even if we did, it'd be $900 a month. So the tension on tariffs is how do you find the right fair playing field but still make your vehicles affordable with import parts? So what I like to say is, let's create a fair playing field for the finished vehicle. For parts, let us import parts from around the world, let us keep Mexico stable and other countries. And that's what we're working through the administration on.

It's been an interesting process, a very intense one with a lot of dialogue. I would say the president's priorities are very much in line with Ford. People don't realize half the cars in the United States are imported through a port or through a train or a truck. Half. About 20 years ago it was 80%. And Ford makes 85% of all of our vehicles in the US. The biggest importer in the US is our domestic competitor. When they went bankrupt, they moved, they fired more than 20,000 people in the US. We hired 15,000 since 2007. Now we have the most UAW workers. So yes, we are an outsized company. And Wall Street criticized us for building so much in the US. They said you make a billion dollars more if you build more plants in Mexico. But we didn't really think that was the right thing for our country. And now we're in a better position than the others because we don't import, and we're also the number one exporter.

The key is innovation. To your point, we did our homework on BYD. They're the global leader in EV volume, and we found a lot of opportunities, let's say it like that. I'll give you one example. American electric vehicles do not use LFP batteries. They're 30% cheaper, they can cycle twice, you can charge them twice as long in many cycles without deteriorating. But they are less energy dense, but there's almost no fire risk. China bet on LFP, the West bet on these lithium batteries and they have fire risk and they're very expensive, but they are more energy dense. So one of the things we bet on is to move to LFP for this affordable vehicle. But the IP is in China, so we had to localize the IP in Michigan, and that's very difficult. A lot of politicians focused on that, but we think that's the best thing for America.

Yeah, I would say you're absolutely right. Because we have a lot of renewable energy now in our country, wind and solar, but they work sometimes and they don't work others. And there's a lot of energy storage that you need with this renewable grid now. So Ford could get into the energy storage. We could repurpose our facilities, take LFP technology and make energy storage batteries, not just EV batteries. And that's actually what Ford did in COVID. We were one of the largest PPE producers. No one asked the engineers at Ford to do that, we just started making it within a week. We started making ventilators. In World War II, look what we did for our country. This is what we do at Ford. There's a great Henry Ford line when he talked about giving the raise to the workers. They said that would be bad for the company. He said, "No, these are our customers too." That's right. He was the first one to pay everyone $5 a day. And it completely changed the immigration of our country. Detroit is the city it is now because of that $5 wage, and it transformed people's lives like Henry Ford and my grandfather. But he said to your point, he said, "I'm doing it because I want my factory workers to buy my cars." If they make enough money, they'll buy my own product. It's a self-fulfilling prophecy in a way. I'm going to pay twice what someone else makes, but I want to have the best people and I want them to be able to afford a house, a car. That's not a reality for many. During the union negotiation, I did a lot of going to our plants and listening. The older workers who've been at the company said, "None of the young people want to work here, Jim. You pay $17 an hour and they are so stressed. They got to work at Amazon for eight hours, then they come over to Ford for work for seven hours, and then they sleep for three or four hours, and then they go back, and they're barely getting by." So we took every temporary worker and made them full-time. It wasn't easy to do, it was expensive, but I think that's the kind of changes we need to make in our country. And it's not easy because there's a lot of pressure from the financial community.

Absolutely. The Ford family is in their sixth generation. They don't toot their own horn, but Ford would not be Ford without the Ford family. In '07, when our two competitors went bankrupt, we didn't. The employees said over and over again, "I'm not going to let the Ford family down." I'll come in, I'll buy my own supplies. We burned the furniture to avoid bankruptcy. And part of that is because our mission is really, every company really believes in its mission, but I guess at Ford, our mission is more about what we do and not what we say.