Rafi Mohammed

Thanks to Pricing...A Surprise Profit at Ford

Posted on August 7th, 2007 (0 Comments)

Last week, Ford announced a second quarter profit of $750 million. This profit came as a surprise to Wall Street, as it had expected “deep losses.” Ford revealed that it earned an unexpected $900 million in profit due to stronger pricing ($600 million of which came from North America). As I keep saying, pricing is hot my friends! The company also profited from reducing sales to lower margin fleet customers, like rental car companies.

This news brought back happy memories of the days when I was doing research for my book. One of the most enjoyable parts of research is the people you meet along the way. It’s amazing how forthcoming and helpful people were to me – their stories often led to exciting insights. One such great interviewee was Ron Robbins, Ford’s point man for selling more than one million fleet cars and an additional million used cars annually.

Ron’s insights provided the seeds for an idea I’m developing that I call “The Culture of Profit.” What I find amazing about most companies is that while they are definitely “for profit,” their culture doesn’t focus on generating profits. I know this may sound basic, but my point is that companies should be clear that profit is a key goal and their employees should always be on the lookout to improve profits. It’s amazing how a few small changes can boost a company’s bottom line.

Case in point, Ron Robbin’s amazing turnaround of Ford’s fleet division. When Ron took over the division, there was definitely room for improvement. Morale was low – at the time, the fleet division was the place where employees who had not succeeded elsewhere ended up. Additionally, the division was focused on pushing volume. It wasn’t unusual, for example, to receive instructions from headquarters to unload 20,000 Tauruses or 40,000 Tempos. Executing these orders often led to rock bottom prices which in turn lowered the resale value of leased vehicles that the company had to take back – which Ron then had to resell.

Ron took a few fundamental steps to create a culture of profit. First, he pushed back against the “sell volume” mentality and instead focused on profitable growth. The sales force was instructed to focus on value and treat each sale as a “business unit of one.” While difficult at times, the sales force pushed for better deals and started walking away from deals that did not make sense. Ron’s tenacity in creating a culture of profit paid off spectacularly – fleet sales went from being a “non-profit” low margin division to a $1 billion dollar a year profit center. And just as importantly, as profits skyrocketed so did employee morale.

While Ron’s initiatives seem straightforward, the biggest obstacle he faced was in changing his division’s culture to focus on profits. A definite Who Moved My Cheese challenge. My bet is that when you think about your company, there are a few simple changes you can make to help create a true culture of profit.

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