The following is a rough transcript which has not been revised by The Jim Rutt Show or by Jim Hackett. Please check with us before using any quotations from this transcript. Thank you.
Jim Rutt: Today’s guest is Jim Hackett. Jim’s a really interesting guy. He spent 30 years at Steelcase, the office furniture company, before retiring as its long time CEO. In 2013, he became a member of the board of directors of Ford Motor Company being at least a transplant Michigander that must have been quite a good thing to do, to be invited to be on the board of Ford. And then in 2016, he was actually hired by Ford as the CEO of a new subsidiary called Ford Smart Mobility, which focused on the cutting edge of the future of transportation. Things like ride sharing, self-driving cars, smart cities, smart infrastructure, all the interesting things we’re going to talk about today. Must have done a pretty good job, at least not screwed up too badly because in 2017, Jim was named CEO of all of Ford Motor Company. He retired from that gig last fall.
Jim Rutt: Welcome Jim.
Jim Hackett: Jim Rudd, it’s a pleasure to be on your show. Thank you.
Jim Rutt: Yeah, it’s really great to have you. Jim and I met years ago, his company, Steelcase, was a member of the Santa Fe Institute Business Network, and he was one of the few CEOs that actually showed up regularly. We often got heads of R&D or heads of strategy or random flunkies who people wanted to get rid of for awhile. But there were two or three CEOs who would show up and Jim was one of the most regular. I really enjoyed having conversations with him. At first I said, “Why would a furniture company want to be studying complexity science?” And then we had a good shot conversation, which we’ll talk about a little bit later in the show.
Jim Rutt: As regular listeners know, I’m fascinated by the coming transition in personal transportation and in energy more generally. And we’ve had previous guests speak about topics like self-driving cars, battery technology, et cetera. In episode 94, we had Shahin Farshchi who was the former GM autonomous car guy, at least a autonomous car guy, and now a VC who is an investor and board member of Zoox before it got acquired by Amazon and in EP 44, we had Steve Steve LeVine on where we did a deep dive into battery technology. So much of our conversation, though not all of it today, is likely to be on this transition from, in the car industry, once in a hundred years kinds of transitions, from where we are to where we’re going.
Jim Rutt: So let’s start off by something I discovered while doing my research. I saw Jim give a video where he told a story about Henry Ford and Thomas Edison, and I’d never heard this. I never knew that Henry Ford worked for Thomas Edison and actually pitched him on the idea of cars. Could you give us a little color on that?
Jim Hackett: You bet, Jim. And as I lead into this, I just want the audience to know that the Santa Fe investment personally was the single most valuable bit of time I ever spent. And it’s the gift that keeps on giving, which I hope to share as we describe this. But in the history of Ford Motor Company, Henry Ford is an engineer and works in Thomas Edison’s electric plant, and they create the first, listen to this, electric vehicle. So the first vehicle that Henry Ford invents is electric, not gas, or what we call the internal combustion engine. And the reason it doesn’t hold as the track they want to develop is because the power output coming from the battery is just not sufficient enough as compared to what gasoline or petrol would generate. And the cost was too high to get it up higher. Can you imagine, Jim, this mass of what they’d have to create to generate the kind of power to push a vehicle back in those days?
Jim Hackett: But I love telling that story because it is core with all of his foibles and gifts, Henry was an environmentalist. He was a staunch believer in nutrition, the Battle Creek cereal manufacturers were his best friends and he owned lots of land and he was an outdoorsman. And so I think he probably, if he could come back and live his life again, he would have rather had an electric vehicle as the basis for his invention.
Jim Rutt: Cool. And yeah, most people, they don’t realize that say around 1908, 1910, it wasn’t entirely obvious internal combustion was going to win. There were electric cars. In fact at one point, the number one motion producer was steam. Stanley Steamer, I believe, was the largest selling car in America, at least one year. So this foray into internal combustion was one of three possible forks that the world could have taken.
Jim Hackett: And growing up in central Ohio, my dad was a veterinarian and we were in the center of farmland, there was always a steam tractor show every summer because they dominated the market as well. And in fact, Jim, I had a trivia question. I could never really get my finger totally on this, but when I came in as the CEO of Ford and we were talking about the future of mobility when there was a lot of players, I said to everybody, “So how many winners do you think there will be?” And rhetorically, I said, “How many car companies do you think Henry Ford competed against at the beginning?” I’ll let you think about that. I can tell you the number I found.
Jim Rutt: I know the number, I think. This is one of these odd things I happen to know. I believe it was like 3 or 400.
Jim Hackett: That’s it. I say it’s north of 250, so we would agree. Yeah, isn’t that amazing? And so one makes it. One really two, the Germans, Daimler was progressing, but it’s not 10, and that’s kind of the thing about core technology is a lot of people on the edge, but there’s few winners.
Jim Rutt: That’s of course the same is true in China today. I think I heard there are 600 companies that at least claim to be working on electric cars in China. And we know that there’ll be three winners maybe over there, something like that. So it is one of these very interesting times. It’s just like, I also like to point out to people, when I was heavily involved with PCs in their early days, there were 30 legitimate contenders for word processors in 1985. And how many are there now? One basically. You know you’re in a fruitful era when there are so many and you also know kind of somewhat sadly, that most of them aren’t going to make it.
Jim Hackett: In the underpinnings of Santa Fe are alive here because that’s the notion of emergence. There’s a number of variables at work here and the most fit model is going to emerge or models, but that’s the reason that you don’t get high numbers. It’s because the other ones really aren’t fit enough to survive.
Jim Rutt: Yeah. In fact, Brian Arthur at Santa Fe who will be on the show in June actually, has done a tremendous amount of work in modern industries in particular, there’s positive returns to scale. Remember our microeconomics, the assumption was somehow the costs went up per unit as the unit did. So the supply curve had that shape to it. Demand curve had this shape, blah, blah. Well, it turns out in modern industries, that’s generally not the case. Actually the unit cost goes down with scale, transparency reduces friction, particularly for the big boys. Just think how rapidly we went with Amazon from being Jeff Bezos in his garage with a pile of books and CDs to one of the biggest companies in the world in less than 30 years. I can recall he was not even the best financed of the first bunch. There were several that were much better financed, kissed their money away. And Jeff was just smarter and more persistent, then the network effects kicked in, crushed everybody.
Jim Hackett: Yeah. And Jeff West book that I recommend that I know you know what I’m going to say about scale. The underpinnings of that became a Bible for me, that I made everyone on the management team read and just randomly, the day that I had asked them to read it, I had [Satcho Nadella 00:08:13] from Microsoft at a conference speaking to my senior team at Ford and he says, “We may learn it all, not a know it all, Jim. I saw a book in your office, Jeff West book.” And I go, “Yeah, I just…” There’s 3 or 400 people in the room but my top team, was 15. I said, “I just made an assignment.” I didn’t do this a lot, “That they need to read that book.” And his comments that followed were so wonderful because he went on about what he’s learned from that.
Jim Hackett: And one of the principles are that as you get bigger, you have to get the unit cost advantage. But if you’ve seen, for the listeners, there’s a Ted talk that Jeff did where he explains eventually you can’t get the extensibility of the cost advantage in business. So in other words, Amazon, at some point runs out of that cost advantage. So it’s fitness starts to get challenged.
Jim Rutt: Hasn’t happened yet though, but it will.
Jim Hackett: No and look, there’s a lot of jobs and a lot of wealth and a lot of gain for everybody while it’s growing. But the recognition, I never lost this, Jim, in leading businesses. The recognition that fitness is fleeting always caused me to pay more attention to it because of Santa Fe. And we can talk about how that manifested itself.
Jim Rutt: My very first application of complexity thinking to business, which was when I was at Thomson Reuters as the CTO and sort of defacto strategy guy, we did a lot of acquisitions there. It was sort of a holding company, not exactly. We had six different sectors that we were in. We bought and sold companies. But we also grew companies internally. I pointed out that just as you said, that the business ecosystem is really a co-evolutionary fitness landscape that hills are going up, hills are going down, ridges grow off of hills. And unfortunately, it’s the nature of bureaucracy to march straight up the hill that you currently happened to be on and entrench at the top, if you get there. Maybe you only get halfway up. As far as you get, you entrench and you pay no attention to whether your hill is going up or going down and you need to open up your lens much more broadly to think about what it is that you’re really in.
Jim Rutt: The famous stories of the railroads, not realizing that they were really in the transportation business and none of them became significant players in the trucking business, for instance. I don’t believe any of the buggy manufacturers ended up being major car companies. If you had redefined, your business has transportation or mobility, you might’ve made the move to be a player in this world, instead of it being 50 year generations, now we’re talking about five-year generations. So you certainly have to have that vision of business if you’re going to be successful today.
Jim Hackett: And I’ve learned this from a technique that I can’t remember who I borrowed it from, I should because it’s one thing I would pass on to our listeners, is you start when you’re examining the decline, let’s keep it where you and I are, the decline of a business that was historically successful. Let’s pick Kodak. You have to start with the phrase, “They weren’t idiots.” I knew a board member, Ernie Davenport, one of my friends. Ordinary guy, he was in the board room when they have the digital pack. And he said to me, “Jim, the cost was too high.” So they had really smart people. What I learned from Santa Fe that they learned from studying natural systems and natural evolution, the Darwinian forces, is the incumbent system isn’t willing to give up the virtues that made it great.
Jim Hackett: So I then coined this phrase, I don’t mean to suggest it’s Santa Fe worthy, but I coined it in business saying there’s a perversity law then, which is you choose to die rather than change. And so that’s what happens in the Kodak story. They make so much money in chemicals and paper and digital has no margin and it’s too expensive. It’s an easy decision to stay with chemicals and paper. So Jim, at Ford, I would cause these thought experiments and I’d say, “Okay, since they weren’t idiots and you can’t have the benefit of hindsight, what should we have done differently if we were running that company?” And I came up with this idea with them, which is we should have been measuring the number of photographs that people have in their home, because we knew between Fuji and Kodak that they had dominant market share. And we could have been derived, but they have more photos in their home, on their person than the film would explain which meant that it was coming from digital sources. And that was their business was building, like you said, transportation, their business was delivering photographs.
Jim Hackett: And so we translated that into a Ford opportunity, which is, we’re going to lose track of the digital exhaust coming from our vehicles that are going to other people. And therefore, we can’t give up our future because people are monetizing digital information coming from our vehicles. But Santa Fe deserves the endorsement of helping me understand why there weren’t idiots that missed trends, it’s because there’s an incentive, perverse incentive, because all the value that you’d have to give up or the virtue that you have to give up of the incumbent system.
Jim Rutt: I’m one who’s generally pretty skeptical about business books. Most of them are kind of intellectually lightweight and often self-serving to build the consulting career of the authors. But there’s one of the five or six really good business books that I’m aware of called, The Innovator’s Dilemma by Clayton Christensen. And he makes this point in a very formal way, and you and I both have run publicly traded companies. We know how this can be if the CEO doesn’t help overcome it, which is the people that are involved in the business lines that are making today’s profits have inordinate control of next year’s budget. And the last thing they want is to see profit from their business line, which actually reduce the profit in some sense, going to this upstart, who’s trying to do what cannibalize our own business. And this is the fatal flaw of the big bureaucratic climb to the top of the mountain and entrench model is that you don’t allow yourself to cannibalize yourself.
Jim Rutt: As we used to say at Thompson Corporation, now Thompson Reuters, “Hey, if we don’t do it, somebody else is.” Way better to cannibalize yourself than to let somebody else do it.
Jim Hackett: And God bless Clayton because he just passed away. But I was fond of saying that he was a physicist who became a business professor, because of all the people I met in the Santa Fe world. Another thing that I’ll pass on because you used it. It’s so fun to talk to you because you’re resonating with me very directly. As I said, imagine that we’re in the boardroom of the Pony Express and we go, “Hey, I got a great idea. Let’s get rid of the pony.” How long would that CEO have stayed in that boardroom? But that’s what had to happen in the fitness landscape question and the virtue of the pony had served as long as it could.
Jim Hackett: So that’s another lesson because I’m 66 this week and I get to say to myself, “I don’t have to worry about that in boardrooms anymore.” I hit the point where I had done it for almost 30 years, but I do like, not to teach in universities, but I like to help younger CEOs see what you, Jim and I and Santa Fe have discovered about natural systems because, if they’re provincial in their thinking and they go, well, this doesn’t apply to business, but it’s everywhere else in the design of things, then we’re in trouble, because you’re going to lose to the gravity of that science. It’s going to catch you.
Jim Rutt: Very well said. I’ve also retired from the game directly. You’re a baby. Hell, I’ll be 68 this year. But what I do do as part of my public service is mentor young CEOs. And I have a little CEO advisory thing that I do. I basically take them through about a year and then if they graduate, then I say, “Here’s my email address. Email me any questions you have.” And I have tried to help instill almost exactly that kind of perspective.
Jim Rutt: I want to talk a little bit more of the meat of particularly the goings on at Ford. But before we do, I’m going to ask you, when you were growing up, were you a car guy? Did you like cars?
Jim Hackett: This hurts me in the car press. I was not. And mostly, not because money and car guys had to be tied together. In fact, the shade tree mechanics emerged because they can’t afford the service. And that makes people really ingenious about taking cars apart. But no, it didn’t translate in my family because of the rural scarcity. We didn’t live in the middle of nowhere, but the town was very small and my life was around animals and my dad’s medicine. My mother was an artist by the way, and three older brothers. So it was more sports. We were really tied into that.
Jim Hackett: But I want to tell you something, I have a healthy respect for the car guys. In fact, the guy that succeeded me at Ford intentionally is a car guy, Jim Farley, because you do need that instincts in this business. And I hope that I imparted on him, the things that you and I are talking about and particularly around the influence of technology, that’s kind of why I was asked to step in.
Jim Rutt: Cool. Let’s move on. One of the momentous things that happened on your watch was in 2018, Ford announced it was going to eventually discontinue, not even eventually, relatively soon, most of its passenger car lineup. Some well-known brands like Taurus, which for a long while I was the best selling car in America. Fusion, which I always thought was probably the best American middle of the road car and the Fiesta, which was a neat little car. Tell us about how you came to that decision and what drove it.
Jim Hackett: Well, the underpinnings, just to keep the constancy of influence here, was the fitness question. The virtue of vehicles that you hear me referencing in nature, the virtue of the older system, the virtue of vehicles starts to shift and I can’t date it specifically, but let’s just say when sport utilities start to raise the height for drivers, so they actually have a better perspective in the road. And then you have all this utility. You can have four wheel drive because, at the time, the transmission structures were larger and you can have storage. The negative, Jim, was, and I thought deeply about this, is that when somebody in a job like mine 15 years ago might have had the same instinct that the vehicle, what I call the silhouette, the outline that surrounded the driver, they had a preference for the cabin size to be bigger and higher.
Jim Hackett: If they had an instinct as a CEO to run there, then all of a sudden you’d have like an oil crisis. And the price of fuel would go up and the penalty to the owner was so hard that they suddenly, and I’m young enough to remember when people got rid of all their trucks and SUV’s, and all bought smaller cars during the oil crisis. But here’s the new information, as we touched on it earlier, there’s no penalty in the future for the silhouette size because of electrification. So my team and I reasoned that we ought to get on that path faster than later, because we know the electrification is coming and we can start to give customers, through better gas engine technology and hybrids, we can give them the environmental advance that they need right now. If the price of oil went up really fast, we have enough in our product line before it’s all electrified to give them the bigger silhouette and not to have a penalty for fuel.
Jim Rutt: That’s pretty deep thinking, realizing that, okay, you have current demand looking for SUV’s, but you have this interesting heads that we’re going to electric anyway, so we don’t have the downside. I like that. Two-step thinking, relatively rate in American business, I hate to admit. That was good play. I like that.
Jim Hackett: The whining part of it is there’s two CEO’s that I would, our folks are listening into us, Wall Street didn’t really like it. And the reason is, they wrote the line, remember I said a minute ago, how would this go over in the boardroom with the Pony Express CEO says, “I’m going to get rid of the pony.” How does it go over in the Henry Ford Motor Company, “I’m going to get rid of the Taurus.” And so people thought it was just a disingenuous kind of swing, but it’s turned out, I’m really proud of this. You said it was 2018. Here we are in 2021, virtually all the other manufacturers followed suit. General Motors and others started to get rid of some of their cars. And it’s the same reason. It’s the same issue.
Jim Hackett: It doesn’t mean to suggest that we’ll have smaller silhouettes in the future, but if they’re uneconomical to the car companies, they can’t make them. And I actually have a theory how that will evolve. I think they will get smaller with the intelligence of the vehicle, but for now, that’s a bridge too far.
Jim Rutt: That’ll be interesting to see how that plays out. One of the bits of research I did for this episode, I usually end up doing about 10 hours of research for episodes that I actually know at least a little bit about what I’m talking about. I wanted to check where the various car companies were on their dedication to the electric road ahead. And it looks to me that Volvo, GM and VW of the Western companies have committed firmly to all electric at some point in the future. Ford is not yet fully there. They say that the majority of their cars will be electric, but they still are hedging a little bit on that. What’s your view? Do you think that we’ll be in an all electric, new vehicle environment sometime in the foreseeable future?
Jim Hackett: Well, I’m not dodging it, but I want to help you rephrase it. First of all, and I worked hard at this, again, a theme here, Wall Street didn’t like this, but I think I’m proving to be accurate with this. The first thing you got to think about is propulsion and listening to your podcasts, this fits your instincts, is the notion of moving something and calling it electric as like it’s the dominant design forever is probably not fair. Because hydrogen has promise as well. And there’s even other ways from… One gentleman that you interviewed on the podcast where you talked about the nature of how energy was being produced by wood and heat spines its way in the influence of the evolution of industry. I want to assert that in the automotive industry as we know it, or vehicle business, it’s the same kind of thing. That energy will constantly be long in the tooth in terms of platforms, but it will continue to evolve because the payback is so high. So that’s the first thing.
Jim Hackett: So what we reasoned, and my successor and I really worked closely on this. I came in and it was kind of a nil or zero investment in electric. I raised it to 11 billion and my successor in the last six months has doubled it to 22 billion. So substantially, the company’s making a huge commitment. The reason it’s not all is because the-
Jim Hackett: The reason it’s not all is because the work requirement that we know from the F-Series buyers… So we’re the largest producers of trucks in the world in commercial vehicles. The cost-benefit ratio… and this isn’t a climate tax either… for fuel, for gasoline, is still much higher in these real heavy-duty applications. When you said what do I predict here, here’s what I predict. As the vehicle intelligence grows, the weight of its protection drops because it can’t crash, it’s so smart. And therefore, the alternative forms of energy now let the substitution be fully realized. But I don’t want to try and put a date on when those intersect, but I do think that Ford’s contribution to environmental climate change, we were the first to come out… I’m saying this with great sincerity and say we don’t believe that the Paris Accord should have been abandoned. And Bill Ford and I wrote a piece on Medium that said we’re committed to it. Even with the standards, EPA standards being relaxed, we stayed on the curve that are more stringent.
Jim Hackett: And that’s what’s motivating now the president of the United States and the rest of the governments to rebirth more stringent standards. So Europe will lead in this regard, both China and the US. I think China will put more resource to it, but the US will be ahead of them. And so when you ask that question, we should be thinking about there’s three platforms around the world that won’t all synchronize at the same time [inaudible 00:25:42].
Jim Rutt: Very good. A nuanced answer. And another area that we talked about on the show a fair amount is climate change and the road ahead. And I continue to be a believer, even though nobody else in politics seems to agree with it, that a carbon tax, particularly one that’s 100% refundable per capita, would be a great forcing function. If we say started at the equivalent of $50 a ton carbon and just stipulate over the next 20 years it’s rising to $200 a ton carbon, that would be such an interesting signal because it doesn’t tell you as Mr. Ford what to do, but it tells you the ecosystem that you’re involved in so that your brilliant people can figure out how to make an electric F-250 the right thing to do. Might not be feasible. Maybe it’s methanol. Maybe it’s hydrogen. But at least puts a gigantic economic vector towards getting away from CO2. And I think that’s one of the biggest imponderables is will we actually get serious about climate change? In which case, the move towards at least non-petroleum-based transportation could well inflect upward, but we don’t know when that will occur.
Jim Hackett: And here’s another positive influence to be… My dad, I talked to him a few times today about him. He was an eternal optimist, and I inherited this. So when I came and gave the talk at CES when I was a brand new CEO, I talked about you actually pollute more when you’re in traffic than when you’re moving, and you’re in traffic more than you are moving. So the hardest problem right now is to get the traffic snarls undone, which gets to the intelligence of the vehicles. And so as we architect smarter vehicles, which means we can have more choreographed traffic, we will have reduced pollution irrespective of the propulsion. But because the propulsion is changing underneath that and the intelligence is growing in parallel, this is a much better world, Jim, because the capability of the vehicle to not pollute.
Jim Hackett: So here, even with hybrids, here’s an example. The Germans did a study. So draw circles emanating from the center of Paris out. And at a point, with a hybrid, the vehicle can be running on its battery. And it gets outside of the density of the population, which changes the nature of the way the CO2 is being processed, and it can charge itself with the gasoline engine to get back to a logistics depot outside the circle. It’s smart enough to know when it’s left. In fact, the sensing is such that it could know the air quality, such that it only got permission to turn the engine on when it knew the air quality was high enough and not making it worse. The intelligence is probably as promising as the electric engine. That’s all I want to get across. And need lots of invention there, but I think it’s really promising.
Jim Rutt: Yeah. We’ll talk later about an article that you pointed to, actually, or your assistant did, on smart infrastructure. Well, we’ll talk about it when I get there. I don’t want to steal the thunder yet. Now, let’s focus a bit still on electric cars, because now, Ford is committed to a majority of its vehicles being electric, and GM and VW and some others, all of them, at some point in the not-too-distant future. Going back to our Santa Fe perspectives, one of the things we know that has to happen… and then I’d love to get your perspective on where you think this is today and how this is going to be managed in the future… is kind of the co-evolution of the charging infrastructure, and even eventually the electrical generation capacity, to be able to effectively charge this large fleet of electric cars.
Jim Hackett: That’s super insightful on your part because if you’re a systems thinker and you realize if we don’t make the equilibrium of charging meet the demand, we’re going to have a big problem. So I want you to know I think there’s zero blindness on the part of all the car manufacturers, how important this is to follow. But here’s the hard problem is the penetration, for example, in the US today of electric vehicles was less than 5%. So if somebody, a business person, invested in infrastructure… You remember when Paul Allen was buying a lot of the fiber optics and coax cable? He was ahead of his time. But Vulcan didn’t get a return on that because the demand for that… He was totally right about it. I think he was glad he had it in the end. And because he was infinitely wealthy, he could hold that long arc.
Jim Hackett: So this is one of the questions. I spoke at one of the big energy consortiums in my last pre-pandemic thing last year in Phoenix. And it was all the heads of all the energy companies, utilities, and what have you. And this is the number one question they were asking is, “We want to be ready, Jim, for charging, but when will you be ready with the demand,” So it’s a circular equation. So here’s what’s happened, Jim, is when we launched the Mustang, what we ended up doing is we told our buyers that we’re going to create a network through alliances charging businesses so that you can have one code or one number, and wherever you go, you don’t have to be beholden to… If you’re a Tesla, you had to find a Tesla charging. And so that’s what happened in computing is the USB standard helped all the computer people lower the cost of charging.
Jim Hackett: And so we were a big advocate for that in the world that you’re talking about. But I haven’t answered your question when the tipping point is such that there’s zero risk that you won’t have it near you. I can assert this because I have lots of people ask me this. If you were going to take off from a major city to a major city, you’re not going to have a problem meeting the requirements during your trip. You’re going to have to stop somewhere and charge. That’s true. But the ranges are up to 300 miles, and the average person travels less than 35 miles a day. So that range anxiety is only on longer trips. And therefore, you have to plan. If you’re in the middle like I was in this little town in Ohio, there’s just not going to be the incentive for the networks to be built out ahead of the demand.
Jim Hackett: But that’s not 100 years away. I mean, we’re talking within the next decade. And here’s why. Something happened in the last two years is Amazon decided to make all its delivery vehicles electric in time, both with Ford vehicles and Rivian, which we are invested in. They bought a part of Rivian. I probably shouldn’t release how many vehicles they have in their fleet, but let’s just say it’s going to pull along the charging infrastructure because how big they are.
Jim Rutt: Well, that’s good news. As I said, I did some research for this show. I learned a bunch of interesting things. Of course, the presence of a charging station is one part, but then second part is how long does it take? And what I learned is there’s really two kinds today of charging stations, called DC fast charge, which can charge a car in under an hour, and then there’s the level two AC chargers, which can take up to 12 hours to charge a car. And again, if you are doing your 15-mile commute to work and you charge it at home and you live in a private residence where you can have your own charger, in fact, that takes 12 hours. Not much of a deal. On the other hand, if you’re driving cross-country, because you’ve mentioned 300 miles, on a good day, with the wind, if it’s mostly downhill…
Jim Rutt: My wife and I love to do road trips. One of our hobbies is get in the car and drive, drive from Virginia to Austin, Texas, and listen to country music for two weeks, right? Heavy-footed wheel drive, 650 miles a day. Right? And that’s not going to work too good. Truthfully, if we could find a place halfway on the day, have lunch and do a one-hour charge, that might work. But at least for some missions, it’s going to be tricky.
Jim Hackett: Then there’s a couple ways to think about this, Jim, and again, with your background, this won’t elude you. But to the world that aren’t electrical engineers, they think of a vessel like a gas can. And you put that nozzle in the vessel and you fill it to the top. When you’re charging the battery, it’s not like that because we’re dealing with electrons. And so you can get a full charge, but to the extent you speed it up, they don’t like that. The electrons don’t like that. So that reduces the capacity the next time you charge it. It’s like stretching the can too far. I hope the electrical engineers aren’t laughing. But I do want the world to understand that it’s not because it isn’t important. It’s because it’s physics.
Jim Hackett: And here’s the way to be optimistic. Elon’s caused a lot of this, but Ford has an extraordinary team in the battery world. I mean, extraordinary. And I’ve learned from them… and University of Michigan, which happens to be right next to us, has one of the leading academic departments around this, for obvious reasons… is when you put the batteries together, their proximity and the origami of packing is what also changes the risk because of the heat that comes off the battery. So the septums that are separating them are an area of innovation. I don’t know if I should use the word I mentioned listening to you guys the other day, but that is a dynamic problem, how much you can put into the battery, how closely packed they can be, what’s the septum material, and it’s just getting better and better. That’s how it used to be only 60 miles. Now it’s 300.
Jim Hackett: Is it on its way to 500? Yes. There’s a new technology called digital batteries. And it’s still chemistry and physics together, but it’s reducing the heat problem. And that has promise by 2025. Toyota and the Japanese government, it really spearheaded a lot of this, but Ford’s been invested in this idea as well. And VW, as you just referenced is… Because of Europe, they have to make the shift.
Jim Hackett: And they had a little nudge. I’m not picking on them, but with the diesel crisis, they had to come to the conclusion that the future of their vehicles had to be around a propulsion system that gave their drivers and users the kind of mileage and efficiency that they promise with diesel. And we found out that wasn’t true, and it was really debilitating to them, but they’ve recovered nicely. And I think they’ve turn all their attention now… They had to pay a penalty, to your point, in the United States. Part of the settlement for that was they had to build out part of the charging network. They helped fund that. So these are all forces at work, I think, to make it more optimistic, not negative.
Jim Rutt: Those are the things that American free enterprise has historically been pretty good at, right? Because people pays their money and they takes their chance. And there’s always somebody who’s willing to take a little bit more risk for a little bit higher return. But as we talk about network systems here, we alluded to it in passing, which is the aggregate amount of electricity available to do the charging. Today, it’s small enough. It doesn’t really matter. Maybe it does in Southern California where there’s lots of Teslas, but most places, it’s a small percentage. But if half the cars or more were electric, the demand on generating capacity could be substantial.
Jim Rutt: But the grid is something I’ve studied a lot, and it’s a Santa Fe Institute specialty, actually. And electricity is a weird product. It’s economics, depending on all kinds of things, very substantially, time of day. There are many places in the United States where they have big generating capacities, and the Columbia River and the state of Maine, which has several nuclear plants where you can buy electric power for half a cent per kilowatt hour between midnight and 4:00 AM. And if we had differential time-of-day pricing and smart chargers and things of that ilk, we could squeeze a lot more cars being charged with no more generating capacity.
Jim Hackett: And we learned from Texas, don’t we, Jim? You don’t have to tell me, but they didn’t have interconnectivity. I don’t think they were able to flow from a part of the world that had the excess down to Texas. Is that fair?
Jim Rutt: That is correct. It’s an oddity. The US basically has three grids. It has the Eastern Interconnect, the Western Interconnect, and the Texas Interconnect. And the other two are big enough that the statistics of failure are such that if one part goes down, the other one can usually help it. But Texas, for odd political reasons, basically didn’t want to be regulated by the predecessor to FERC, basically have an in-Texas grid only with inadequate, very, very thin interconnects to the rest of the country. So when they got in trouble, they were in deep trouble. If I were the dictator of the world… not a bad idea, I must say… I would certainly use some of this infrastructure stimulus money to strengthen our interconnects across the grid, both in the East-West and into Texas. And I’d also invest ahead of the curve because the government can afford to do it, to build high voltage DC, to be able to bring things like wind power down from the Dakotas.
Jim Rutt: The Dakotas are the Saudi Arabia of wind power, but there’s very thin utility lines out that way. And that’s a good thing that government could do to spur investment by private parties is to build the Interstate Highway System for electricity that would help us on… Wind is actually very good for this nighttime charging because wind is actually anti-correlated with load, which makes it less valuable for normal uses than solar, which is positively correlated with load because wind blows stronger at night. Well, guess what? Solar doesn’t work at all at night. So you really want to have a balanced portfolio of wind and solar and nuclear and hydro, et cetera, for our carbon future, and understanding when this transition in cars happens and how smart we can get about how and when we charge will actually be important to the people designing the grid of the future.
Jim Hackett: Well, and gosh, that was wonderful. You should come and speak at Ford and places like this too. I mean, we have lots of smart people, but the whole company to understand what you just described, I think it would be really helpful, because here’s the thing. You’re asking the question. In the systems design, we end up with a seesaw with one end much heavier than the other. And that’s potentially fatal if we do, because people can’t recover from the emergency or they can’t get somewhere they have to get, it’ll be the death of a better, environmentally-enabled propulsion. So what I’ve been a proponent of is that we do the long arc kind of spending with the government. This is where they’re great partners, right? So Harry Truman, was it, or Eisenhower? I think it was Truman that-
Jim Rutt: Eisenhower built the Interstate Highway System.
Jim Hackett: Eisenhower did the Interstate Highway. By the way, this is one of those trivia things. The original, I think was a defense strategy so they could move the missiles.
Jim Rutt: There’s all kinds of stories. One, they could move tanks, actually. And the other one was they could be dispersed runways for the B-52s. I don’t know if those stories are true or not, but I’ve heard both. And also as a trivia, I actually sat on Dwight Eisenhower’s lap I was two years old, when our family was taking a tour of the White House, my dad was a DC cop and he had some inside connections. Whenever we had relatives come to town, he’d always get a private tour of the White House for us. For whatever reason, Ike himself was wandering around, and being the natural born politician that he was, even though he wasn’t a professional politician, they wanted to get his picture taken with this cute little two-year-old sitting on his lap. That was me.
Jim Hackett: Wonderful. Well, don’t lose that story because you sat on a hero in world history, right? There’s a few people that saved the world and he’s one of them. But the interesting thing, I believe… Let me just correlate this to my odd way of thinking. So in this little town in Ohio than I’m in, it has a US 40 Route that is famous that goes east to west. And Interstate 70 is going to emerge. And here’s an example of a theory that I developed because of what happened, using the past as a proxy, is all the best restaurants that we would go to were on US 40. The minute the interstates open, the cars, aren’t leaving the interstate. And therefore, the people that have the food elsewhere, they go out of business. But the food that comes to the interstate is not as good because all it has to do is equal access. In other words, it needs an off-ramp and you need to put a fast food sign there and you’re in business. But what we can witness over time is the food quality got worse.
Jim Hackett: I draw that metaphor to technology and the internet, and I’m going to make the connection to electrification, is that the first thing, Jim… and maybe you were doing this at Thomson Reuters… is, “Hey, we’ve got to be on the internet because everybody’s got to be on it.” And you didn’t get judged for the quality of your experience, just that you could say you were connected. That’s the same kind of dynamic fitness was just access. But now, a better design is you got to have high quality with the access.
Jim Hackett: And it’s only recently in my 30 years of running businesses that the web is now being used to enhanced quality. So let’s take that to the charging networks. Just as you described with your beautiful wife, when you’re traveling, imagine the design problem is just to get access. I just don’t want to be left without power. I want you to see the competitive fight will go beyond that. It will be about access and quality. We don’t know yet what else we want it to do. I have some ideas myself that I want the charging thing to go beyond, “Just give me power.” But I want to point that out to you because it seems to happen in the fitness of designs of systems where the first virtue is enough to get it started, but not enough to win.
Jim Rutt: Interesting. That’s a very good insight, and this would seem to be a likely place. And just to your comment about food on the road, I’m old enough to remember before the interstate. We used to drive from DC to my mother’s hometown in Northern Minnesota, mostly on back roads. And my wife and I, when we go on our road trips almost never eat on one of those food places on the interstate. We’ll drive into the little town and go to the little cafe it still exists, or nowadays, often a Mexican restaurant. And you’re right. I mean, the comparison between the fast food sludge at the exit versus what you can find in smaller-town America… And there is a really good use of the internet, when we’re driving off, my wife will be driving around lunchtime, we switch off. About 11:30, I’ll get on Yelp and start going, “All right, what looks good off the side of the road?”
Jim Rutt: We found some amazing stuff. Little barbecue place we found in a fairly dubious neighborhood on the outskirts of Jacksonville one time, which is still one of our legendary Yelp finds while driving by. So that is definitely a real thing. So now let’s swing back towards the heart of our story and your career. And that is I’d love to hear from you the story of the Mustang Mach-E. That was, in some sense, so far at least, the biggest move Ford has made. My research indicated that this was originally going to be a… what was it… a electric Focus or something, right? And then your predecessor said, “Nah, not sexy enough. Think Mustang.” And take it from there.
Jim Hackett: You had that right, except I was the one who said that. And I got to give credit to my successor, Jim Farley. We were such collaborateurs. He’s the car guy, remember? And so my successor, Jim Farley, not my predecessor, my successor and I walk into the situation, zero money being invested except for this one model. And I had a friend, Roger Martin, who I would cite like Clayton Christianson. Jim is a guy you have to read. And Roger’s the most proliferate writer in HBR, be a great candidate for your show. Roger said that there needs to be a phrase where you say it’s not good enough. He’s the one who’s kind of coined that. And he did a lot of work with major corporations.
Jim Hackett: So I walked into this meeting after I’d heard one of his talks and I whispered to Jim Farley. I said, “Jim, it’s not good enough, the Focus electric.” Jim said this. It looked like a science project, which by the way, this isn’t dissing our science friends. It means that we wanted to prove that we could electrify a car, but that’s not the winning combination. And so Jim Farley is the one who says to me, “What if we take an established brand that has exciting qualities?” And that’s the underpinnings. Now you need to know, at Ford… this is worth saying in the archives… there’s a couple other swings at this to take the Mustang’s success and make it extensible or adjacent. And they flame out terribly. The Probe-
Jim Rutt: I remember the pathetic Mustang II.
Jim Hackett: And there was even a worse concept called the Ford Probe.
Jim Rutt: Oh, I remember that. That was going to be the next generation Mustang, but everybody revolted and said, “That piece of crap wearing the Mustang name? Never.”
Jim Hackett: Yeah. And so there’s the wisdom of the crowd if you ever needed it, is that the editing that the crowd can make. So my partner, Bill Ford… I want to just cite for the listeners… I had
Jim Hackett: Partner Bill Ford. I’m going to just cite for the listeners, I had such a wonderful relationship with two family companies. I got to lead Steelcase and Ford. I just connected with the families and you know, these are their businesses in large measure, and Bill and I would just really candid. And he taught me this editorial impact of Mustang owners. He said, “Jim if you start messing with that, you’re into a lot of problems.” This is when I was a kid in the fields in Ohio, you’d come back with all these burrs stuck to you because you had gotten into the wrong field. And so I ended up working backward with Jim Farley and the design team. And we said, “If we can take the language of Mustang and make electrics now feel very, almost romantically sexy, there’s a chance.”
Jim Hackett: And so Bill and I and Jim spent a lot of time looking at the iterative designs, call them the clays, the little clay models. And I’m so proud of two things with this vehicle. One is they took the language of the Mustang and interpreted it in a utility. Secondly, the interior. We rethought the whole user interface versus a well-known competitor in the electrical world that you know, that we felt we could change the whole interface of the way the information presented itself. So there’s a generational step function improvement in the Mustang, Mach-E square that you touch and interact with your vehicle. And I can talk about it now. I couldn’t in the beginning, cause it was so new. We didn’t want people to understand it before the market saw it. And so that vehicle, we’ve sold twice what we thought we would. We had a reservation system. In your research, Jim, the automotive press has given it really rave reviews.
Jim Rutt: I could actually give you quantitative answers on that because I went and read a bunch of reviews. I read five reviews. Two gave the nod to the Mach-E. Two gave the nod to the Tesla Y. All four said it was close. And Car and Driver, of course, hated the fact that you used the Mustang name, but grudgingly admitted it was a damn fine car.
Jim Hackett: I’ll rest in the argument, because those people that are mad about that love us. So that’s the best way. That’s like my three Irish brothers. I mean, that’s exactly right. The audience can’t see, but Jim just threw a right hook. That’s exactly what it was like. I knew they loved me as we’ve fussed about it. But here’s the loyalty importance too, is I don’t want to over predict here. Ford will be really disciplined about deviating from what our customers tell us like that, in offering. So the other thing I wanted to say is we translated this to the F-150 as well.
Jim Hackett: So you haven’t seen that product, but I can talk about it. There’s an F-150 electric that’s coming. And the same instincts are here, which we don’t want to destroy the love of the F-150 number one vehicle in the world, but we’ve been able to capture the imagination of how you could electrify it and change the experience in a cool way. And when I test drove it, picture this Jim, the center of gravity gets heavier because of the battery in that thing. It drives, I would say like a brand X that is a German name that begins with a P that has really nice SUVs. It drives like that to me because of the way the weight changes. So I think it’s going to be a huge success.
Jim Rutt: Yeah, that’s cool. Before we wrap up on the Mach-E, trying to get data on the internet. I think I actually posted a meme on Facebook the other day, which had Abraham Lincoln saying, “Just because you read it on Facebook doesn’t mean it’s true.” Right? But my best guess from looking at various data sources is the Mach-E, as you said, selling really well, maybe 9,000 vehicles a month, something like that.
Jim Hackett: Well, the press reported this. Elon’s share was 81% at the end of January, and March 1st, it was 69% and it was only attributable to the Mustang Mach E being introduced in February.
Jim Rutt: My linear regression model said you guys sold 9,267 vehicles in February. Now that was based on a bunch of assumptions on my part. But I expect that’s not far off. The same analysis I did said Tesla probably sold 13,000 Y’s. So remarkably close, right? And you know, it can only go up from there.
Jim Hackett: That’s right. I’m so proud of that story because when I walked into the job, we did not have this vehicle designed or engineered or anything.
Jim Rutt: Well, I apologize for not realizing you were the guy that said think Mustang. So good job.
Jim Hackett: Actually, Jim Farley and Jim Hackett did this together.
Jim Rutt: Okay. That’s good. So those guys can get the prize for a really interesting and ballsy pivot there. I mean, to say, it’s not good enough. I mean, I pride myself on that one. My people bring me products that they think are sort of okay. And I go, what I would say, they’re not sufficient for the task. And if it’s not sufficient for the task, which could include style in the consumer auto business, I just say, no, Nope, not going to set out a product that is not sufficient for the task.
Jim Hackett: And imagine the person that came back to you, this is the story is Farley comes back to me and says, Mustang, if you saw my eyes, they got so big. And by the way, I had a battle because I knew that the crowd would not like it. You know? So that’s why I want to take some of the credit for helping getting this done because there was a lot of resistance to even thinking about that. But Jim, Farley’s instincts about that platform. I need to give credit there.
Jim Rutt: That’s great. Now the other one, I turned up in my research, I guess, about to come out or just has come out is the E-transit delivery van.
Jim Hackett: Yeah. And this again, my partner, Jim and Bill, when you cited that we exited the Taurus, the Fusion, the Focus we decided the commercial vehicle platform is extraordinary importance of the transit van for Ford is one of our after the F-150 one of our highest market share products around the world universally. And so we’re really committed to this platform. In fact, there’s so many exciting things coming with that platform, both in propulsion Jim and the intelligence of the vehicle, the intelligence, not just in, we’ll get to in a minute about autonomy. I’m talking about one of the things I mandated was all the vehicles had to be connected to my modem. This was not done when I walked in. And the reason to defend the people that were in charge was the cost ahead of the revenue meant that the product lines would show a big deficit, the cost of wiring them.
Jim Hackett: But I reasoned if you didn’t wire nothing will come. So, we got to take that hit and we got to go there. And so the E-transit will be one of the early platforms in the commercial vehicle. It has both propulsion changes and new intelligence features for the users. And I’m talking about telemetry that like a fleet buyers need about their vehicles, where they are, what kind of fuel efficiency they’re having, are they making all the route stops that they thought they needed? The vehicle is going to have so much intelligence it’ll integrate into the owner’s business plan.
Jim Rutt: I can see how that’d be hugely valuable. And of course, your evil competitor already does that kind of stuff. So you have to, now let’s pivot to real intelligence. And this is to the category of self-driving cars. One of my favorite topics, and frankly, a probably be a fairly bright line in the future of humanity. As it’s turned out, this has been a little harder than certain people we could name on occasion, claimed it to be. And I think we probably all remember that the popular press around 2018 was trying to convince us all. We’d have level five automation this year, 2021, not even close to happening. Tell me you’re thinking about self-driving cars, sort of big picture.
Jim Hackett: Well, there’s a random moment in my life before I go on the Ford board, just because of this curiosity, curse I have, like you, I can tell is I witnessed either on Frontline or Nature. I can’t, I know it was PBS. I think it was Frontline is the DARPA challenge. So for the listeners, this is when the DARPA, which is the research arm of the military challenges independent collaboration from universities and companies. If the companies wanted to meet three or four tests for a robot to work independent of human interference. And Ford was one of the few companies that had its own team in the DARPA challenge. This is not well-known because what is well known. There was a lot of people that were in that, that went to work at Google. One of which ends up serving our startups subsidiary, Argo, Bryan Salesky he’s in the DARPA challenge, but one of the reasons he ends up partnering with us as he remembers Ford being there.
Jim Hackett: So he had a lot of respect. So let’s just say at the highest level, I start learning about robotics through that, that Frontline, which you can listeners can go look at. And it starts to ask a lot of questions from my mind to the people working on this, and I’m not on the board of Ford yet, right. We haven’t gone further, as I end up in the boardroom and of course, started to see the speed of this. I have two things, Jim, that I have in tension, tension means in design thinking that they’re needed like a guidewire needs to be on a telephone pole. And, if you don’t have the guidewire, then you have to make the pole a different circumference to withstand the forces of the wind. Use the guidewire, it can be codependent. I think of tensions this way in design.
Jim Hackett: So the technology inside the vehicle and the market development have a synchronicity that the world doesn’t really understand that the highest level that’s what I want to get across. So in other words, we could have golf carts today that are totally autonomous because the nonlinear kind of events, which means the things you don’t expect that are going to happen on a golf cart path. There are things that you won’t expect are limited so that you could program the vehicle to be super intelligent. What happens is the world. The world thinks when the first test cases of autonomy were being demonstrated, that it’ll just take me anywhere. I can migrate from point A to point B any way I want, but the complexity rises and therefore the market gets more sophisticated and there’s a mismatch. So I drew an X, Y structure and said, market sophistication and technology sophistication, and drew a connection between the two.
Jim Hackett: And I came in, I tried to dial down Wall Street’s belief that both of those were at the extremes. You know, it was a technology sophistication, the market sophistication are such that we will have every, Uber taxi be autonomous by 2021. It’s just not real. And so resetting and being a believer. I quoted Bill Gates, who said, “you tend to overestimate the arrival, underestimate impact.” I think Einstein actually said this before Bill and I think that is the issue. I’m so committed to this capability, but we have to reset what everyone believes it’s going to do. And so I’ll let you go where you might, in that frame, we can go down to the market access or the technology access and try and better.
Jim Rutt: One thing that we could just briefly review for the listeners benefit is the five levels of automation. I have them here. If you don’t have them at your fingertips.
Jim Hackett: You go ahead. That’s on the technology access, right?
Jim Rutt: Yeah, and, talk a little bit about, what’s hard about them, what the market demands, et cetera. And then I do have a number of market questions about, you know, who’s working with who and those sorts of things. The level zero is no automation. The ie; in 1965 Chevy Impala, the 327, right? And then we have driver assistance. Think my wife Subaru has adaptive cruise control, for instance, right. That slows it down and starts it off with all it does better than nothing.
Jim Rutt: And then we have a level two partial driver automation. Some of these cars will pass cars on the interstate, et cetera. And then we have level three, which I’m quite sure the distinction between two and three tell you the truth. That’s one that will pass slow-moving vehicles. And then four is the interesting one. And we’re still not really there yet, which is it could be fully automated. No, hands-on in some environments some of the time and then level five, what we all thought, right. When we first heard about this stuff, or at least envisioned, which is anywhere, anytime, no hands, I can go to sleep in the back seat and it can be driving through a blizzard in the upper peninsula and all will be fine.
Jim Hackett: That’s right. When the listener’s think of today, their level three is the newest kind of invention you have where you can set the cruise control and it sees the vehicle in front of it and lane-keep so that if you start to go across the lane, those are adaptive systems and they’re level three and level two is no more a battleground. Everyone’s penetrated that. So level three is the new battleground. And the interesting question about going from three to four is the role of the driver. I have an intellectual friend, Dan Ariely behavioral economists that I really love. And he talks about the psychology of people owning their vehicles. So this is independent of your scale, Jim, and you just described SAE scale. It’s still what’s at the core of human motivation.
Jim Hackett: So people signal through their ownership, a bunch of things about owning their vehicle. In fact, you have to say, what assets do you have in your life that’s 90% of the time in dwell and you’re willing to borrow money to pay for it. And automotive is the trick answer. It’s because it means, guess what happened in the pandemic? The demand went way back up again because when people were threatened with their independence, the vehicle gave them more control. And so I want to start with that and say to you that the passage from three to four, I think is definitely going to happen. It’s just the human role in that is not unlike what you will remember from the PC business. When the computer science and computer engineering was so far ahead of what we understood about its use.
Jim Hackett: And then as we understood more about its use, we start to see a separation of the winners because they start to put the emphasis on investment about what people care most about, their computer. You and I comparing notes back in the day, I knew the Xerox PARC teams. They were some of the earliest people talking about the dynamic of use, and it finds its way into Apple’s designs and finds its way into Steelcase designs. In some of the thinking, Mark Weiser was the father of ubiquity. His notions really have transcended modern times. But before that it was just how does a computer work and the speed in which it worked. And we don’t get nearly the adoption until we have the user breakthrough. So I’m just forecasting for you. This similar rubric is for the power of vehicle intelligence is that the minute it starts saving lives, the minute it starts to do things that you don’t like doing, it’s going to get higher acceptance. And I can talk more about that.
Jim Rutt: That’s interesting, as I read about what’s on offer from some of the high-end car guys, there’s a, I think one of the top Cadillacs sounds like it’s sort of level four-ish, but you have to have your hands on the steering wheel and your eyes looking at the road. And I go, why would I want to do that? Right? If I have to sit there and pay attention and have my hands near at hand, and I’d rather have a manual shifter at a hot rod, right? Give me a Mustang Shelby 350 or something like that.
Jim Rutt: So that one doesn’t appeal to me, but maybe it would appeal to some people. So I think, defining where it appeals, the people will be very interesting and safety might be one, when people originally said, oh, fully automated car, that’s impossible. How could they ever make it safe enough? And I said, well, they had to make it perfectly safe. Yes, it’d be hard, but they only have to make it safer than humans. But on the other hand, humans are pretty good. It was about one fatality per hundred million miles driven, which is pretty remarkable for humans.
Jim Hackett: The last I looked, it was a year and a half ago was 32,000 deaths from vehicles. There’s 55,000 deaths. When you add bicycles and motorcycles and pedestrians getting hit by those, these are all things that we got to get down to nil, right. To zero. And then as we’re recording this podcast today, it’s just the weekend before where Tesla has this terrible crash down in Spring, Texas, where this is factual, where the police have found that there was a person in the back and a person in the passenger seat and no driver.
Jim Rutt: Oh dear, shouldn’t be doing that.
Jim Hackett: Yeah. And it was tragic, they both die in a terrible fire. And so that just answers your question between three and four. See is the role of the driver is the argumentative part. Now let’s just take a moment and say, well then why not just jump to four? And the way I’ve explained this to people that don’t have your background, Jim in science is what I mean by nonlinear events. So imagine we have a smart vehicle and we’re the way they make these is there’s programmers inside the car. When it’s driving itself, they have computers, mirroring everything, the car seeing real-time. And at the end of the night, when there’s mistakes, they’re editing the program and editing the software. So imagine this vehicle approaches a baseball, they get home at night and they go back and they go, anytime there’s a baseball on the street, there may be a child.
Jim Hackett: So you need to slow down the next day. Imagine it approaches a mitten and the same. And you know, it says, see, rule number one, you know about the baseball. The third day, it sees a leaf and it stops. Is we got autonomy working, but it doesn’t totally understand the difference between the leaf and a mitten and baseball. So that’s what to explain to the world why it takes so much money and so much time.
Jim Hackett: And then because you understand complexity, there’s no way to program what Murray Gell-Mann said is all the non-regularities. These are the things that don’t repeat themselves, but when they do happen, they’re changing the balance and dynamic of things. So the way you fix this if you listen to Bryan Salesky on his podcast called No Parking, he talks about that the vehicle can have enough intelligence as it gets nearest things that it makes itself more tentative so that it doesn’t rush into one of those classic cases of you’re going to either hit a, a mother and a baby carriage or run into a big bus. It’s not going to focus itself in a moral dilemmas, just not going to let itself get there. That’s an example of a rule set then that makes it possible to have the role of the driver or driverless, clear. And that’s, what’s taking the time, but I have a lot of faith that, that will make it so that we’ll have autonomy.
Jim Rutt: And the VC guy I had on, we talked a fair amount about not only being able to do it on the road but more and more of this incremental finding the corner cases is being done in very high-resolution simulations.
Jim Hackett: In fact, that in quantum computing is the way we’ll conquer this, right? Because we can do 3 billion miles of usage now in the simulations. And we’re doing that. Google was doing that, and it is the way this will work, but I want the audience to understand. And I got to think, I’m trying to be careful. I’m trying to be clear is I think it would be wiser if we look at the way computing evolved is to match the market sophistication. So in other words, let’s imagine we’re in a block in New York, that’s really heavily traveled. We can use the autonomous vehicle to make both right and left turns to understand traffic and go in that square a thousand times a day and be highly reliable. It probably won’t be as fast as a human because it won’t take the risks that humans will, but it’ll be really reliable. And it’ll start to disrupt mass transit. I think really, cost-effectively, that’s an example of early applications that you’re going to start to see of autonomous vehicles.
Jim Rutt: I believe it was already someone that’s deployed a shuttle that runs from, I think it’s, is it the Las Vegas airport to some hotels and because it’s a known route and you can cut out a lot of the corner cases, not them all, but they actually have it in production and have had it for some time. So, and as we know, from our complexity perspective, we’re talking about ultra high dimensional phase spaces here. When we talk about all possible driving under all possible conditions at all possible locations, this is just a gigantic high dimensional search space that you could never get 100% correct, but can you get it better than humans is the question while driving from Las Vegas airport to one of the hotels on the strip, much lower dimensionality in the problem. So you don’t have to be as smart to solve it.
Jim Hackett: Or what I’d like to say. I do. I totally accept your condition of better than humans, but let’s just say for the market it’s supposed to operate in. So let me give you an example. You and I get on jetliners all the time and totally trust them. There was a day when that wasn’t so, right? And so the market for going to China, only came because we now trust the plane would not die, itself and kill people over an ocean where there was no way to recover. That’s the kind of 66 year old wisdom that I will pass to everyone about autonomy is that let the markets progress at pace with the technology versus the other way around. Because if we start to push the edges of safety, we will lose the trust of the market. And that’s really hard to rebirth just by saying, oh, we didn’t, don’t worry about flying. You saw that crash, but it’s better than Six Sigma.
Jim Hackett: You saw that crash, but it’s better than Six Sigma. They still don’t believe you. I mean, witness what we had to deal with trying to convince everyone to get a vaccine, right?, and when the answer about how relatively safe it is, you still have people going, “I don’t want to take the probability that I might die.” And so, I’m not meaning to suggest that this is different or, excuse me, not different from those. I think it’s as heightened as those. We have to be that careful about this instrument. We can not be careless.
Jim Rutt: Yep. No, I think that’s certainly the Uber fiasco down in Arizona underscore that, right? That really put the whole field back a ways though, on the flip side, it’s all about aviation. Aviation used to be dangerous, right? Even in the ’70s, planes didn’t look much different than they did now. You know, a 727 kind of looks like a 767. Obviously they’re much more sophisticated now, but in those days, they were fairly dangerous, not as dangerous as cars, but still somewhat dangerous. Now they’re amazingly safe, but people were flying even in the ’50s.
Jim Hackett: Yeah and pilot error, or weather, in other words, the echo environment was challenging the dynamics of the airplane. Now their sensing systems of flying is– every accident you know that they update the quality. But for Ford, Ford’s got it’s brand on this vehicle and I know what’s at the heart of Bill Ford’s conscience in the care that he has for all of its customers. We are going to match the safety with the expectations of our customers. That’s where we’re starting.
Jim Rutt: Sounds smart. Are you willing to talk about the various players in the space? Waymo versus Cruise versus Argo, et cetera. Do you have thoughts about the various players and how this thing is starting to set up?
Jim Hackett: Well, I have this observation where we started on the number of vehicles that Henry Ford competed against our companies or the Chinese today, and electric is there’s more than will survive is what I would say to you. Like, there’s already been a bit of a shakeout. When you go back– when I left the board and started as chairman of Smart Mobility, there was a lot more investment flowing in than there is today. And every one of them that you’d mentioned, or now the highly regarded ones that are left, I think that I’m proud of the facts that VW wanted to align itself with one of the providers in that group that you just mentioned and evaluated. I think all of them, I don’t want to speak for VW, but they picked Argo. And, so, I think that was a good test because VW, at one level, makes the most vehicles in the world at one time and the work that was started here was ahead of where they were internally and so that’s why there’s, coopertition there.
Jim Hackett: I’d also make the observation to you by, and I don’t think this’ll be inflammatory for any of the competitors, is to remember what happened in the computer industry again. I’ll say it a different way this time. When we first started, when I was in, I’m going back 40 years when I started in business, and I remember the first PC delivered in the company I was at, and it had a DOS operating system, and I went in on a Sunday trying to run it myself. I hadn’t been trained in programming, but I thought I might like to toy with this. There was no way I could read the manual and use it. Now let’s go to my granddaughter who’s just 22 months, the apple of my eye, of four granddaughters, the one that’s the youngest, she can run her iPad today with no instruction.
Jim Hackett: So we just got to witness what happened in the computing science, along with interface design. That’s why I’m such a big proponent in my background around design thinking. It changes the accessibility to the quality. That’s what I wanted to use with the restaurant metaphor. Now, if we look at the competitors, I do not think anyone of them have distinguished themselves at the quality level that I think is going to be needed yet. And so, that’s my forecast is that all of them could be at peril if they don’t see that challenge. That they have to understand the way use is the mediator of who wins. The use design is the mediator.
Jim Rutt: Interesting. Now I did find one data point as I was digging around in this stuff, which is the California statistics, which they publish regularly. Most recent data set. One of the key numbers is how often does the AI have to disengage and just give up? And that’s considered one of the figures of merit. And currently the two leaders are Waymo and Cruise in the most recent quarter. They disengaged once every 30,000 miles on average, Argo was at 10,000 and most of the other ones were down around a thousand, some of them even less. So that’s not designed though, to your point, this is sort of raw technological performance.
Jim Hackett: Well and, you’ll be troubled as a scientist about something in that study. So, Argo actually has the harder markets like we’re in Miami, which is what we call a “black diamond market”, like a black diamond ski slope. We’re in Washington, DC. The markets where we’re testing, we would love to be in Phoenix, where the roads are wide and–
Jim Rutt: No snow, yeah.
Jim Hackett: No snow. No, we took on the harder edge. And so we don’t put a lot… In fact, Bryan Salesky, the Founder and CEO of Argo, is kind of outspoken about this. That we need to get a standard different than that, because there’s no context of the complexity of the system that the vehicle is operating in with that statistic. So we think we’re probably, we have data. We look at it every day. We think we’re probably doing much better than third.
Jim Rutt: Interesting. And that’s of course, very legitimate arguments. You know, it’s the apples and oranges comparison, right? If you were doing Pittsburgh, which Uber was doing, a good friend of mine lives in Pittsburgh and get up there fairly frequently. And, for a while there, he saw these Uber self-driving cars all the time. And Pittsburgh is a double black diamond let me tell you. There are no square streets, because it’s a triangle, lots of hills, lots of weird bridges, a lot of really crappy roads and the weather sucks. So they were on the double black diamond. That’s very different than Mesa, Arizona where Waymo is doing its thing.
Jim Hackett: Argo’s headquartered in Pittsburgh, Jim. So, that’s where we have the most vehicles deployed. We’d been there the longest and you characterized it perfectly. So, but let’s agree that for you, as someone who is kind of coursing over the science of autonomy, you go, “Hey, Jim Hackett, I’d like to figure out how reliable is this system?”. That’s a really important need. And so there’s going to have to be a transparency about its intelligence. You know, how intelligent should it be? And I will return you to my matrix for its market. It’s got to do these things, so, the airplanes had to meet a standard of being within two hours of a coastline for a long time when they went overseas. And then they’ve been able to relieve that pressure because the technology, the engines got so sophisticated. That’s an example of the market and the technology being aligned in history that you’re going to find in autonomy the same way.
Jim Rutt: I just had an idea. One of the things I like about my show is sometimes I’ll have an idea, right? Which is, Hmm, wouldn’t it be interesting if, let’s say the transportation department mandated that all autonomous cars have infrastructure hooks such that their AIs can all run in the same simulated environment so that there was indeed an apple/an apple comparison, and you could have red teams at the Department of Transportation that could build really tough courses and change them every time, right, but have all the vendors run the same portfolio of courses and see how they did. That could be really valuable for the world as sort of a forcing function to make them get better and then say, “well, you know, blah, blah, blah”, right? We all know marketing guys like, “oh, you know, blah, blah, blah”. But, if we had here something that really was objective, it might actually help the whole industry sort out what it is and what it’s doing and make everybody better.
Jim Hackett: Yeah and I’d be a fan of that too. We touched lightly on it. You’re going to probably need quantum level computing because the optimization problem is so damned complex.
Jim Rutt: We aren’t going to have quantum computing on cars anytime soon. That’s another area I follow.
Jim Hackett: I meant in for the testers, for the simulation. We take the data from the vehicle and put it through the processing of quantum computing. I think that would give you what you want.
Jim Rutt: Unfortunately, that’s fairly years away. Before we leave the marketplace, do you have any opinion about what Apple is up to? The potential trillion dollar question?
Jim Hackett: Well, I think the world misunderstands what they really are doing. I have to be careful because I have some insights and what I would say, you remember, I left you with this riddle about who understands use has an advantage in the future of the machine market dynamics. So that’s a plug for Apple’s capability, right? They’re very thoughtful people to understand those kinds of applications. So, but you know, I have most respect for them. There’s a quick anecdote for you, Jim. So when I’m running Steelcase, I experience an extraordinary talent in David Kelley who founded a company called IDEO. And because Steelcase was private at the time and IDEO was private, we acquired IDEO. So David and I worked side-by-side for 20 years when I was running Steelcase. He’s now the father of the design program at Stanford and Steve Jobs was his best man in his wedding.
Jim Hackett: So, I got to stand on the shoulders of these giants when I was very young watching Steve and David transform products and processes and companies using this technique called “Design Thinking”; what IDEO had mastery of. And this is why you hear it coming through my pores when I’m talking about complex problems. And, so, I have this innate sense that Steve Jobs wasn’t just lucky. He actually had special skills like magical. And I have a friend, my best friend probably is David Kelley, who doesn’t get enough credit for actually being behind as much of that in parallel. And so, yes, I am devoted to the continuation of that impact in business is what I would say. And so I’d love to see it applied to autonomy.
Jim Rutt: So, we didn’t quite answer the question, but basically I’ll answer for you. You can wave your fist at me if I’m too far off, which is that if, Apple actually is doing something in a serious way, they could be a damn serious competitor. Because they’re way up on the curve with respect to understanding human factors and design and design in a very deep and rich sets that Ive and Jobs and those guys, and David Kelley perfected. And I’ll just mention in passing, I was very impressed. I did not know this at all, but when I was doing the research for the show, I saw that you guys had bought IDEO. I had no idea. And, that’s, of course, one of the great companies in the world, right, in what they do. And so that was a very, very clever move for a furniture company in Grand Rapids to go buy IDEO. Holy shit, right? Quite amazing.
Jim Hackett: Yeah. You know, at the underpinning is how do you talk about your best friend? You get emotional. This is a guy who changed my life and we’ve lived together now for a long time in businesses. I went to Ford, of course Ford didn’t own IDEO, but he was quite helpful in helping me build a capability at Ford that’s there as I left, that’s able to do some of this. So, I want to leave you with, not a fist because I think you said it respectfully, is, in parallel, in the systems design, the vehicle construction and the engineering of vehicles is equally problematic in the science-based way. And what I came away with, I fell in love with Ford is the quality here is at the highest level. In fact, David, who’s an electrical engineer tenured at Stanford said to me once, the mechanical engineering at University of Michigan might be the best in the world.
Jim Hackett: Well, that’s because of the automotive companies that surround Ann Arbor, right? So, if you saw the world in the future as an integration of software, mechanical engineering and what I’m calling “design thinking”, it’s anybody’s bet who can do the best integration, that one being better than the other doesn’t guarantee that it’ll win. So, what of course you now find my secret that I tried to make the point at Ford, you can’t be weak in one of these areas and expect to compete with the likes of Apple. So that’s where I would endorse what you said.
Jim Rutt: Okay. That’s very diplomatic. That was good. The second to last question. Part of your charter at the Ford Mobility unit was to consider transportation as a service. And we’ve heard big car companies in Detroit, car companies kind of go back and forth on that. It was one point that General Motors sounded like it was going to spend all of its money to go after Uber. And now I haven’t heard that much about that lately. Where do you think transportation as a service fits relative to the individually owned automobile in the years ahead?
Jim Hackett: Well, you think I was diplomatic on the last one. This one I’m going to try and outdo because I don’t want to put words in Bill Ford and Jim Farley’s mouths because they are the people in charge. And I love these two men. I’m very close to them, but I can tell you Jim Hackett’s philosophy about this in a way that gives them what they need in their independence. Jim Hackett’s philosophy is, in business, when you have a vessel, meaning it’s going to yield like, I don’t want to say golden goose, let’s say a vessel that’s going to yield all the kind of value that you want to get out of it. My principle was, I don’t want my eyes to get distracted by other vessels that would be nice to plant ideas in, but I’m now going to get distracted by.
Jim Hackett: So that’s a hint for you that I think the vessel of product and systems development and intelligence of the vehicle and the applications that come from it are just so fruitful in the future. We haven’t talked about the ability for you Jim, to pull up to your garage, and you don’t need a garage door opener in the future because the vehicle and the house are having what I called smart vehicles and smart world are now intersecting. And I’ve coined that phrase inside the company to say, all the applications are going to change. Like you used to, you followed a generation of engineers that said we got to put a door opener in your car so you don’t have to get out and open the garage door. That was a step function improvement. But now there’s another one. We don’t have to have that. And how much value is that?
Jim Hackett: There’s a trillion ideas like that, given the intelligence of the vehicle and the intelligence of the edge. And that’s what I would say to all the VCs and investors in the Wall Street, following the Ford. It’s unbridled in terms of its potential. So you take an idea like transportation, a service. I don’t want to talk them out of the potential. There are a lot of people that believe that people want to give up their cars and they just want to share a system. I was not one who believed in that as much. And I’ve been proven a little right given the losses that you’re seeing in those, they’re called “tasks models”. Uber lost $600 billion. Now is there a tipping point like Amazon, where it suddenly starts to be its utility is high enough? I don’t know. I’m not going to talk against them. I think I’d love for them to buy lots of Ford cars, but I think we ought to stick to the vessel that I just talked to you about. That’s an opinion from a retired automotive executive.
Jim Rutt: Okay I can see clearly where you’re coming from, which was to stick to your knitting. But because this particular knitting basket’s got plenty of wool in it for the time being.
Jim Hackett: Perfect! Better said by Northern Minnesota.
Jim Rutt: Last question, and this is kind of, I don’t know what this question’s about, but it’s sort of based on data, which is, we have Ford, we have General Motors, we got Toyota, we got VW. Between them, they make a fair percentage of all the world’s cars. You add up their stock market market cap and it’s less than one company in Fremont, California. What’s all that about?
Jim Hackett: Well, this is the little bit of, in the technical way, it means a terminal value of four by the investors meaning it’ll never make more money than it does today. You know.
Jim Rutt: 45 billion is the market cap. I think it was making like seven or eight billion a year. So that’s saying even at a 10% hurdle rate, as you say, it’s all downhill from here, is what they’re betting.
Jim Hackett: What they’re betting. And that’s the Kodak question, right? You know, is this company seen its best days? But you just heard me make the argument the other way with the vessel notion. It’s because you have the psychological connection with people in their vehicles. And because you now have data companies, Jim, in three years in different podcasts, I’m using different time sets for different reasons. But let’s say two to three years, we’ll have a hundred million years worth of data from the F-150, which the listeners’ means it would have taken us a hundred million years to get the data that’s now being acquired because of all the connectivity. We will have more vehicles connected than the Fremont, California company, as in total. It’s because we produce a million of these a year, right? So, in two years we have 2 million vehicles, in three years we have 3 million, if the sales, so think we’ll have 5 million vehicles all connected by year five, we just finished our second year.
Jim Hackett: That’s where I get this data. And, so, there’s just no way in math that Ford’s not here in the future, given what that data stream can mean to the investors in the company. Now it’s incumbent on us, meaning like when I was in charge, to prove we can commercialize that and we can rapidly deploy, but I’ll give you a quick, quick story. I have an F-150 hybrid. It’s the brand new one. It’s the one that’s been hard to get delivered now because of the chip shortage, working really hard on that, the whole industry is affected by it. It’s my favorite Ford I’ve ever driven. It’s just that much better, right? And they called me from Dearborn. I’m in west Michigan now. And they said, “Hey, can you bring the truck back?”. And I said, “Why?”. And they go, well, we found something. So they found in the data streams a derivative problem that has not become a problem that they were investigating.
Jim Hackett: That’s why we, some of us, it isn’t because of position we get vehicles early; it’s because they want us testing them early. And I’m so proud of this because I mandated the connectivity that I got an engineer to call me and say, “I want your vehicle back”. We’re going to be able to do that with our customers and fix them over the air. And so how can that not be value creation for investors in Ford Motor Company? But we have to prove that we do that. So what used to take six months to get to that engineer’s desk? Literally they got in less than two hours from the example I just gave you. So, I hope I make the case because you’re an entrepreneur at heart. Your ideas are like this. You think, give me the data, give me the platform, give me a well-known brand like Ford.
Jim Hackett: Boy, there’s a future there. And that’s why I loved the 41 months I got to run the company. I wish I had been younger because that’s.. Replacement.
Jim Rutt: Don’t we all, right? Don’t we all?
Jim Hackett: Given this challenge, because when I was asked to step in, I wasn’t sure whether it was a year or two years or three years, but it turned out to be 41 months. And so the heartburn I’ve had leaving is that the opportunities’ so high, but I’m really proud of the team that’s there and they get what I just said to you. They really get it.
Jim Rutt: Very good. Well, Jim Hackett, I want to thank you for one of my favorite episodes. This has been just a wonderful conversation. I’ve learned a tremendous amount and I’ve learned about a guy who I, man, I really respect how he plays the game of business. So thanks to Jim Hackett for being on the Jim Rutt show.
Jim Hackett: Thank you, Jim. And I’ll never forget when we met at Santa Fe and it’s so nice to have you return and have us talk. So please keep me in your list of interesting people we both want to meet because I’d love all the things that you’re doing on your podcast. I really appreciate it.
Production services and audio editing by Jared Janes Consulting. Music by Tom Mahler at modernspacemusic.com.