Jim Hackett is approaching the 100-day mark atop Ford Motor Co., an artificial marker that nonetheless raises a fair question: what’s the new CEO likely to do with the Blue Oval?
More partnerships, more transparency and a move to go “all-in” on pure electric vehicles, Morgan Stanley, a leading Wall Street investment house, says in a self-described “cautious” note issued Monday. It also expects Ford to double down on the core business of cars and trucks powered by good ol’ gasoline engines.
It predicts Ford will tighten investments in foreign markets, moves that may prove more difficult than rival General Motors Co.’s exits from Europe, Russia and India. And it will be watching for the Blue Oval to trim spending on small cars and to accelerate its decision-making on “where to play,” as the Glass House has come to call the process.
That’s a delicate balancing act, the automotive equivalent of overhauling a Boeing 747 while it’s in flight. For Ford to prosper in essentially two auto industries — today’s fueled by the century-old internal combustion engine and tomorrow’s powered by electricity — the Blue Oval needs to move faster than it’s accustomed to doing, even now.
“We believe cultural change required at the company is even greater than what” former CEO “Alan Mulally affected at Ford prior to and through the financial crisis,” Morgan Stanley says. “While we cannot rule out success and recognize the opportunity for talented management to bring lasting change, we believe investors are not being compensated for the elevated levels of risk.”
Translation: Ford’s lagging share price is likely to come under more pressure, not less, especially if realizing Hackett’s strategic vision for the automaker is seen to be undercutting earnings generated by the traditional business of F-Series pickups and a broad array of SUVs.
Timing doesn’t help. Hackett, a Ford director until he was tapped to lead Ford Smart Mobility LLC, ascended to the CEO’s corner office just as the blistering U.S. market finally is showing signs of slowing. And that could magnify the effect of his decisions on the bottom line and the price of Ford shares.
“Like many other auto companies, we believe Ford is in a rather difficult position,” Morgan Stanley says, pegging its target price for Ford share at $9, 15 percent lower than Monday’s close of $10.57. “If it were to allocate billions of investment to Auto 2.0 (shared, electric, autonomous transport) entirely in-house, the stock market may deduct at least as much value by magnitude from its market cap.”
Maybe so. But the alternative, judging by the Ford board’s summary ouster in May of former CEO Mark Fields, is worse. Major automakers can’t afford not to play in the evolving mobility-and-autonomy space. Nor can they risk ceding that Auto 2.0 to Apple Inc. and Google parent Alphabet Inc., to Silicon Valley and global auto rivals.
The stakes are too large. If 2008 and 2009 were battles for the survival of the Detroit-based automakers and their supply base — and they were — this year and the next few will be an existential fight for the future of personal transportation.
Who will emerge as the next Henry Ford, the entrepreneur to redefine the industry for decades to come, is by no means clear. Executive Chairman Bill Ford Jr. is betting his legacy on an office-furniture CEO-turned-University of Michigan athletic director, a big thinker whose challenge cannot be underestimated.
The next six months or so are critical. By accounts from inside and outside the company, Hackett is a thoughtful leader with a bias for making decisions, not deferring them; for using small groups to sometimes make big calls; for asking ranking executives what they’re thinking more often than what they’re doing.
He’s instituted a “shot clock” to quicken the kind of timely decision-making that too often eluded his predecessor. In a meeting earlier this summer with Wall Street analysts, the new CEO acknowledged that slow decision-making was “sometimes caused by confusion over ‘who is in charge,’ ” according to Citi Research.
More, in focusing his early days on revenue, the “fitness” of the enterprise, capital and innovation, analysts write in reports issued over the past six weeks, Hackett essentially is asking four questions about the Blue Oval’s strategic direction:
Where is it doing things right and efficiently — beyond F-Series trucks, Ford’s earnings engine? Where does it need help? What can the 114-year-old automaker become? And what can it relegate to the past, a process that could culminate in surprising adjustments to its product portfolio?
Clear-eyed answers to some on those questions, especially the final one, will raise hackles in Dearborn. Exit the compact car business in the United States? What about the dealers? Reduce investment in India or seek a local partner to ensure the company has the right products there?
Possibly, yes, even if it means claiming a smaller chunk of what’s becoming the world’s No. 3 market. Because the global era for Detroit’s automakers is steadily, but undeniably, drawing to a close — exiting markets and paring product line-ups.
Capital is scarce, even for these icons of American industry, and returns in the traditional car and truck business — especially in smaller-margin cars — is meager. This as investors, accustomed to the growth and share appreciation reaped in Silicon Valley, look for Detroit and its volume competitors to change the calculus.
They don’t have much choice.
Follow Daniel Howes on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.