‘Frustrated’ Ford gives investors few answers

Ian Thibodeau
The Detroit News

Ford Motor Co. Executive Chairman Bill Ford Jr. assured Blue Oval shareholders Thursday he feels their pain.

File photo

“We’re as frustrated as you are by the stock price,” Ford said after reading several questions submitted by shareholders during the company’s annual shareholders meeting. “Most of (the Ford family’s) net worth is tied up in the company, and stock price matters a lot to us. We’re frustrated, but our business is performing well. We’re making investments both for today and for tomorrow, and I believe that’s the right thing to do.”

But Ford and other executives didn’t have many new answers as they tried to quell growing impatience from both directors and shareholders about what the leaders planned to do about lackluster stock performance.

The annual meeting — conducted exclusively online this year for the first time, which in itself generated some disagreement — was held as investors grow skeptical that CEO Mark Fields and his strategy will pay off. The company is investing heavily in the areas of electrification, autonomy and mobility while trying to fortify the company’s “profit pillars” in SUVs and trucks, and transforming its luxury and small-car business.

The meeting came days after Ford’s directors held a “strategy session” to review the company’s priorities. Despite several years of revenue growth and profits, Fields’ vision for Ford’s future has failed to generate much excitement on Wall Street. Shares in the nation’s No. 2 automaker were comparatively unmoved by two years of record profitability in 2015 and 2016. On July 1, 2014, when Ford assumed the Helm, Ford shares closed at $17.41; on Thursday, Ford closed at $11.01, a 37 percent decline over the course of his leadership.

Though Ford will have paid out $15.3 billion to shareholders this year since restarting its dividend program in 2012, shareholders pressed the executives about value, growth and returns on investment.

Despite pressure that built ahead of Thursday’s meeting for Fields to deliver on promises of growth and improved returns, the CEO remained on-message. He said he is focusing the company on areas that will help Ford “win,” including SUVs, electric vehicles and fully driverless cars.

“The bottom line is, the biggest strategic shift in the history of our company is well underway and gaining momentum as we transform ourselves into an auto and a mobility company,” Fields said. “We’ll fulfill our vision of making people’s lives better, and delivering long-term profitable growth to our shareholders.”

Ford has poured money and time into those more future-focused expansions, which aren’t currently generating much revenue. As auto sales slow following record years, tension grows between those investments and the Dearborn automaker’s traditional business.

The company was dealt a gut-punch when electric-car maker Tesla Inc. last month passed Ford in market capitalization. At Thursday’s close, according to MarketWatch, Ford’s shares were worth $43.96 billion; shares in Tesla were valued at $53.04 billion.

Long term vs. short term

Analysts said that the leadership’s frustration is understandable.

“Shareholders are typically short-term focused unless you are an automaker that starts with the letters Tesla or hail from Silicon Valley,” Jeff Schuster, senior vice president of forecasting with LMC Automotive, said Thursday. As sales plateau, he said, “Ford is lacking in new and redesigned product activity and thus is finding it challenging to compete as the group looks further down the road to mobility changes.”

Karl Brauer, executive publisher of Autotrader, said the automaker is well-positioned, even if the stock market shrugs.

“The current stock price is largely a reflection of circumstances beyond Ford’s control,” Brauer said. “Like every modern automaker, Ford has to maintain its current business model while preparing for a future with a vastly different business model. This means spending money right now that may not pay dividends for several years. That reality may not reassure stockholders, but it’s a reality nonetheless.”

In the first quarter of 2017, Ford’s profits fell 35 percent, and sales slipped 5.1 percent in the first four months of the year. Crosstown rival General Motors Co., meanwhile, saw net income in the first quarter grow nearly 34 percent to $2.61 billion, a new record for the three-month period, while sales slid 1 percent in the first four months of the year.

“We’re going through this transition, we’re embracing it, and I think you’ll see a lot more exciting news on” electrification and autonomy, Fields said when a shareholder asked via a submitted question how the company plans to compete with Tesla.

But growing impatience from the board was echoed in 2016 compensation for Fields and other executives. Fields made $22.1 million last year, but he and other executives missed out on an incentive bonus because they failed to generate targeted revenue in the automotive segment, quality standards and profits in the company’s finance arm.

Mixed response

Shareholders had mixed responses to the audio-only online meeting, though Ford said the new format amplified reach. The number of people listening more than quadrupled the attendance at last year’s stockholder meeting in Wilmington, Delaware, and tripled the number of questions that were answered.

Ford said 350 people participated in the online meeting, compared to the 59 who attended the meeting in person last year; 147 of Thursday’s users logged in with a shareholder PIN. The executives answered 27 of more than 90 questions submitted, compared to nine asked and answered the year before.

John Chevedden, a stockholder who has been critical of the automaker in the past, called the decision “a horrible retreat into a foxhole for the company.”

“The company’s on a slippery slope to running out of town, or hiding,” he said by phone during Thursday’s meeting while presenting a proposal that was ultimately voted down. “Maybe they’re hiding in Dearborn today in the basement. Nobody knows where this meeting is being held.”

His proposal that each share have one vote (Ford family shares are allowed 16 votes per share compared to one vote per share for regular shareholders) was voted down again Thursday.

But Tim Brennan, an institutional investor who is CFO of the Unitarian Universalist Association, commended Ford’s move online.

“I actually think it’s a great idea to open up the meeting and allow more shareholders to be involved and to participate, but I would really urge you to go with the hybrid approach,” that allowed call-ins during an in-person meeting, he said. Brennan was allowed to phone in because he was pushing for a more disclosure about political lobbying on the part of Ford.

Bill Ford vowed to review the meeting and hammer out any kinks going forward.

“We’ve taken more questions, and that was really the point of this,” he said. “It’s in many ways been more interactive. We’re getting questions all over the map. The breadth of topics that we’re covering today is much more greater than any prior annual meeting that I’ve been part of.”

It’s great that the executives answered more questions, Chevedden told The Detroit News after the meeting, but he didn’t get any sense that recent pressure has lit a fire under Fields and Ford.

“You come away from the meeting kind of neutral,” he said. “There’s nothing there to convince me that the outlook is any better after this meeting, (but) I’m glad the board is concerned.”

Twitter: @Ian_Thibodeau