Ford demonstrates auto industry balancing act
Detroit automakers are balancing the drive for near-term profits with funding for mobility ventures that may not pay off — as Ford Motor Co. is demonstrating yet again.
A day after the Dearborn-based automaker posted a $1.6-billion profit driven largely by North American truck sales, the company’s autonomous vehicle partner, Argo AI, announced it would acquire 17-year-old LiDAR company Princeton Lightwave. Ford on Friday also launched production in Kentucky of its all-new aluminum-body — and sure to be profit-rich — Expedition SUV.
The moves illustrate an apparent contradiction emerging monthly in the auto industry: Ford, rival General Motors Co. and other automakers generate buzz on Wall Street when spending big on autonomous vehicles and the electric cars consumers mostly don’t buy. But trucks and SUVs bought by real people are expected to boost profits for the foreseeable future.
Industry analysts and investors are beginning to accept that model will do well as the automakers continue to show stability and value-creation in a changing industry. The near-term may be less exciting for shareholders, but evidence is mounting that automakers are changing.
And share prices are starting to show it. Shares in GM have gained more than $10 apiece since July, a 20 percent gain, and stock in Fiat Chrysler Automobiles NV is surging on the strength of Ram and Jeep sales, as well as tailored moves in mobility — making it Morgan Stanley’s top auto stock. And Ford shares have gained nearly 10 percent since Jim Hackett was named CEO in May.
It’s still unclear how autonomous vehicles will ever deliver big profits for automakers. But leaders are demonstrating that it’s critical to maximize profits on the traditional car and truck business as they place uncertain bets on ride-sharing, electrification and self-driving vehicles.
“Forget about mobility for now,” said Dave Sullivan, analyst with AutoPacific. He estimated it could be 2030 before autonomous vehicles begin to be something average people regularly use or buy. “We don’t really know what that is yet. Nobody does.
“Is autonomous development going to end up being a commodity? They’re spending a lot of money, but in the future will people care when they order a car on their phone? We don’t know what demand is.”
Or what it will be. Ford, GM and Fiat Chrysler appear to be preparing for a nebulous future in which mobility isn’t only about self-driving vehicles. The Blue Oval’s Ford Smart Mobility LLC, created last year and first headed by Hackett, is designed to hedge the automaker’s bets.
Shuttle services, bike-share programs, infrastructure improvements, patents on vehicle interior components and developing vehicles that move goods rather than just people could help the Blue Oval distinguish itself if, as Sullivan suggests, every autonomous vehicle will effectively do the same thing.
The company has said as much publicly. Executive Chairman Bill Ford, also co-founder of a venture capital firm focused on mobility, will speak to the Detroit Economic Club Tuesday about how mobility will impact the auto industry, and what it will take to effectively use that technology.
When Hackett talks about “transforming” the 114-year-old automaker, it doesn’t necessarily mean he intends to lop off pieces of the company to make room for those ventures. Existing and new models will be adapted and made “smarter,” he’s said, and they won’t all be self-driving.
“We’re fully embracing an evolution brought on by the intersection of powerful computing concepts and the ability to develop intelligent capabilities,” Hackett told analysts this week. “For us, this means that we have a clear path to leverage what we’ve done well historically as we move toward this optimistic future.”
The CEO appointed to replace Mark Fields wants to boost revenue and cut operating costs while he figures out what the future will require. Based on the company’s third quarter, that means Ford will continue its push to book fat profits on high-margin trucks and SUVs — with new models driving up average transaction prices — while it develops new technology to ready for a distant future where some people use autonomous vehicles.
Meantime, developments in autonomous technology are expected to offer customers safety improvements over the next 20 years. That might underwhelm Wall Street now. But as Hackett and his team work to lower operating costs by $14 million over the next five years, the thinking inside Ford is the Blue Oval could prove its worth.
“We believe it will take several years for Hackett’s initiatives to ultimately bear fruit, providing little near-term reason to be excited on Ford stock,” Brian Johnson, Barclays analyst, wrote in a Friday note. “That said, this is a good start to the Hackett era, and Hackett and co. seem motivated to drive results.”