Hackett’s Ford still trying to gain traction

Ian Thibodeau Daniel Howes
The Detroit News

Jim Hackett arrived atop the Glass House a year ago to navigate the Blue Oval through some of the biggest changes the automotive industry has ever seen.

Ford President and CEO Jim Hackett

But Ford Motor Co.’s newest CEO, whose track record includes leading Grand Rapids-based furniture company Steelcase Inc. and a stint as interim athletic director for the University of Michigan, has only just started to give shareholders, Wall Street and the news media tangible evidence that he’s delivering change to the Blue Oval.

“He’s put in place a lot of important things for Ford’s future,” said Karl Brauer, an analyst for Cox Automotive. “But these are things that are not going to manifest in terms of revenue, shares or market share for a while.”

That’s proving problematic, especially in contrast to crosstown rival General Motors Co. As Hackett and Ford push to gain traction in what feels like yet another turnaround, Detroit’s No. 1 automaker is shifting into a higher gear with an aggressive restructuring of its global footprint, expanded production of its Chevrolet Bolt electric vehicle and concrete plans for a derivative model set to be GM’s entry into the autonomous vehicle space.

And Hackett’s had more than his share of challenges to manage since his appointment as CEO last May 22 — owners unhappy with flatlining shares, analysts clamoring for details of his plan to get Ford back on track, disappointing results so far this year in China, and a fire at a Chinese-owned supplier in Eaton Rapids that forced Ford to stop production of its profit-rich F-150 pickup for a week.

Hackett, 63, is a big thinker with an affinity for philosophy, technology and long answers to complex questions. He often compares Ford’s efforts to meet the challenges of a rapidly transforming automotive landscape to founder Henry Ford’s efforts to change the way people moved with the Model T.

“We’re looking to reinvent the American car,” he said at Ford’s annual meeting last week. But it won’t come without some startling changes to the company and the products it ships to showroom floors. Within two years, nearly 90 percent of the vehicles Ford plans to sell in the United States will be trucks or SUVs.

At the end of April, more than 11 months after Hackett replaced the fired Mark Fields as CEO, Ford used its second-quarter earnings announcement to say it would trim $25.5 billion in operating costs by 2022. And it would cut its North American passenger car lineup by more than 80 percent, eliminating the Taurus, Fiesta, Fusion, C-Max and Focus sedans within a few years.

The decision — years away from materializing — generated an uptick in Ford’s stalled share price and buzz among analysts and investors. It also elicited disbelief from those customers and dealers who worry that heavy reliance on pickups and SUVs will leave the Blue Oval exposed should oil prices skyrocket for an extended period.

Hackett’s vision extends beyond the metal. He performed a Blue Oval rite of passage at the CES technology show in Las Vegas earlier this year, delivering a keynote address in which he put Ford at the center of a transportation “cloud.” Since then, Ford has made incremental advancements in its mobility and autonomy initiatives, sectors where Hackett’s predecessor failed to make much progress and paid for it with his job.

“We need to modernize our business,” Ford Executive Chairman Bill Ford Jr. said at the press conference announcing the Blue Oval’s new CEO. “We have to continue to develop and also invent the new businesses. Any one of those is a big task. We have to do all three, and I’m very confident that we can and that we will under Jim’s leadership. I’ve never felt more confident in our future.”

Investors are less sure, judging by the performance of Ford’s shares. Hackett’s first official day as CEO was June 1, 2017. The stock closed at $11.41 that day, and it hasn’t budged much since then. Ford shares closed at $11.45 Thursday.

“With U.S. vehicle sales slowly eroding, we think investors are looking for more fundamental changes from Ford — and from automotive companies in general,” Piper Jaffray, an investment firm, said in a note this week. “Ford may yet capture its share of the $1 trillion-plus market for autonomous rides, but in our view, the company isn’t a leader in this market — at least not yet.”

The modernization touted by Bill Ford at Hackett’s debut is partially an effort to revive Ford’s sagging share price, which had slipped roughly 40 percent under Fields after he replaced superstar CEO Alan Mulally in July 2014. And Ford’s relationship with Wall Street hasn’t exactly been cozy since Hackett arrived.

After disappointing financial results for 2017, analysts began to lose patience. “How long do we have to wait?” Adam Jonas, Morgan Stanley’s top automotive analyst, tersely asked Hackett on the earnings call that evening.

The Blue Oval responded a few months later with what it called “Ford Uncovered,” a rare event in which analysts and the news media were invited to Ford’s product development center in Dearborn for a sneak peek of the company’s product plans for the next two years.

To deliver its cost-cutting mandate, Hackett and his lieutenants have spent the first year of his tenure finding ways to get Ford “fit.” That means streamlining production, trimming the number of combinations customers can order, cutting unprofitable vehicles and finding other ways to amplify profits. Hackett also pushed for all new vehicles to be built on one of five flexible architectures, another cost-cutting measure.

Hackett, former chairman of Ford’s smart mobility unit until his promotion, coined Ford’s new “Smart Vehicles for a Smart World” slogan in October when he outlined parts of his plan to the investment community. But the phrase repeated most often in the company’s executive suite — and elsewhere in the company — is “fitness,” an ambiguous term Hackett uses to define his operational goal for Ford.

Jim Farley, president of global markets, used the term to describe his vision for Ford’s future product line. Joe Hinrichs, president of global operations, used it to talk about how the company is using new technology to increase the rate of production on its profit-rich Expedition and Navigator SUVs.

Andrew Tapp, plant manager at Ford’s Kentucky Truck Plant, used the term when referencing a specific time one of his engineers used 3-D printing to quickly replace a tool on the assembly line.

And Chief Financial Officer Bob Shanks has used the term during the last two quarterly earnings reports to express discontent with financial results — which nonetheless have delivered profits — and to emphasize the company’s message: Ford wants to make more money in the traditional car and truck business to fund big, expensive bets in mobility, autonomy and electrification.

That goal permeates the company. And it’s driven internal conversations in which Hackett has studied many pieces of Ford to determine where the company is too fat, too slow and too exposed. Rationalizing sedans for the U.S. market is the first concrete step, and company executives signal more are likely.

The newest round of cuts could come from the company’s marketing and sales departments. The return on investment from advertising, for example, doesn’t justify spending, according to Ford’s quarterly earnings statement released in April.

The automaker is pushing to focus on high-margin parts of the business, improving profitability in segments that are profitable but don’t currently make a lot of money — and either cutting or changing the pieces of the company deemed “low performing.”

That resolve, coming comparatively late next to moves by GM and Fiat Chrysler Automobiles NV, is winning qualified praise from industry analysts. But Ford’s reticence to exit under-performing markets as rival GM has, or to detail its plans for fielding its own self-driving vehicle, raises more questions than answers.

“Everything is on the table,” Shanks said in April. “We can exit products (and) markets. We will do that. That work (started in October) has really gained traction. We have looked at every single part of the business. It’s a very complex endeavor. We are determined to turn this business around right throughout the whole company. There’s more work that’s underway.”

For now, it’s wait and see. The analyst community has backed off Hackett, whom they lambasted for months after the October investor meeting for declining to give definitive, concrete examples of his road map for the transformation of Ford.

“He’s made a lot of bold decisions,” Brauer said. “They’re things that suggest a brighter future, but I think it is hard to visualize the benefits of what he’s doing so far.”