Howes: Share prices show scant respect for Detroit Auto
Lest there be any doubt, it’s all about the money for some Ford Motor Co. shareholders.
Theirs, to be exact. Not whether the Blue Oval booked record North American profits last year and is on track to do the same this year. Not whether the Dearborn automaker is using their money to make smart bets on the emerging mobility space that represents, in Ford’s telling, a $5.4 trillion global opportunity.
Shares in Ford are stuck, apparently impervious to good news. They have been for years, despite the turnaround led by former CEO Alan Mulally, or the gangbuster financial performance under his successor, Mark Fields, or a focused product line-up or a European revival ahead of schedule.
With apologies to comic Rodney Dangerfield, Wall Street remains disinclined to give Detroit’s automakers the kind of respect that translates into rising share prices. And some shareholders understandably are not happy about it, including the guy whose name is on the building.
“We are frustrated with the stock price,” Executive Chairman Bill Ford Jr. told shareholders at the automaker’s annual meeting Thursday in Delaware. “As someone who owns a lot of stock myself, I watch it every day.”
He’s not watching alone, judging by carping from fellow shareholders and their novel, if mostly inane, suggestions: bring back Mulally; replace Fields; reconsider bets in mobility because it “confuses” the kind of investors who move markets and take individual shareholders along for the ride.
Wrong. After surviving near-collapse and using the scare to build the biggest profit-generating machine this town’s bellwether industry has seen in half a century, Ford and rivals General Motors Co. and Fiat Chrysler Automobiles NV face a new challenge that is proving trickier to manage than the restructurings following the global financial meltdown.
It’s not going away, either. The business no longer is just about making money building cars and trucks. Players in the global auto industry must compete in a whole new industry, too, a high-tech world defined by the Silicon Valley culture, faster growth and sky-high valuations that in many ways are the antithesis of Detroit.
Standing astride the industry yelling stop won’t slow the techification of the traditional auto industry; won’t squelch competition with Google or Apple, start-ups or ideas yet to be commercialized; won’t alter how profoundly technological innovation drives share values higher.
That’s the problem with Detroit auto shares, dear shareholder. Despite years of rising profits and record sales, lower break-even points and smarter plant capacity utilization, this town’s three automakers still have a credibility problem with constituencies who affect share values.
The problem isn’t what GM, Ford and, to a lesser extent, FCA have achieved in the core business since, say, 2010. It’s whether they can remain solidly profitable when times get tough and sales slide, or whether they can match the innovation, risk-taking, agility and speed associated with tech sectors — without botching the basics that account for most of their revenue and profits.
Ford shares have been trading in a relatively narrow band for years, seldom breaking the mid-teens. Mulally the Great didn’t break the ceiling; record North American profits didn’t break the ceiling. Neither did an expanded presence in Silicon Valley, quickly improving results in Europe or a willingness to defy political correctness and expand investments in Mexico.
On Thursday, GM shares closed at $31.18, still below their initial public offering price of $33 a share in November 2010. Think about that: nearly six years of steadily improving financial performance, stronger products and aggressive moves into the evolving mobility space, GM shareholders who bought the IPO and held the stock are where they started, not including dividends.
Who wouldn’t be disappointed by such meager returns as those?
Companies are in business to make money for their owners, not to provide jobs, or to fund pensions or to support communities and their needs. What product or service they provide is immaterial; without profits and growth, any company’s ability to create jobs, support philanthropy and attract shareholder capital is diminished.
History matters, too, for automakers that have been around for more than a century, that helped put America on wheels, helped win World War II, helped create the middle class and nearly lost it all to arrogance, entitlement and a refusal to acknowledge real competition.
Disappointment dies hard. Too many remember too well how GM routinely underperformed, how Ford built its entire business around the profitability of no more than two truck-based platforms, how FCA’s Chrysler depended too heavily (and still does) on its Jeeps and Ram pickups to drive profitability.
Savvy investors take few things at face value. Evidence is building, especially at GM and Ford, that fundamentally different companies are evolving under fundamentally different leadership, but a lot of things look good when times are good and when it’s not at all clear who the winners and losers in the mobility space will be.
“We just need to earn our way out of it,” GM CEO Mary Barra said Thursday at a women’s technology summit. She’s exactly right.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.