Howes: Profit-rich Ford facing tough, new road ahead
In a note to clients, a leading Wall Street analyst warned Wednesday that Ford Motor Co.’s earnings outlook “may need to be reset as much as 50 percent lower over the next 18 to 24 months.”
Morgan Stanley’s Adam Jonas cited a model lineup in need of refreshing, the need for increased investment in the emerging mobility and autonomy space, and the growing expectation that moderating U.S. sales will begin to deliver fewer dollars to the bottom line.
This after Ford’s record earnings last year, capping a blistering run of profitability stretching back to the end of the Great Recession. And folks wonder why the Blue Oval’s directors quickly moved to oust former CEO Mark Fields, replace him with mobility guru Jim Hackett and engineer a broad shakeup of global senior leadership?
Maybe it’s because the people charged with representing the financial interests of shareholders — and those of the controlling Ford family — saw this rude awakening coming because they’re in a position to do so. And they’re obligated to act.
Maybe it’s because Fields’ forward movement looked more like slow motion in comparison to General Motors Co. under CEO Mary Barra and her team. They’re reshaping the automaker’s global operational footprint and exiting under-performing markets to maximize near- and mid-term earnings while making more aggressive bets in the mobility space.
Maybe it’s because GM already has a purpose-built, sub-$30,000 electric vehicle — the Chevrolet Bolt — in showrooms. It’s well ahead of Ford and the Model 3 from Silicon Valley’s Tesla Inc., vying with GM to be America’s most valued automaker. And Ford? A distant third in a U.S. industry its founder, Henry Ford, revolutionized with the moving assembly line and his Model T for the masses.
Maybe it’s why Ford used the change at the top to execute a sweeping reorganization of senior leadership. It’s unlike anything CEO Alan Mulally ever attempted during his eight-year rescue of the Blue Oval, his elimination of six of eight brands and a singular focus on creating One Ford around the world.
In addition to segmenting the world into its traditional geographic pieces — the Americas, Europe and the Middle East, Asia-Pacific — Ford is splitting the business into “markets” under former Europe boss Jim Farley and “operations” under former Americas chief Joe Hinrichs.
In simple terms, Hinrichs leads the functions that develop, design, engineer and build the products; Farley leads the business units charged with marketing, selling and delivering results to the bottom line. It’s a meaningful change designed to flatten the senior executive structure, speed decision-making — and it’s a departure from what Mulally bequeathed to Fields.
Which means the results, whatever they actually turn out to be, will be blamed for departing from Mulally’s disciplined approach. Or they’ll be credited to senior management and directors who understood the necessity to adapt to challenges that did not materially exist when their superstar CEO arrived from Boeing Co. in 2006.
The automotive world is changing, undeniably. Mulally’s industrial prescription for the traditional car and truck business, effective and popular as it was, was necessary. It delivered sequentially better results quarter after quarter; it focused top management on similar processes and common results; and it suppressed legendary infighting among top execs.
But it is not proving sufficient to navigate quickly and persuasively the new technology-driven rivalries with a muscular GM and some of the biggest (and richest) players Silicon Valley can muster. The two-dimensional outline of Ford’s profitability, grounded most in its F-Series pickups, suggests the Mulally Method didn’t anticipate the coming revolution.
And Ford is saying as much in a carefully worded, if introspective, response to Jonas: “We have not changed our guidance. We are now more focused than ever on speeding decision making, investing capital where we can create value and moving decisively to address areas of the business that are under-performing or destroying capital.”
Telling choices of words, those, emphasizing speed and acknowledging Detroit’s legendary reputation for “destroying capital” instead of leveraging it into bigger profits, faster growth and new market segments. That’s why Fields is no longer CEO. And this:
“At this time, the vast majority of Ford’s vehicles in operation are completely unconnected, do not collect data, have a rudimentary sensor suites, minimal computing power and extremely limited ability to conduct over-the-air (OTA) updates of firmware,” Jonas wrote.
Moving Ford to OTA capability — which GM and Tesla already do, regularly — “would send a powerful signal to investors and strategic partners that Ford truly embraces the areas in which it can add value in Auto 2.0.”
GM has 12 million connected vehicles, the company says, almost as many as all other automakers combined. Using OnStar, GM has been delivering OTAs since 2009. And its current generation of hardware on model years 2014 and newer can pull 6.7 billion points of data per day.
Tells you everything you need to know about the challenges ahead for Dearborn.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him 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.