Howes: Ford shakeup signals pressure to perform in present, future
When former Ford Motor Co. CEO Mark Fields was trying desperately to keep his job nearly three years ago, he floated a plan with the automaker’s directors that proposed organizing his one-time rival, Joe Hinrichs, out of a job.
The board pushed back amid a “strategic review” of Fields’ tenure that instead got the CEO got fired in May 2017. Hinrichs survived, appeared to flourish during Ford's years-long "redesign" and became president of the Blue Oval’s global automotive operations, thought a springboard to the top job.
Until Friday. Until a high-level mandate to integrate the traditional auto business and next-generation autonomy and electrification under a single executive — and to atone for a disastrous Explorer launch that tanked last year's financial performance — left Hinrichs, 53, on the outside looking in. Under-delivering financial expectations, especially in another good year for auto sales, can do that.
The restructuring atop the Glass House is a bid by Ford to achieve one interrelated goal: drive toward realizing the future of personal transportation while delivering the present profitably, on schedule and with quality. In nearly three years as CEO, Fields struggled to maintain that balance; so did Hinrichs, judging by Ford’s lagging financial performance in regions where it operates.
Now Jim Farley, promoted to chief operating officer, is heir apparent to CEO Jim Hackett. Theoretically, anyway. The move is less a “coronation” to anoint Farley as Ford’s chief executive in waiting, as one source close to the situation described it, and more a prolonged audition.
It should be. Farley’s management style can be mercurial, to put it kindly, his manner quirky and sometimes brusque. He has a reputation for decisiveness, candor and taking calculated risks like pushing for the Mustang Mach-E electric vehicle — traits Ford needs to juice its competitive metabolism and complement Hackett's professorial bent with employees, investors and the media.
A former Toyota Motor Corp. executive with familial ties to the Blue Oval, Farley is said to understand the vital role of technology in many aspects of the industry's future. Now's his chance to prove it, and quickly, because rival GM is garnering positive investor attention for its all-in on EVs strategy coupled with the coming launch of its suite of full-size pickups and SUVs, rolling licenses to print money.
Ford's new executive structure should enable directors to see Farley, 57, operate at a global level, to balance the traditional auto business that generates virtually all of the company's revenue and profit with the technology-driven spaces of what's widely called "Auto 2.0."
Senior leadership increasingly concluded such a construct — Auto 1.0 and Auto 2.0 — to be an artificial creation that failed to recognize just how closely linked each side is with the other. Namely, that world-class trucks and SUVs are platforms for new technology, and that the artificial intelligence expected to one day guide Ford's self-driving vehicles has applications for assembly lines, plant management, parts logistics.
More, the directors led by Executive Chairman Bill Ford are hedging their bets. In addition to elevating Farley, the automaker said its chief product development officer, Hau Thai-Tang, would shoulder more responsibility — a signal that Farley's ascendance to the top job is not preordained, and neither is a perceived bias to promote an insider to replace Hackett.
This shakeup was inevitable. Ford's turnaround is proving slow-in-coming. And the botched launch of its all-important Explorer SUV last week slammed fourth-quarter earnings and contributed to modest guidance for this year, pounding Ford shares that had been rising much of the year.
Investors are voicing growing frustration, underscoring their concern by trading Ford shares generally lower. Meanwhile, rivals General Motors Co. and Fiat Chrysler Automobiles NV are delivering fatter North American margins, faster cash generation and, in GM's case, what's considered a more cohesive electrification strategy.
In a note Monday outlining Ford's headwinds, Morgan Stanley cited lower North American margins, "substantial continued losses" in China, costs associated with emissions compliance in Europe, continued investments in new hybrids instead of a "straight-to-EV' chosen by such rivals as GM, and lower cash-flow projections for this year compared to GM and FCA.
"Ford is currently lagging peers in operating performance in N. America, China and S. America at the same time," Morgan Stanley wrote. "Friday's management changes are, at some level, acknowledgment of the need for change from the company."
The irony is that Hinrichs said as much in a letter he wrote to his team touting accomplishments his critics would tend to overlook in favor of the challenges apparently he, alone, was expected to overcome. It doesn't work that way.
"We used to talk about Profitable Growth for All," he wrote, channeling a mantra repeated continually by superstar CEO Alan Mulally before retiring six years ago. "The plans over the last three years, combined with the dramatic collapse of our sales in China after we had built such a strong business, have delivered significant losses in global volume and market share."
In other words, Ford's core business has not been delivering when competitors have — and that's a big problem in Dearborn that can no longer be ignored.
Daniel Howes’ column runs most Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN. Or listen to his Saturday podcasts at detroitnews.com or on Michigan Radio, 91.7 FM.