It was not long ago that Ford Motor Co. was considered the healthiest of the Detroit automakers. Unlike General Motors and Chrysler, Ford survived the financial crisis that began in 2007 without the help of bankruptcy or a government bailout, and had appeared well positioned to take advantage of the booming US auto market.
But investors have taken a more pessimistic view, raising questions about the leadership of its chief executive, Mark Fields. Ford’s stock has declined about 40 per cent since Fields took over three years ago, and 10 per cent since January 1, even as the overall market has risen. And with profits slipping, Ford is under pressure to engineer a turnaround — starting with the announcement that it would cut 1,400 salaried jobs in North America and Asia.
The cutbacks are relatively small given Ford’s global workforce of 202,000. Yet it appears to be just the beginning of a long retrenchment for the US’s No. 2 car company, and a critical test for Fields and his strategy to vault Ford into the high-tech race to develop self-driving cars and electric vehicles.
“I think Ford is in a tough spot,” said David Whiston, an analyst with the investment firm Morningstar. “There’s no one or two silver bullets that will make the stock rally.”
Cutting costs while investing in advanced technology is, indeed, a difficult balancing act. Ford is trimming salaried employees, GM is cutting production shifts at some factories and Fiat Chrysler has idled plants that make passenger cars.
Automakers have also increased discounts to move bulging inventories of unsold models. Ford, for its part, is tamping down expectations for its all-important North American division, which accounts for a vast majority of its profits. The company’s earnings fell more than 30 per cent in the first quarter, and Fields has said the full-year results will also be down from 2016.
But it is proving hard to sell Ford shareholders on diminished results in the short term, while the company continues to invest heavily in future technology — particularly when it is competing with Silicon Valley heavyweights like Google on self-driving research. When it announced quarterly earnings last month, Ford said it would achieve $3 billion in efficiencies this year, mostly offsetting the cost of investments in those “emerging opportunities”, an allusion to technologies like driverless and electric vehicles and ride-hailing services.
Some analysts have suggested that Fields should go further in remaking the company by reducing its car line-up further — and possibly getting out of the unprofitable small-car business entirely. But most have generally supported Ford’s twin-barrelled approach.
Brian Johnson of Barclays, for example, said the company’s strategy was sound, and contrasted its “unsplashy” actions with the stock-market hype surrounding the upstart electric carmaker Tesla. “As opposed to making Twitter claims around full autonomy and electric trucks, Ford has an underappreciated strategy toward electrification and autonomy,” Johnson wrote in a research note.
The anticipation for Tesla’s future has helped it pass Ford and GM in market value, even though it makes a fraction of the cars that Ford produces. And Tesla already has two distinct electric cars on the road, while Ford is limited to selling niche, battery-powered versions of conventional models.
The business pressures add up to a moment of truth for Fields. His predecessor, Alan R. Mulally, was given credit for steering Ford through the recession and simplifying its product line-up through his “One Ford” strategy.
Much of Ford’s emphasis during his tenure was on smaller, fuel-efficient passenger cars, which have since lost favour with customers because of low gas prices. And while GM and Chrysler floundered with high costs, shifting strategies, and constant turnover of senior executives, Ford seemed a model of consistency.
“The One Ford plan was an elegant and powerful blueprint that became the mantra of the firm’s reinvention from the last crisis,” said Adam Jonas, an analyst with Morgan Stanley. “There are important lessons here.”
Fields is clearly trying to sharpen his focus after an extended board meeting. William C. Ford Jr., Ford’s chairman, admitted at the company’s recent annual meeting that he was frustrated by the stock price. The first sign of how Fields is responding to the drumbeat of negative news came when the company said it would offer early retirement packages and buyouts to 10 per cent of salaried workers in certain business units in North America and Asia.
Those separation packages, however, do not include employees in product development, information technology and the company’s Ford Credit arm. The company said factory jobs were also unaffected. The cutbacks are aimed at “reducing costs and becoming as lean and efficient as possible,” the company said in a statement.
At the same time, Ford said it was committed to “investing aggressively, but prudently” in new operations devoted to future technology. Ford is holding its own in selling truck and sport-utility vehicles, but it has big problems in passenger-car segments, where sales have plunged almost 25 per cent so far this year.
By comparison, sales of cars at Toyota and GM’s Chevrolet division are down only about 11 per cent during the same period. One analyst said Ford’s cars were older in comparison to its rivals, and need to be updated to better compete.
“The Fusion was pretty cutting edge when it was redesigned in 2013, but now it looks dated,” said the analyst, Jessica Caldwell of the auto-research site Edmunds. Ford also has a big hole in the subcompact SUV segment, and has gained little traction in the market from its hybrid gas-electric models. The larger issue is whether Fields could tinker with the current strategy enough to convince investors that Ford has a bright future.
Among the company’s initiatives is a plan to create a sprawling, high-tech headquarters campus in Dearborn, Michigan, of energy-efficient buildings that will be linked by self-driving vehicles. The project is expected to take 10 years to complete and is estimated to cost at least $1 billion (Dh3.67 billion).
Ford also pledged to invest $1 billion during the next five years in the software company Argo AI. Those investments were intended to help Fields reach an ambitious goal. Last summer, speaking at Ford’s research centre in Silicon Valley, he vowed that the company would begin mass producing a self-driving car — with no steering wheel and no pedals — by 2021.
New York Times News Service
