Ford heads for treadmill as automaker’s profit underwhelms

Ford Motor Co. has stepped onto the scale and found it’s out of shape.

The automaker signalled it’s even more resolute in the diet prescribed by its new CEO after reporting another underwhelming profit on Wednesday. Ford hasn’t coped well with rising costs because of bloat within its product lineup and engineering budget.

Ford “should still be performing at a higher level” despite raw materials getting more expensive for all automakers, chief financial officer Bob Shanks said. Those costs and adverse exchange rates have exposed Ford’s “lack of fitness.”

After years of Ford posting a disappointing profit margin, chief executive officer Jim Hackett has laid out a regimen that includes slashing $14 billion in spending on materials and engineering over the next five years. Along the way, the company will kill off struggling car models and offer far fewer iterations of models that do survive.

Ford’s fourth-quarter earnings reinforced the problem it’s had keeping costs under control. While automotive revenue rose to $38.5 billion and beat estimates, profit matched the preliminary result that the company reported last week, which prompted the biggest sell-off of shares in almost 18 months.

Ford has warned that rising prices for steel, aluminum and other metals, plus wrong-way currency swings, could be a $1.6 billion headwind this year, after dealing a $2 billion blow to 2017 results. When asked why these factors are affecting Ford and not its peers, Shanks was candid.

“They’re fitter and so they’re still able to generate — despite whatever hit it is to their business — they’re still able to hit a margin that’s appropriate,” he said. “Our issue is that we can’t do that. That’s why the fitness initiatives are so extremely important to us.”

When warning last week that profit will decline to between $1.45 and $1.70 a share in 2018, Ford laid out a plan to cull cars and focus only on low-volume, high-margin models. Products like the Escape and EcoSport crossovers will only be offered in 10 or 20 iterations, a 98 per cent reduction from the plethora of trim levels and options available now.

Wall Street has grown wary of Ford. With its forecast for this year, the automaker reneged on former CEO Mark Fields’s promise that earnings would rebound after 2017.

“I and my team are not satisfied with this level of performance,” Hackett said. “We see 2018 as the opportunity to prove to you that we can sharpen operational execution.”

While Hackett, 62, is cutting costs elsewhere within the business, he’s also spending big to roll out robot taxis, driverless delivery vehicles and electrified autos over the next few years.

While F-series pickups continue to perform well for Ford, the top-selling vehicle line in America since the Reagan administration is about to be challenged by revamped rivals. GM unveiled a redesigned Chevy Silverado and Fiat Chrysler showed a new Ram 1500 last week at the Detroit Auto Show.

Ford has new model introductions of its own, with plans to roll out 23 vehicles worldwide this year. Those include a hotrod Edge crossover and two large SUVs, the Expedition and Lincoln Navigator. Next year, the automaker will bring back the Ranger mid-size pickup in the U.S. after it was dropped from the market in 2011.

Over the next five years, Ford will begin generating “quite a nice return” from offering digital services to cars, Shanks said on the conference call, without elaborating.

But in the race to electrify its lineup, Ford lags GM, which already sells the battery-powered Chevrolet Bolt, as well as Tesla, which has a larger market value.