Ford Motor at a crossroads, seeks cuts and partners
When Ford Motor was celebrating the 100 th anniversary of its Rouge industrial complex last week, its chairman, William CFord Jr, offered an optimistic outlook for the years ahead.
The company is still solid ly profitable, he said, and while it is losing money overseas, it is working on a solution. Furthermore, hep raised the ability and leadership of Ford’ s chief executive, Jim Hackett, who he said was doing “a really goodjob.”
“I don’ t think it’ s even close to a crisis ,” hesaid. Not everyone shares his confidence. The auto maker’ s bottom line is weakening despite record sales of its pickup trucks and sport utility vehicles. In August, its credit rating was cut to one level above junk status. And Ford’ s stock price has fallen to its lowest point since 2009, when the United States economy was in a deep recession.
“The foundation of Ford—the trucks —is still healthy, but there are concerns about whether Ford has prepared for tomorrow and the future ,” said Karl Brauer, executive publisher of the auto information providers Auto trader and Kelley Blue Book .“Ford hasn’ t been effective enough in convincing investors that they are.”
In the latest move to cut costs, Ford is re or ga ni sing its worldwide salaried work force of 70,000 with the goal of having a lean er staff by the second quarter of 2019. The move, outlined to employees on Thursday, is likely to eliminate several thousand jobs, said Karen Hampton, a company spokeswoman.
“We believe there will be reductions as part o fit, but we don’ t have specific targets,” Hampton said. She said the re organisation was meant to speed decision-making and cut the time it takes to develop new vehicles, two points that Hackett has emphasis ed.
The effort was first reported by The DetroitFreePress. Part of the frustration among those sizing up the company stems from Hackett’ s slow roll out of a recovery plan. Since taking the helm in May 2017, Hackett has outlined broad cost reduction goals, but has stopped short of explaining how they will be achieved. Ford once planned a day long meeting with Wall Street analyst son September 25, but cancelled it in July, saying it needed more time.
Elements of the plan are emerging bit by bit. Beyond the reduction in the salaried workforce, another initiative involves partnerships.
Ford is in talks with Volkswagen about abroad alliance that could help turn around it sailing operations in Europe and South America. It is also discussing ways to expand cooperation with Mahindra, the Indian auto maker. India is another market where Ford is struggling.
Ford, agreat-grand son o fthe company’s founder, Henry Ford, acknowledged the discussion sat the Rouge complex, now the site of a plant that produces th eF-150 pickup.
“We don’ t ever rely on a partner to fix things for us ,” he said .“We have toge tour own house in order first. Partnerships can help with capital intensity and things like that .” Analysts said a partnership with Volkswagen could help both companies. Ford makes money on delivery van sand other small trucks, an area where Volkswagen struggles. The cooperation could involve helping Volkswagen produce small pick ups like the Ford Range rand sharing the cost of developing electric vehicles and other technologies to meet more stringent emissions regulations in Europe.
“Volkswagen is definitely intriguing,” said Brian Johnson of Barclays Capital. “You can definitely see the business logic behind it.”
A century ago, Ford revolutionized auto manufacturing when it opened the Rouge complex. A marvel in its time, it produced cars and all their parts, including glass, tires and engines. It generated its own electricity, had a hospital and police station and employed as many as 100,000 workers. This vertical integration helped Ford lower costs enough to produce cars that ordinary people could afford.
Today, Ford must again find ways to cut costs. In July, Mr. Hackett said his restructuring plan could involve charges of $11 billion over the next three to five years. That news arrived as Ford reported net income declined by nearly half to $1.1 billion in the second quarter.
The urgency was highlighted last week when Mr. Hackett said on Bloomberg television that the Trump administration’s tariffs on imported aluminum and steel would raise Ford’s costs by $1 billion. The company said the costs would be incurred in 2018 and 2019.
The tariffs could erode the profit margins of the F-150, which has aluminum body panels. But Mr. Ford said the automaker had taken the tariffs into account and did not need to modify its turnaround plan.
“We just want to work with the administration on trade issues, tariff issues, and they’ve been quite good about it,” he said. But Ford “runs a lot better when we have certainty and we don’t have big gyrations,” he added. “Our business is at its best when we have certainty with tax regimes, trade regimes.”
Another trade move by the administration was welcomed by Ford — the agreement that keeps Canada in a threenation trade zone in North America. Ford makes trucks and sport utility vehicles in Ontario.
Just two years ago, Ford seemed like the healthiest of the three Detroit automakers. But while it makes a solid profit on trucks and SUVs like the Explorer, recent earnings reports have shown it losing money on its cars. At the same time, profit has plunged in Europe and Asia, efforts to turn around its South American business have shown little progress, and returns in North America, by far Ford’s largest region, have slumped.
“The problem is they didn’t update and redesign their products enough,” said Michelle Krebs, executive analyst at Autotrader. “It comes back to being slow on product decisions and product development.”
Now Ford’s lineup faces a radical revamping. In April, the company said it would stop making sedans for the United States market to shore up profits. Within a year or two, familiar models like the Fusion, Focus, Fiesta and Taurus will disappear from showrooms. In their place, Ford is planning new S.U.V.s, truck variants and electric vehicles.
Mr. Hackett has talked about how Ford will make decisions and develop vehicles faster — or increase the company’s “clock speed,” as he terms it. Ford announced in June that it had purchased Detroit’s crumbling train station and intended to make it the base of some 2,000 employees working on businesses related to self-driving cars — an effort Mr Hackett was running when he was called on to replace Mark Fields as chief executive.
But his reluctance to spell out the elements of his restructuring plan has rankled analysts who follow the company and try to predict how much money it will make.
Mr. Hackett was hailed for his previous tenure as chief executive — at the office-furniture company Steelcase — but he is facing a tougher challenge in running Ford, a much larger company with 200,000 employees and dozens of plants around the world.
“We’d like him to be crisper in going from high-level statements into the actionable plans they are going to carry out,” Mr. Johnson of Barclays Capital said.
The tension was evident in a July conference call when Adam Jonas of Morgan Stanley expressed frustration at the lack of detail on what the $11 billion in charges will cover. He asked Mr. Hackett if he would still be around when it came time to assess the results. “I think there should be zero question about that,” Mr. Hackett replied. In the meantime, plenty of questions remain.