Ford dropping sedans in cost-cutting move
FORD is cleaving an additional US$11.5 billion from spending plans and dropping several sedans, including the Fusion and Taurus, from its line-up to more quickly reach an elusive profit target.
The carmaker is almost doubling a cost-cutting goal to US$25.5 billion by 2022, Chief Financial Officer Bob Shanks told reporters Wednesday. By not investing in next generations of any car for North America except the Mustang, the company anticipates reaching an eight per cent profit margin by 2020, two years ahead of schedule.
Ford is trying to kick-start a turnaround that’s yet to take hold almost a year after the board ousted its chief executive officer. Getting rid of slow-selling, low-margin car models and refocusing the company around more lucrative trucks and SUVs is a crucial element of new CEO Jim Hackett’s rebound bid. By 2020, almost 90 per cent of Ford’s North American portfolio will be pickups or sport utility and commercial vehicles.
“We’re going to feed the healthy part of our business and deal decisively with areas that destroy value,” Hackett said on an earnings call Wednesday. “We aren’t just exploring partnerships; we’ve now done them. We aren’t just talking about ideas; we’ve made decisions.”
While scrapping several sedans continues to pay off for Fiat Chrysler -- the Italian-American automaker almost halved net industrial debt in the first quarter -- the moves aren’t without risk for Marchionne or Ford’s Hackett.
In the long-term, abandoning car segments could turn out to have been the wrong move if the Trump administration’s plans for weaker mileage standards don’t last long after his presidency. And Japanese carmakers also are likely to welcome less competition for some of their best-sellers, including the Toyota Camry and Honda Civic.
Ford’s first quarter adjusted earnings rose to 43 cents a share, topping analysts’ average estimate of 41 cents. Automotive revenue increased to US$39 billion, exceeding the average projection for US$37.2 billion in a Bloomberg survey.
Ford’s profit margin should “bottom out” this year, Hackett said on the earnings call. The Asia Pacific region will probably lose money in the second quarter before returning to profit in the back half of the year. And executives said they’re reviewing strategic plans for South America, a market where Ford has been consistently losing money.
“Everything will be on the table” to fix the company, Shanks told reporters at Ford headquarters in Dearborn, Michigan. “We can make different investments, we can partner, we can exit products, markets -- and we will do that.”
The Mustang muscle car will be all that’s spared from Ford’s slashing of its sedan line-up in North America. The Focus nameplate will live on thanks only to an all-new crossover variant called the Focus Active coming next year.
That means the end of the road for slow-selling sedans such as the Taurus, Fusion and Fiesta. The carmaker conspicuously left Lincoln Continentals and MKZ sedans off its hit list, but since those models share mechanical foundations with Ford siblings, their futures also are in doubt.
“For Ford, doubling down on trucks and SUVs could be just what the brand needs,” Jessica Caldwell, an analyst for Edmunds. com, said in an email. “But this move isn’t without risk: Ford is willingly alienating its car owners and conceding market share.”
Investors had been growing impatient for additional detail on the money-losing models Ford would ditch -- and for signs its reorganisation efforts would bear fruit.
“It’s not that the market has permanently given up on good news ever happening at Ford,” said David Whiston, an analyst with Morningstar Inc. who recently lowered his rating on the stock to the equivalent of a hold. “But most people aren’t expecting it until l ate 2019 or 2020 and that brings up the wild card of, ‘Will we be in a recession by then?’”