Ford says it’s killing off slow-selling cars
Automaker plans to increase savings by $11.5 billion
Ford Motor Co. is sharpening its knives by cleaving another $11.5 billion from spending plans and killing off several sedans, including the Fusion and Taurus, to reach an elusive profit margin target ahead of schedule.
The automaker expects to save $25.5 billion by 2022, Chief Financial Officer Bob Shanks told reporters Wednesday as Ford reported first-quarter earnings per share and revenue that beat estimates. The company now anticipates reaching an 8 percent profit margin by 2020, two years earlier than it had been targeting.
The cuts are aimed at kickstarting a turnaround that’s eluded Ford even after the board ousted its chief executive officer almost a year ago.
New CEO Jim Hackett has been trying to convince investors that betting on a rebound is worth the wager by laying out a plan to get rid of slow-selling, low-margin car models and refocusing the company around more lucrative sport utility vehicles and trucks. That’s similar to the road map Fiat Chrysler Automobiles followed on the way to pulling ahead of Ford in North American profitability.
“Everything will be on the table” to fix Ford, Shanks told reporters in Dearborn, Mich., at the company’s headquarters. “We can make different investments, we can partner, we can exit products, markets — and we will do that.”
Ford reported first-quarter adjusted earnings of 43 cents a share, topping analysts’ estimate of 41 cents. Automotive revenue rose to $39 billion, exceeding the projection for $37.2 billion in a Bloomberg survey.
“Sentiment is extremely low,” Adam Jonas, an analyst with Morgan Stanley who just upgraded Ford to a buy, wrote in a report last week. “Our discussions with investors suggest low confidence in Ford’s earnings visibility and strategic vision. The product portfolio is seen as dated and overexposed to passenger car segments.”
Ford is expecting commodity costs will be a $1.5 billion headwind this year, with about $500 million of that coming in the first quarter, Shanks said. The automaker began the year flagging to investors that pricier raw materials including steel and aluminum would contribute to profit declining in 2018.
Ford said it won’t invest in new generations of sedans for the North American market, eventually reducing its car lineup to the Mustang and an allnew Focus Active crossover coming out next year. By 2020, almost 90 percent of its portfolio in the region will be pickups, SUVs and commercial vehicles.
That means the end of the road for slow-selling sedans such as the Taurus, Fusion and Fiesta in the U.S. The automaker left the Lincoln Continental and MKZ sedans off its hit list, but since they share mechanical foundations with Ford siblings, their futures also are in doubt.
Investors had been growing impatient for additional details on the models Ford would ditch — and for signs its turnarounds 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 who recently lowered his rating on the stock to the equivalent of a hold. “But most people aren’t expecting it until late 2019 or 2020 and that brings up the wild card of, ‘Will we be in a recession by then?’ ”