Ford may be ahead of GM, but isn’t out of the woods yet
Scrapping its fuel-efficient models in favour of gas-guzzlers may prove short-sighted
Ford Motor Co. won’t be closing plants in Canada, as General Motors Co. announced last week that it will do in Oshawa, Maryland, Ohio and Michigan.
Ford was earlier than GM to see the current shift in consumer sentiment away from sedans to SUVs and light trucks, which caught GM with far too much car-making capacity.
GM is just starting on a massive overhaul of its North American factory network to rid itself of over-capacity in cars – closing some plants and retooling others to make SUVs and pickups.
But Ford is several years along in that process, and won’t be cutting its workforce. Ford’s prescience in detecting the looming market changes enabled it to reassign its workforce to strong-selling vehicles, rather than lay off employees.
The Ford transformation echoes its 2000s foresight in borrowing billions of dollars ahead of the Wall Street meltdown to finance a refreshed model line in time for the next market upturn.
There are two takeaways from the above.
One is that GM, the world’s thirdlargest automaker, hasn’t learned from the mistakes that led to its 2009 bankruptcy and remains out of touch with customers.
The other is that the auto industry is doubling down on gas-guzzlers, out of misplaced confidence that today’s
lower fuel prices are here to stay, and that the North American economy will remain buoyant indefinitely.
In time, Ford is almost certain to regret scrapping its mid-size Focus line, a smartly designed, fuel-efficient and affordable brand, in favour of ramped-up production of monster SUVs such as the Ford Expedition and Lincoln Navigator. The latter are destined to be showroom dust-collectors come the next recession or oil shock. Bombardier: still grounded There actually are positive things to note in today’s Bombardier Inc.
One of Corporate Canada’s most reliable sources of bad news has laid off about 12,500 employees in the past two years; effectively abandoned its vaunted C-Series next-generation regional jet program; and most recently decided to exit a Downsview, Ont.-based turboprop business that is a global leader in that niche.
The company’s stock is down 27 per cent this year, and trades for about half its value just five years ago.
But for the optimistically inclined, Bombardier’s remaining businesses appear to hold promise. The firm’s rail business (Bombardier Transportation) has an impressive $34-billion backlog. (All figures in U.S. dollars.) And the global market in corporate jets, Bombardier’s other major business, seems poised to pull out of a slump of nearly a decade’s duration.
Bombardier kept the faith during that slump, and will be ready for an industry upturn with a modernized fleet, in- cluding its flagship Global 7500 business jet.
In a pinch, the firm still has assets it could sell, including the commuter regional jet (CRJ) business it pioneered.
But you know the rest of the story — that Bombardier never ceases to disappoint. The company has a staggering debt load of about $9.5 billion, and chronic cash-flow shortages to service it.
Bombardier recently dismayed Bay Street in projecting a $600-million cash flow shortfall related to its rail division, due in part to delivery delays, with which the Toronto Transit Commission (TTC) and other clients are all too familiar.
In sum, Bombardier still lacks mastery in its businesses, which admittedly are unpredictable and hugely capitalintensive. At a current $1.64 per share, the stock still looks expensive.
China’s stunted pro-market reforms
Ahead of planned negotiations of a Canada-China freetrade deal, China’s political leadership is under pressure to move from rhetoric to action on long-promised pro-market reforms.
The external pressure, from the U.S. trade war, has inspired a Chinese intellectual elite at state-financed think-tanks to press for radical change.
They might imagine they have Chinese President Xi Jinping onside. At the latest G20 summit, last weekend in Buenos Aires, Xi once again sought to reassure global investors that foreign companies, including those hailing from Canada, are not “outsiders” but a necessary part of Beijing’s prosperity agenda.
That would include Xi’s hyper-ambitious Vision 2025, an audacious quest for Chinese global leadership in artificial intelligence, environmental technologies, electric and driverless vehicles and other 21st-century-defining realms.
Chinese reformers seek equal treatment of foreign and domestic firms – in their access to state subsidies, for instance; and fewer and less powerful state enterprises, which dominate major fields like banking, telecommunications and energy.
“Mixing politics with company management and letting the Communist Party play a leading role in all kinds of companies is a great setback in China’s reforms,” Gary Liu Shengjun of the Shanghai-based China Financial Reform Institute recently told the South China Morning Post.
But the sense of urgency for genuine reforms is in fact dulled by a U.S. trade-war regime that has not delivered the punishing results intended.
It has instead resulted in a closing of the ranks around the centrally controlled, command-economy practices that have shaped China’s industrial revolution thus far.
Chinese reformers will meet with more success in the absence of the U.S. belligerence they currently believe will force China to truly become “open for business.”
Bombardier still lacks mastery in its businesses, which admittedly are unpredictable and hugely capital-intensive.