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Ford CEO Change Signals Referendum On Legacy Business

Ford CEO Change Signals Referendum On Legacy Business

Monday massacre? Today Ford Motor Company announced a swift replacement of CEO Mark Fields with a guy who has spent less than a year in the automotive industry and really has no relative experience in automotive or industrial business at all. In fact, Ford itself is referring to their new CEO as a “turnaround specialist.” Yes, the company that has generated record profits for the last three years is seeking a turnaround.

For anyone following automotive news in recent weeks, today’s shuffle inside the Glass House isn’t much of a surprise. Ford’s stock price has tanked 40 percent since Fields took office in July 2014 and has shown virtually no signs of turning around. The sagging stock price comes as a slap in the proverbial face of top executives, who have overseen profits in excess of $10 billion for the last two years and a healthy $9 billion profit guidance for 2017.

Today’s “turnaround” certainly appears less urgent than the previous one; the one in which Ford Executive Chairman Bill Ford fired himself as CEO to appoint Boeing CEO Alan Mulally.

Less urgent, perhaps. However, people often forget that a company’s stock price is the collective worth of its future cash flows to investors. There’s a key word there: future. The fact the company made record profits the last two years isn’t relevant to the market value of the company going forward, and that projected $9 billion for 2017 is baked into a share price that’s assuming great margins in what has been a post-recession auto sales boom. A boom that’s combined with market fanfare for high-margin trucks and SUVs to further inflate Ford’s financial statement.

Ford’s business model for its first 112 years has been static: building automobiles. Given the longevity of the company and Mulally’s ‘One Ford’ mission, Ford has mastered its legacy business model. It can produce automobiles globally and make record profits, but just as Ford has become excellent at building cars…the market is turning away.

We’re in the midst of a cultural and technological shift away from personal vehicle ownership. The likes of Uber and Lyft are just the beginning of a services-based mobility world where vehicle ownership is perhaps reserved for the few; and those few are going to want autonomous vehicles.

Right now Ford lacks a battery-electric vehicle to compete with Silicon Valley darling Tesla. The company has no vehicles on the mass-market that can achieve high levels of autonomy, like Tesla.

To Wall Street, Ford’s future doesn’t look so good, which is why its stock is stagnate. Mastering the art of building automobiles isn’t going to last long into the future – going back to those future cash flows. Compounding matters is the fact that all indications are that auto sales are going to continue cooling off, which is also going to negatively impact Ford’s margins going forward.

But there’s more. Ford has been investing heavily in its newfound mobility business with increases in R&D spending the last three years to over $7 billion. These investments are coming–at least in part–at the expense of investing in its legacy business of building vehicles, which will subsequently negatively impact the company’s competitive position in today’s market (see: lack of EV’s, lack of autonomous tech on the road).

To be fair, Ford’s heavy investments into mobility and autonomous technology should not go unnoticed. The company is one of the leading automakers in terms of both areas, but the problem the company faces is that those markets are still in their infancy for the public (and investors) to really take notice or appreciate the heavy R&D spending they require.

See, Ford isn’t exactly the easiest of company’s to run right now. Is Jim Hackett up to the task? Time will tell, but one thing from today’s news is clear: the business model of simply building cars is a dying one.

 





 

About Nick Saporito

AutoVerdict Senior Editor Nick Saporito began writing about cars at age 13. Nick ran a couple of automotive enthusiast sites for several years, before taking some time off to focus on his career and education. By day he's a marketing executive in the telecom world and by night he hangs out here at AV. You'll find him focusing on tech, design and the industry's future.
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  1. 2b2
    ^ several articles (& a video) got me paying attention to communication problems (Link)

    Wonder if the powers-that-be ever thought that the
    "business strategy at the top must always be extremely broad"
    canNOT be directly transmitted withOUT Translation to customers

    & expect them to figure out benefits for themselves?

    ...might apply to BoardOfDirector types too
    nsaporito
    One of the management professors I had during my MBA always beat this in our heads: business strategy at the top must always be extremely broad in today's business environment. Example if you're Ford: you're not an automaker, you're a transportation company.

    And your external board members may not even fully get it.
    Tone
    2b2


    so

    sky-high stock price &

    Zero profits

    but perception up the wazoo

    WHY DO WE NEED ANOTHER TESLA?


    Because that's one potential scenario for future growth. Existing companies like Ford need to be able to grow within several potential -- and wildly different -- scenarios, including a market that slowly evolves from what we have today all the way to rapid disruption of existing markets if the shift to autonomous services happens quickly. Both are possible at this point.

    Not easy at all to run a legacy automaker. A bunch don't really appear to have a way forward if the market is rapidly disrupted (FCA, Mazda, Subaru, to name a few).
    2b2
    ...Ford itself is referring to their new CEO as a "turnaround specialist." Yes, the company that has generated record profits for the last three years is seeking a turnaround...


    so

    sky-high stock price &

    Zero profits

    but perception up the wazoo

    WHY DO WE NEED ANOTHER TESLA?
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