Jim Hackett outlines his method of leading Ford Motor Co. in an interview with the Detroit Free Press. Detroit Free Press
A $7.89 price tag is a bargain for just about anything these days.
Including Ford Motor Company stock.
“Ford’s stock is at its lowest point since the Great Recession,” said John McElroy, host of “Autoline After Hours” and a longtime automotive analyst. “While this would normally put enormous pressure on CEO Jim Hackett, his recent reshuffling of the management ranks, pushing out Joe Hinrichs and promoting Jim Farley to COO, has bought him time with the board of directors. Hackett is very lucky. The Ford board seems to have the patience of Job.”
Industry observers took notice when the price sunk to a 52-week low Friday after stagnating for months, even as the Dow Jones Industrial Average has hit new highs.
T.R. Reid, Ford spokesman, said the company doesn’t comment on stock price.
“Our underlying business is strong. We’ve got exciting series of new products we’re introducing this year. And I think we’re establishing ourselves as a leader in the emerging era of smart vehicles — including new forms of propulsion and connectivity,” he said. “We’re optimistic. We’re focused, and nobody’s got higher expectations for Ford than we do.”
Then vs. now
Ford replaced CEO Mark Fields with Hackett in May 2017 after a dismal stock performance. And the value of Ford stock has continued to wither. Ford hovers around $8 a share. Crosstown rival General Motors has a stock price near $35.
Fields retired at age 56 from Ford after three years as CEO. On the Friday before the company released news of his departure on May 22, 2017, Ford stock closed at $10.87. Its price had declined 36% on Fields’ watch, nearly three times worse than GM during the same period, according to MarketWatch.
“It’s all about investor frustration with the stock performance,” Efraim Levy, then an analyst with CFRA Research, told MarketWatch upon news of Fields’ exit.
Ford’s latest stock dip occurs more than two weeks after reporting a grim $47 million in net profit in 2019 for the global company, down from $3.7 billion a year earlier. Meanwhile, GM showed a $2.41 billion net profit in 2019.
‘Patience wearing thin’
“The stock has been on a wild ride and investors’ patience does seem to be wearing thin,” said David Kudla, CEO and chief investment strategist at Mainstay Capital Management, a Grand Blanc investment adviser who manages $2.7 billion in assets. Many of Mainstay’s clients are Ford employees.
He noted, “Hackett’s massive restructuring plan was needed to address overhead, however, it remains to be seen whether it went far enough. The pressure is on this year to recover and show meaningful progress.”
Challenges aren’t specific to Ford but they may be hitting Ford harder than its competitors, says market economist Jon Gabrielsen, who advises automakers and auto suppliers.
“Ford is facing tremendous downside market and financial risk on so many fronts,” he said. “Its restructuring plans have not yielded the benefits as soon as promised and expected, and may never do so. Its European and South American operations are perennial losers and have not improved. And its China business has gone from too late of an entry with too little market share, to less than half of that. The only strong business that Ford has is North America, and even then it is only in U.S. and Canada since its Mexico presence has fallen to near irrelevancy.”
Gabrielsen said the company is pinning its hopes on the Mustang Mach-E electric SUV and a new Bronco, but market potential for both remains uncertain. Plus, the company faces ongoing cost issues.
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“Even in North America, it has continued to have increasing warranty and recall costs and a looming potential lawsuit of unknown magnitude for the (defective) DPS6 transmission from the Focus and Fiesta,” Gabrielsen said. “And the profits from its financing operations are totally dependent on the success of the auto businesses.”
Déjà vu
Marick Masters, a Wayne State University business professor, said the stock dip is “déjà vu” to some extent. He pointed to a July 1, 2012, headline that said Ford at that time “reached” a “52-week low of $9.56” and said “Ford’s challenges are structurally and strategically deep.
“Its competitive strategy leaves too much in doubt and fails to show how to break through the vortex of forces buffeting the industry,” Masters said. Hackett “is under enormous pressure to improve operational and financial performance while articulating a clear pathway to success.”
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Clearly, the Ford family is feeling fine for now or they would take action, said Marcus Hudson, executive director of the Calderone Advisory Group based in Birmingham, which advises suppliers in the automotive industry.
“The significant action was putting Farley in the COO position. I have no doubt that was Hackett’s way of showing the family he’s addressing the performance issues that have hampered the company of late,” said Hudson, who worked in revenue management at Ford more than a decade ago. “The family is not shy about getting rid of people when they’re unhappy with them. And the family doesn’t take its cues from Wall Street.”
$2M pay raise
Meanwhile, all eyes are on the CEO. Hackett turns 65 on April 22. He told reporters Feb. 7 he has no immediate plans to retire from his CEO role, saying he wants to be part of the new “momentum” that takes Ford into the future.
And Ford does not have a CEO age limit, Ford spokesman Reid said.
Alan Mulally, who is widely credited for saving Ford from bankruptcy left the company in 2014 at age 68 after nearly eight years.
More: Anxiety builds among Ford employees. Hackett says that’s fair, but he’s confident
Hackett came out of retirement after a career with Steelcase office furniture. He received a $17.75 million compensation package at Ford in 2018 or more than a third of the net profit the company reported in 2019. The company will reveal his 2019 salary in a regulatory filing in the late spring.
Farley, 57, whose promotion from president of new business, technology and strategy to chief operating officer was announced three days after the 2019 earnings report, is now in line for the CEO role.
The company’s board of directors notified the Securities and Exchange Commission that it approved a base wage increase from $1.1 million to $1.4 million while growing his overall compensation package about $2 million to $8.29 million.
Farley begins his role officially on March 1. Hinrichs, 54, Ford’s former president of automotive, officially retires the same day, though his company email was discontinued almost immediately after his announced departure.
So sorry
Meanwhile, Morgan Stanley analyst Adam Jonas issued a cautionary statement to investors on Feb. 10 after recommending Ford stock.
“Owning responsibility,” said the headline of his memo to the investor community. “We upgraded Ford … last August and made it our top pick in US autos. In hindsight, this was the wrong call. Numbers have continued to fall and so has the stock.”
$1 billion bruise
Jonas wrote that “some of our ideas work. Many don’t. But when they don’t work, we have an obligation to explain why it did not work and, in doing so, hopefully achieve a level of value beyond that of just the stock recommendation. We must own the responsibility.”
He noted: “Our call on Ford was predicated on the company executing on significant redesign and fitness initiatives, strategic partnerships (Volkswagen) and new product introductions in the face of a low starting point of performance and extremely low expectations. For the past 6 months since our upgrade, at least, Ford has not shown the progress we and shareholders expected. … Management changes are, at some level, acknowledgement of the need for change from the company.”
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While the 2020 outlook “was disappointing in terms of both direction and transparency, our conversations with investors suggest very low levels of expectations,” Jonas wrote. “Ford is currently lagging peers in operating performance in N. America, Europe, China and S. America at the same time.”
Morgan Stanley said, “The company must earn back the trust of the market by delivering results.” And the analyst will “no longer recommend the stock as our top pick,” instead choosing GM.
Despite concerns, Jonas did not downgrade the stock recommendation — noting that the stock offers value.
The multibillion dollar decline in net profits is blamed, in some part, on higher than expected warranty costs and a botched Ford Explorer launch, which Morgan Stanley estimated in its note to be $1 billion.
Last year, Ford initially denied Free Press reports of the launch problem until the newspaper said it had photos as proof. The Dearborn automaker affirmed the extent of the problem during its Feb. 4 earnings report for 2019.
On Friday, the market’s valuation of Ford listed at $31.39 billion. By contrast, GM was $49.51 billion and Toyota was $227.05 billion.
Contact Phoebe Wall Howard: 313-222-6512or phoward@freepress.com. Follow her on Twitter @phoebesaid. Read more on Ford and sign up for our autos newsletter.
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