After days of watching the stock price sink faster than competitors, and concerns about the strategic direction of Ford Motor Co., incoming chief operating officer Jim Farley took to the stage to make his first public speech in New York early Wednesday.
Investor expectations were high — and ultimately unmet — that he would announce a significant and dramatic plan for re-positioning the company.
“We know what we need to do,” said Farley, 57, president of new business, technology and strategy, in remarks to the Wolfe Research Global Auto, Auto Tech and Mobility Conference. It was broadcast on the web globally so shareholders and the media could listen.
He said the company performs best in crisis situations, and acknowledged that the feeling at Ford world headquarters now may be compared to the Great Recession.
“It takes me back to about 10 years ago,” he said. “I have seen the look before.”
But Ford rises to brutal challenges such as an economic downturn, Thai floods, an earthquake in Japan, the coronavirus — “where there’s a threat,” Farley said. “Decisions get made quickly. It’s very natural. Everyone at Ford Motor Company knows the situation we’re in.”
While automakers and auto suppliers in different parts of the world struggle with shutdowns and slowdowns caused by the coronavirus’ international health scare, Farley didn’t comment specifically on a planned response and he wasn’t asked by the host.
“We need a more compelling growth story,” Farley said.
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.
Ford has seen a steady slide prior to the coronavirus impact on stocks this week. Ford stock closed Tuesday at $7.23 per share, the lowest since November 2009.
The company launched an $11 billion restructuring campaign in July 2018 after a disappointing earnings report.
$5B pain point
Top priorities must be reducing warranty costs — which he revealed reached $5 billion in 2019, up $1.5 billion in recent years — and fixing vehicle launch problems that have also cost the company an estimated $1 billion.
Enormous warranty costs torpedoed company finances in 2019, Farley said.
Farley pinned hopes for the future on a vibrant commercial vehicle business that monetizes data analytics and runs independently rather than the “collection of nameplates” it is today.
Farley, a usually enthusiastic executive who delivered remarks in a notably measured tone for an estimated 45 minutes, took questions as well as framed priorities.
“My whole family owes everything to Ford,” he said, noting his grandfather went to work for the company in 1913. “It’s a really huge and humbling honor to serve the company at this time.”
Ford recognizes the need to “get back to that profitable business that we owe our shareholders,” he said. “We have to fix a number of things.”
He emphasized more than once, “Our warranty spending is a big opportunity for us. It’s one of the big uncertainties we have to risk adjust in our guidance. We have a very concrete plan to work the warranty opportunity. We need to lower our warranty spending.”
Big settlement
In January, Ford reached a settlement in its class-action lawsuit with nearly 2 million Ford Fiesta and Ford Focus owners and former owners who filed suit over defective transmissions in 2012. A court hearing scheduled in California this week is expected to firm up details that could result in a payout that exceeds $100 million, according to lawyers involved in the case.
Looking ahead requires mastering “good old-fashioned problem-resolution quickly,” Farley said.
In addition, the botched Ford Explorer launch also took a bite out of profits in 2019.
“We have to get our launches right. Not just the Explorer launch,” Farley said. “We have about 10 global, enormously important launches. They have got to land well.”
The Ford team must work faster and more cohesively, he emphasized. By doing so, the company can “catch quality problems in hours instead of months.”
He touted the response to the Mustang Mach-E electric SUV, saying the response has been overwhelming and its launch is crucial to the company’s success moving forward.
A constant at Ford, which Farley highlighted, is that the “profit opportunity is in North America in the next two years. It’s all about North America and the recovery of China.”
Finding and hiring new technology talent is important to Ford, too.
“We’re at a moment in time at Ford where delivery matters, where our performance in the market matters, our profitability,” he said. “The Ford team needs to have a very concrete plan that we share with the investment community with milestones, so you know if we’re on track or not. That transparency is a big commitment for me.”
Ford culture
Upcoming launches are key to the future, Farley said. ”We have this great new lineup but it’s execution.”
The future at Ford is not leaving global markets but on creating better product focus, he said. “We have a very profitable commercial vehicle business,” including products like ambulances. And additional job cuts aren’t the answer either, he said.
When asked about the culture at Ford, Farley said, “Actually, there’s a lot we shouldn’t change. Most people at Ford come into work for more fundamental reason than just making money. At Ford, it’s really a family company. We have to reawaken the purpose of our work.”
Leaders at the company need to be in the room rather than delegating, and the whole company needs a “re-awakening,” Farley said.
On big issues like warranty costs, he said the solutions weren’t a mystery. “There were issues people knew about that just weren’t being resolved. I don’t think it’s any more complicated than that.”
His new role, which begins officially on Saturday, is widely considered a stepping-stone to CEO. As the chief negotiator in a partnership with Volkswagen, Farley is seen within the company and externally as an aggressive executive who has the ability to translate success he saw as a rising star at Toyota to the troubled automaker in his hometown.
Clarity needed
Moving forward, it is essential that Farley clarify the current Ford product line “and rigor in terms of product development and product management, with a keen eye” on improving quality, said Carla Bailo, president and CEO of the Center for Automotive Research based in Ann Arbor.
He also needs clear definition for the “future of mobility in terms of electrification” and what’s expected with partnerships involving Volkswagen and Rivian, she said. Farley played a key role in the VW negotiations.
“There need to be clear targets and timelines including the profitability goals,” Bailo said. “Further, Wall Street needs confidence in this new leadership team — reasons why this will be a successful team. Beyond this, the employees of Ford need a leader with the same ‘heart’ as Joe Hinrichs. … Jim must breed the same level of ‘heart’ for the employees of Ford.”
Hinrichs, 52, has overseen manufacturing as president of Ford automotive. CEO Jim Hackett announced Feb. 7 Hinrichs’ retirement from the company, the same day Farley was promoted.
The shakeup followed a disappointing earnings report. Tim Stone, Ford chief financial officer, said at the time that financial “results were not OK in 2019. Looking to 2020, I’m very optimistic.”
Shocked, stunned
After listening to the presentation and reviewing the eight slides, market economist Jon Gabrielsen, who advises automakers and auto suppliers, said “I am literally stunned beyond belief. In my wildest nightmares I never imagined that what Farley would present would essentially be what Hackett has been presenting now for almost two years.”
He said industry observers would like to see Farley consider the following actions:
- Get out of Europe, The Middle East, and South America
- Extricate from China and the rest of Asia
- Solidify and rebuild market share in North America
- Secure a bigger credit line to buy time to execute the plan
- Suspend the shareholder dividend and pledge assets as collateral
- Cut more salaried jobs in North America, mostly in southeast Michigan
Rescue strategy
Analysts point to the past in trying to assess the strength of Ford’s future.
“On Nov. 29, 2006, Ford Motor made a surprising pitch to the nation’s biggest banks. In a packed ballroom at a New York hotel, Ford’s chief executive, Alan R. Mulally, said he would mortgage all the company’s assets for billions of dollars in loans to finance an overhaul of the troubled automaker. Although the economy was healthy then, Mr. Mulally said the money would give Ford ‘a cushion to protect for a recession or other unexpected event,’ ” wrote the New York Times on April 8, 2009.
“At the time, the request was considered an act of desperation. But the $23.6 billion in loans it received turned out to be Ford’s salvation.”
What if
Ford has said it’s looking to the upcoming new release of its revived Bronco as a potential profit generator, but industry analysts urge the company to tamp down expectations.
“The Bronco has the potential to deliver strong sales. It’s an iconic nameplate and the world is SUV hungry right now. But the Jeep Gladiator was also an appealing mix of iconic branding and genuine capability, and Jeep is struggling to sell them,” said Karl Brauer, executive publisher of Kelley Blue Book. “Up until a few years ago, almost any SUV was guaranteed a base level of demand. Now there are so many SUVs across so many brands they’re all stepping on each other in the market.”
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It is possible that Ford will see sales stall like Jeep, he said.
“The Bronco will have the same backlog of buyers the Gladiator enjoyed, initially,” Brauer said. “The question is, how well will Bronco maintain those sales after the backlog is filled? Hard to say, and even that initial rush of demand will hinge on a clean launch. If Ford repeats the Explorer mistakes with Bronco they’ll potentially squander the meaty part of the post-launch demand curve.”
‘Make the move’
Scott Sutherland, 58, of Miami, Florida said he doesn’t understand why the current Ford CEO is still in charge, that the company needs to clean house.
“Bill Ford needs to make the move to Jim Farley. Today. Period,” said Sutherland, a Port Huron native who travels frequently to Detroit on business as managing director of Lake Michigan Merger and Acquisitions Advisory group. He works on mobility deals with auto industry clients throughout North America. “Jim Hackett has no respect on Wall Street or the executive suites. Ford is a technology company. You need a tech guy in there.”
Contact Phoebe Wall Howard at 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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