The more I look at it, the harder I am finding it to understand the rationale for change at the top of Ford Motor Company. I am concluding, at this point, that it is perhaps more rooted in presentation than substance.
Mark Fields, it seems, fell out of favour with major shareholders. The CEO steers the ship, of course. Odd then, that he delivered record profits and was still viewed unfavourably. He was seen as the source of the problem – read uncertain outlook – for Ford’s bottom line that manifested in a 40% decline to the share price over the past three years.
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Now, here’s the thing. Investors are generally spooked about car companies right now. It’s not a Ford thing, it’s an industry thing. If disruptive change is truly on the way, car companies with their old fashioned manufacturing based business models scream sunset rather than sunrise. Wall Street finds it hard to believe that companies such as Ford will be standing proud in ten years’ time. Just wait for Apple or Google to enter the transport space fray. Asset sharing, driverless and electric – an industrial tsunami is on the way. And Tesla is obviously super-sexy, right? Model 3 heavily oversubscribed and a success even before it has entered series production. Ironically, Tesla is actually pretty old school when you analyse the business model – it sells cars for people to own.
Ford’s share price also reflects the industrial cycle bearing down on Detroit.
Anyway, the perceived ‘old guard’ is facing inexorable long-term decline, so the argument goes. Ford’s share price also reflects the industrial cycle bearing down on Detroit. The US light vehicle market is clearly topping out, the easy profits of recent years on the way out.
The challenge for a company like Ford is to present a coherent industrial strategy that meets the long-term challenges while also delivering on the bottom line, quarter to quarter. Actually, that challenge has another vital element: you have to be able to convince people that you are really walking the walk. It’s not enough to just walk and talk, people have to believe that you are walking the walk on a path to profits and long-term success, competitively winning. You are really better than the others, as a company and as a CEO. The automotive space, let’s not forget, is brutally competitive and will become more so, not less, over the next ten years. Alan Mulally turned Ford around in very dark times. Inspirational though he undoubtedly was, people forget that he was a bit blessed with fortunate timing. Ford mortgaged assets in 2006 and that brought it precious liquidity when the economic crash came in 2009. It was able to carry on with investment programmes and keep the new product pipelines flowing. Mulally was sitting pretty when Ford reaped profits in the sharp US market rebound that followed.
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In the eyes of investors, he could do no wrong. Bill Ford did not want to be Ford CEO, but he basked in the credit for the Mulally appointment. ‘One Ford’ was actually more of a double-edged sword than is generally acknowledged; offloading jewel-in-the-crown Jaguar Land Rover was arguably a big mistake. In a world market that has gobbled up high-margin brands, Ford is a little bit light, having to make do with Lincoln. No matter, while the profits rolled in, Mulally walked on water. His loyal lieutenant, Mark Fields, would obviously continue the good work.
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By GlobalDataHowever, that was always going to be a tough gig, because Mark Fields is not Alan Mulally. Mulally came from another industry, aerospace (Boeing), and that helped him with investors. He could be trusted as an ‘independent’, a force that would protect investors’ interests. Meanwhile, Fields did the hard graft behind the scenes, Mulally’s eyes and ears, ever reliable counsel, and knew the automotive industry inside out. His slick demeanour belied the years of hard experience at the coal face.
Ford, you’ll recall, used to be known for its senior management infighting. Mulally signalled a break with that unhappy tradition. The leadership baton was passed pretty seamlessly to Mark Fields. Mulally was always going to be a hard act to follow, to say the least. Fields was the smooth technocrat, an industry veteran who respected internal budgets.
Fields was a victim of a Wall Street narrative that became something of a self-fulfilling prophesy.
A narrative was quietly building that Ford is less mindful of shareholder value than many other companies; that where others get out of unprofitable activity, Ford reacts with less agility. I’m not sure I buy that. Ford said it would stay in Russia because it makes sense to be in that market – and manufacturing there, to hedge on currency – in the long run. Ford has successfully restructured operations in Russia to be close to profit. That is a considerable achievement. Ford also makes a profit in Europe where GM makes a loss. And Ford has undertaken major investments in new technologies – principally electrification and driverless cars – that will stand it in good stead for the long-term. Is Ford slow to execute? I’m not sure I am seeing much evidence of that. Fields was a victim of a Wall Street narrative that became something of a self-fulfilling prophesy.
The new man at the Ford helm, Jim Hackett, comes with a perceived fresh set of attributes. There’s a track record as a ‘transformative’ CEO at office furniture maker Steelcase. As well as cutting cost, he is said to have generated an inspirational and creative culture of beneficial change. He will need to win over investors and that means, first and foremost, creating a positive narrative. He starts with a plus point in the eyes of some: he is not Mark Fields. The cost base will now get a thorough review and that is being flagged by Bill Ford also. Will the Ford ship significantly change course? New face, ‘fresh ideas’, shareholder value to the fore. The trick will be in the presentation of change and some simple psychology. Alan Mulally mastered the art of presentation. Ironically, Mark Fields – skilled and slick front man though he was – came up short in that department, but it was always a very tough brief to successfully follow Mulally. Following on from Mark Fields might be easier in some ways, but expectations will be set very high.
Now is actually a very good time to buy Ford shares. In a month’s time we’ll know from the level of the share price if the new narrative is really gathering momentum.
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