Autos

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Ford Motor Co.'s shrinking workforce shows investors, not politicians, ultimately rule job decisions.  

The automaker is reportedly planning to cut about 10 percent of its global salaried workforce. Per Bloomberg News, North America and Asia will bear the brunt of the reductions. The cuts appear to be part of Ford's plan to eliminate $3 billion in costs to help offset the profit pressures of its heavy investment in electric and self-driving cars as well as tempered car demand in the U.S. The stock traded up as much as 1.2 percent and was flat as of mid-morning in New York.

Service Check
Ford had been in hiring mode over the past few years as car sales rose, but the boom now looks to be over
Source: Bloomberg
Note: Ford said in its annual report it had about 201,000 employees. In its first-quarter report, that number had climbed to 202,000.

The thousands of positions Ford is planning to eliminate dwarf the high-profile job-creation announcements that earned praise from President Donald Trump earlier this year. Trump is a bit busy at the moment deflecting questions about Russia, but even if he wasn't, a Ford-based tweetstorm is unlikely. That's because these job cuts don't fit with his "blame Mexico" narrative, but rather are part of the reality of being a manufacturing company in an industry facing both weakening demand and a technological revolution.

Trump has been quiet as Ford and other carmakers announce layoffs to cope with plateauing U.S. vehicle sales. Other past subjects of Trump love have also avoided public reprimands: Boeing Co. has had to make job cuts in response to a similar wind-down after years of booming revenue, while Caterpillar Inc. is continuing restructuring efforts. And what would Trump say? This is the free market at work and investors in manufacturing companies expect they will make the necessary employment adjustments to maintain profitability in the face of eroding demand.

Ford is also spending billions in an effort to stay competitive with Tesla Inc., Uber Technologies Inc. and Waymo, Alphabet Inc.'s self-driving spinoff. This is something Ford needs to do and ultimately could pay off big-league. But it was arguably behind on making these investments; Barclays Plc analyst Brian Johnson suggests that's one reason for its meaningful underperformance lately relative to General Motors Co. And transitioning into a digital identity never goes down as easily as just starting that way from scratch.

Different Gears
Ford shares are down about 18 percent over the past year, compared with a 10 percent rise at GM. And yet, GM is the one that's attracted an activist investor.
Source: Bloomberg

Tesla investors expect the company to burn mountains of cash and have rewarded it with a dizzying valuation. Ford is coming from an old-school past, with an investor base wary of past automaker bankruptcies. It doesn't have the same luxury of just ignoring the pain in its bottom line, particularly when things aren't going swimmingly at its traditional vehicle business. It has to make up for that profit hit elsewhere -- with job cuts and other cost improvements -- to keep investors on board with the plan. But even then, profits are moving in the wrong direction and shareholders are only willing to wait so long to start to see the payoff from these investments.

Side Swipe
Ford's profit has taken a hit as it ramps up investment in autonomous and electric vehicle technology
Source: Bloomberg

General Electric Co., another manufacturing company trying to reinvent itself as a software maker, knows this dilemma well. While GE took out $375 million of costs in the first quarter, that was offset in part by a "couple hundred million" of additional digital investments. Net costs were down about $75 million. Few analysts factor any sort of sales boost from the digital investments into their forecasts and investors are skeptical about the ultimate revenue payoff. And like Ford, it gets very little credit for its efforts as far as its stock price is concerned.

One way for both companies to mitigate the critiques could be to show just how much money these digital endeavors are losing. It sounds counter-intuitive, but allowing investors to see more clearly into the core operations by stripping out the EPS impact of going digital may be one earnings adjustment worth making.

That said, as much as these industrial giants might wish they were Tesla, the focus on costs and profits isn't going anywhere. The jobs, however, are.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net