If your stock price hits the skids, a change at the top can help rev things up again. Ford Motor Co’s shares have sunk 37 percent since chief executive Mark Fields took over in 2014 and on Monday the board hit the ejector seat button.
Unfortunately, Ford’s problems go deeper than one man. There’s a risk his replacement Jim Hackett, whose background is in office furniture, might struggle to do much better. Leaving aside the chunky salary -- Fields’s compensation totaled $22 million last year -- running an old-world car business is pretty thankless right now.
Amid worries about falling U.S. car sales, a glut of used vehicles and competition from Silicon Valley, auto sector valuations are embarrassingly weak and investors are right to be miffed. Despite posting the second-highest pretax profit in its history last year, Ford’s market capitalization ($43 billion) isn’t much higher than the $40 billion in cash, equivalents and short-term investments on its balance sheet. The shares trades on just 7 times estimated earnings.
While that’s bad, it's actually a little better than General Motors Co and Fiat Chrysler NV, which both fetch about 5 times. There are of course two big exceptions in autos world to this valuation misery: Tesla and Uber, which I'll call Tuber if you'll forgive me.
Under Fields, Ford tried to show it could be just like Tuber by promising a fully autonomous vehicle by 2021 and acquiring a shared shuttle bus service called Chariot. But the market didn't buy it.
When Tesla splashes billions on electric vehicles and Uber burns cash so millennials can ride around in style, investors applaud. When Ford does similar the market frets about lower profit: earnings this year are expected to fall short of last year's total, in part because of higher investment.
So as Hackett prepares to take over, there's not much comfort on offer. Ford makes decent profit in North America, mainly by selling big trucks (the F-Series) and sports cars (the Mustang). But it doesn't make much money from its international businesses or its small cars, which Americans don’t really care for any more.
One option would be to slim down radically. GM is doing just that by selling Opel and scrapping investment in India. Similarly, Fiat Chrysler Automobiles NV is placing its bets on high-margin trucks and SUVs, environment be damned. Both companies' shares have done better than Ford’s lately, but neither has re-rated. There's no simple answer to the profound shifts taking place in the car industry.
It would be a mistake for Hackett to just jack up investment in futuristic "mobility services", the division he's been running until now. Unless matched by swingeing cost cuts, that would create an even bigger dent in Ford’s profit. The car industry business model for ride-sharing and data-orientated services is still unproven. Max Warburton at Bernstein Research says Ford’s ambitions to make 20 percent margins in Uber-style mobility services are “patently nonsense”.
It can take a decade to build brands and develop new models in the car industry. Fields's three-year tenure wasn't long enough to work miracles. He made some serious missteps, including an abortive plan to build a Mexico car plant. But problems with its luxury Lincoln brand and the failure to capitalize on its early lead in SUVs predated his rise to the top.
Perhaps his biggest mistake was trying to cover too much of the mass market, at the same time as trying to make the technology leap to being a mobility provider. His rivals are starting to benefit from being more focused, something the new man will have to address. Hackett will face pressure to allocate capital carefully. Even so, neither slimming down nor doubling-down on mobility services is a certain road to survival.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
I’m using Bloomberg data. Ford says the auto segment has $28 billion in cash and equivalents. Net of debt that figure is about $12 billion.
The other big exception is Ferrari of course, but it sells fewer than 10,000 cars a year. Plus, "FeTuber" isn’t as catchy.
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