Ford Annual Meeting No Picnic
Ford Motor (F) Chairman and Chief Executive William Ford, Jr. on May 11 will face his fifth shareholders meeting since taking over the reins of his family's company. The issues he's dealing with, unfortunately for him, haven't changed much from 2002, when the company was battling losses in the auto business, a languishing share price, and criticisms that the automaker isn't doing enough to make its products more fuel-efficient and less harmful to the environment.
When Bill Ford seized control from CEO Jacques Nasser in October, 2001, the company was in disarray after big losses related to the Firestone tire recall on its vehicles, and Ford shares were trading around $14. Since then, the share price has slid to below $7, climbed back to the mid-teens, but has fallen back again to around $7. Ford's shares have fallen 28% this year and closed at $7.06 on May 10. Its shareholder value has fallen by $45 billion to $14.3 billion.
The Dearborn (Mich.) company swung to a $1.2 billion loss in the first quarter of this year
from a profit of $1.2 billion in the same period a year ago. In contrast, General Motors (GM), also struggling, reported this week that it made a profit of $445 million in the first quarter compared with a loss of $1.3 billion in the January-March period a year ago. But both companies are dwarfed by Toyota (TM), which posted net earnings of $12.35 billion for the year ended Mar. 31.
Ford's problem isn't hard to see. It doesn't seem to move fast enough to fix its high costs, the appeal of its products, or its marketing communications. In a note to investors this week, Merrill Lynch analyst John Murphy said Ford's restructuring plan "has been too slow."
A look at Ford's sales in the first four months of this year tells a lot of the story. Its three big SUV model lines -- Excursion, Expedition, and Explorer -- have posted plummeting sales. Consumers who desired big SUVs without actually needing them to pull horse trailers and boats are increasingly looking for more fuel-efficient vehicles while gas prices rest above $3 per gallon.
The Taurus, reduced to sales to corporate and rental fleets, remains Ford's top-selling passenger car. The Ford Five Hundred and Freestyle are selling at tepid rates. Indeed, every Ford passenger car with year-over-year comparisons is down this year. The bright spot is the Ford Fusion, which is on track to sell 130,000 this year.
WRONG VEHICLES, WRONG TIME.
Lincoln sales are up slightly on the strength of the Zephyr sedan, though all the other Lincolns are down. Mercury sales are down, too, despite having its product lineup bolstered the last two years. Land Rover sales are up, but only on the popularity of the Range Rover Sport. The LR3, less than two years old, is slipping, presumably along with overall interest in midsize SUVs. Demand for Jaguars is way down across the board, except for the just-launched redesigned XK coupe. And Volvo, which has been the only solid performer among Ford's premium auto brands, is down 11%, with all models down.
In short, Ford's problem is too few winners to make up for too many losers. It's not so much that Ford is producing vehicles of poor quality or humdrum design. It's that, except for its F-Series pickups, Ford has either too many products ill-timed for high gas prices or too few cars and light SUVs, known as crossovers, that have struck the right fashion chord with consumers as they look for more fuel-efficient vehicles. Marketing behind its brands, especially Ford, Lincoln, and Mercury, has also failed to make up for too much banal design.
It's no wonder that on May 10, in a filing with the Securities & Exchange Commission, the automaker issued a more bearish forecast for the rest of the year. "We anticipate that our market share will be down or flat for the full year," the company said. Ford had earlier expected its market share to be flat to improved this year. In the U.S., Ford's largest market, the company saw its share decline to 18.2% last year, versus 19.3% the previous year. A rebound in the U.S. is crucial to turning around Ford's money-losing auto operations in North America, where it has announced it will close 14 plants and cut up to 30,000 jobs.
Not all of Ford's woes are product-related, and not all the issues for shareholders are financial.
In one shareholder proposal, Green Century Capital Management of Boston will ask for votes to make Ford disclose how much its has spent on lobbying federal officials in support of fuel-economy standards that critics say are too weak to combat global warming and decrease U.S. dependence on foreign oil. In 2004 alone, Ford spent more than $7 million lobbying Congress and the Bush Administration to support a proposal that allows Ford to increase the size of its vehicles to avoid meeting higher fuel-economy standards, Green Century Capital said.
This is an especially sensitive point for Bill Ford. He was quite vocal about increasing the fuel efficiency of his company's vehicles above and beyond competitors' -- or what the auto industry as a whole supported -- while he was non-executive chairman, before he was CEO.
Another resolution submitted by a shareholder from San Francisco, Russell Long, would link executive compensation to progress in reducing the amount of greenhouse-gas emissions from Ford's newest vehicles. As emissions drop, executives would be eligible to collect larger bonuses. A separate proposal asks Ford to publish a report each year on global warming that would keep shareholders informed about the company's policy actions.
Ford's board of directors has issued statements recommending that shareholders vote against all three proposals.
Shareholders also will consider a separate resolution that would prohibit the company from offering health-care benefits to domestic partners of gay employees and another resolution that would separate the job of chairman and chief executive officer. Ford has been a target of late for "anti-gay" activists, who have also attacked the company's decision to advertise in gay publications. Evangelical Christian organizers of a boycott of Ford due to its support of gay media have recently taken credit for Ford's falling market share and stock price.
But frankly, given the breadth of Ford's problems and challenges, there's plenty of blame to go around.