•Ford’s stock declined 40% under CEO Mark Fields.
•The company was perceived as being late to the game with self-driving tech.
•But no clear business models have developed around the tech industry’s “disruption” of autos.
Mark Fields was ousted as CEO of Ford on Monday, not quite three years into his tenure. He was replaced by Jim Hackett, the former CEO of Steelcase who had been running Ford’s Smart Mobility initiative and enjoyed a close relationship with Ford’s Chairman, Bill Ford.
He was replaced by Jim Hackett, the former CEO of Steelcase who had been running Ford’s Smart Mobility initiative and enjoyed a close relationship with Ford’s Chairman, Bill Ford.
Two main explanations arise for Fields’ departure. First, Ford’s stock price decreased 40% from the time he took the job, even though US sales have boomed and Ford has posted record yearly profits.
Second, Ford is behind the curve on the Silicon Valley-led “disruption” of the traditional auto industry, a plight symbolized by Tesla’s rally this year, which has pushed its market cap higher than Ford’s and GM’s. Hackett is seen as having an affinity with the tech world, and that presumably foretells collaborations rather than confrontation. During a round of press conferences on Monday, Bill Ford repeatedly noted that when Hackett goes to Silicon Valley, he gets a lot of hugs and Ford as a company has been lauded for having him.
Explanation number one would be the result of Wall Street’s miscalculation of the durability of the recent US sales boom and scepticism about traditional automakers’ ability to sustain profits in an infamously capital-intensive business.
Explanation number two would be the result of a widespread assumption that Detroit is increasingly irrelevant and that in the future no one will own a car, and what cars do exist will be self-driving and powered by electricity.
Explanation number one is sort of depressing because it flies in the face of business fundamentals and highlights the investment community’s fecklessness. Tesla has rarely made money and is set to spend almost all of its cash this year to launch in all-electric, mass-market Model 3 vehicle at a time when consumer adoption of electric cars has been tepid (they make up only about 1% of global sales). Its stock is trading above $US300.
Ford has solidified its core products — highly profitable trucks and SUVs — and posted quarter after quarter in the black. Its stock is trading at about $US11.
Ford is a family business, and the family needs the stock to perform well during market surges. That didn’t happen under Fields, and so a change had to come. That’s the simplest explanation for why he’s leaving Ford after almost 30 years — and the correct one.
The Silicon Valley bet is sexy but wrong
The Silicon Valley explanation is sexier but completely wrong. Since Tesla’s ascent as a wildly volatile investment opportunity began in 2013, we’ve repeatedly been told that the auto industry is about to be rapidly remade by technology.
Initially, the action was all about electric cars, but they have largely been a bust. Tesla occupies a market of one.
Uber and its $US60 billion to $US70-billion valuation lent credence to the oft-debated notion that younger people would swear off driving and car ownership. But young people are now getting older and buying more cars. Uber is also in a state of near-continual crisis, and it’s wasted an enormous amount of cash trying to being that thing Silicon Valley prizes above all else: an uncontested monopoly. Lyft, unfortunately, hasn’t cooperated.
The third narrative pivot involved self-driving cars. This has been the latest gold rush, but if Fields lost his job because Ford couldn’t figure out how to effectively communicate its efforts in this space, then we should really take a closer look at Silicon Valley’s almost total inability to create any kind of logical business case around autonomy.
Google’s self-driving podmobiles have been racking up miles, but as promising as the tech looks, its no closer to being widely commercialized than it was before Alphabet renamed its car business Waymo. Apple has ditched its own car plans and now appears to be developing some kind of in-vehicle, self-driving interface. If there’s a go-to-market, it’s years off.
A lot of people think there’s a business with this stuff, but thus far, there just isn’t.
Living in fear
That doesn’t meant Detroit isn’t living in fear. The US auto industry was traumatized by the financial crisis and the bankruptcies of General Motors and Chrysler. The plunge to 10-million in annual vehicle sales coupled with a spike in gas prices from 2008-2010 made matters worse. And for a decade, the story has been that the tech industry is coming to eat the car business, even as Tesla has lost billions and no one else has marketed the prophesized mobility revolution.
The bottom line is that Fields wasn’t going to be able to get the stock price up; it’s too late in the US sales cycle for Wall Street to change its tune. Ford looked at the Tesla phenomenon, where a visionary CEO and a very big story became worth $US50 billion, and the 100-plus-year-old carmaker decided that it wanted some of that action.
That’s basically Hackett’s entire job: to be a high-tech turnaround storyteller. A pair of experienced Ford executives, Joe Hinrichs and Jim Farley, will run the actual car business. CEO Bob Shanks is staying on to oversee the narrative of steady profits. Bill Ford will deal with Donald Trump and the fallout from the inevitable layoffs that Ford will have to undertake as the cycle turns. Ford and Hackett will also join forces to push forward the more futuristic aspects of the Ford story, something that Bill Ford has been doing for a while.
Wall Street isn’t going to buy this story anymore post-Fields than it did before. But for now, Ford is paying a 5.5% dividend, so the stock has value for conservative investors. And Ford may start to emulate GM and consider exiting markets where it spending a lot to get a marginal return, although that strategy could intensify the company’s dependence on the US market.
Ford could cosy up to Silicon Valley more than it already has, but the tech industry is quick to abandon whatever shiny new thing is its transformational preoccupation of the moment. The worrisome trend is that tech companies and startups keep attacking and abandoning transportation dreams. Cars are far too complicated to be the next iPhone. So tech companies have shifted away from building them to instead connecting vehicles so people are never offline.
It’s possible that the long-anticipated auto-sales downturn could correct all this. Tech titans will see a contracted market and conclude that it doesn’t want to play that game. Detroit will do what it does well, which is manage its business when sales weaken, preparing for a recovery and for the sequence to reset.
However, a downturn doesn’t really look imminent. So although Fields wasn’t fired because he couldn’t tell a good story, Hackett will get the chance to tell a better one. And he is a pretty good storyteller.
This column does not necessarily reflect the opinion of Business Insider.
More from Matthew DeBord:
- There’s a simple reason why Ford’s CEO was pushed out — and it has nothing to do with self-driving cars (F, TSLA, AAPL, GOOG)
- Ford’s new CEO will have to tell Wall Street a different story (F, TSLA, AAPL, GOOG)
- Ford is no longer just a car company (F)
- Morgan Stanley thinks things at Ford could get worse before they get better (F, TSLA)
- Ford just fired its CEO — and the stock price is going nowhere (F, TSLA, AAPL, GOOG)
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