- Ford’s Chairman proposed a new tight-lipped policy toward investors.
- His comments highlighted a tension between what Wall Street wants from established carmakers and how those companies actually want to run their businesses.
- Ford’s advantage is that it has been steadily profitable for years and has considerable resources to control its own destiny.
On Tuesday, Ford Chairman Bill Ford put Wall Street on notice.
“This is a very competitive world we’re in,” he said in Detroit, according to Bloomberg’s Jamie Butters. “You want to give Wall Street enough information, but you also don’t want to telegraph exactly where you’re going.”
It was the chairman’s version of what President Gerald Ford was erroneously reported to have said to New York City during it 1970s bankruptcy.
Historical humour aside, the upshot is that Ford isn’t going to detail its future plans as thoroughly as everyone thought it was after CEO Mark Fields was ousted in favour of Jim Hackett, who had been running Ford’s Smart Mobility division and was, as former Ford board member, tight with Bill Ford.
But in many ways, Ford was simply voicing the way that old-line auto-industry people think of the financial world.
Detroit’s frustration with Wall Street dates back to the financial crisis when both General Motors and Chrysler were bailed out by the federal government before plunging into bankruptcy. The Treasury effectively nationalized the carmakers for a few years, but wrote insolvent banks a blank check.
Ford avoided that fate because CEO Alan Mulally presciently borrowed billions before the bottom fell out. But Ford also took its lumps; the stock fell to less than $US2 at one point.
The US auto industry has rebounded impressively, but it still can get respect from Wall Street. GM shares have languished literally for years and have only recently surged past the carmaker’s 2010 IPO price of $US33 per share, as the company has caught investors attention for it self-driving-car and electric-vehicle plans.
Fiat Chrysler Automobiles has also recently seen shares pop, but that’s because CEO Sergio Marchionne is talking about breaking the company up, possibly staging a Maserati IPO to follow up on his successful Ferrari spinoff in 2015.
Needless restructuring, new stories
Ford has beaten analysts’ expectations for the bottom line three quarters in a row in 2017 and has a money-printing machine called the F-Series pickups, but that didn’t stop Morgan Stanley’s Adam Jonas — Wall Street’s resident futurist — from painting Ford as a company in such crisis that it needs to be massively restructured.
Bill Ford’s new policy of tight-lipped-ness isn’t surprising. Hackett’s job as CEO was to recast Ford’s narrative in a way that would get the stock up in a market that’s seen indexes hitting new highs while Ford is actually down over 2% for the year.
That bump understandably didn’t materialise when Hackett gave a presentation to investors in early October that was fascinating but also lacking in specifics, beyond stressing that Ford wasn’t happy with its long-term 6% operating margin and is planning to undertake some substantial cost-cutting.
Bill Ford’s reaction to the still-lagging stock price was to say that Ford is going to take its toys and go home. The risk for Wall Street is that Ford might have some pretty cool toys — the carmaker has nearly $US40 billion in cash to spend on new businesses and acquisitions, and while profits might not be a healthy as Hackett might like, the pickups and SUVs are going to keep the money flowing in.
Short-term thinking versus real profits
Short-term thinking on Wall Street hasn’t really hurt Detroit’s core business of building and selling vehicles to global consumers who, for the most part, have been delighted to buy.
But it has put enormous pressure on management teams, forcing bankers like Marchionne, engineers like GM CEO Mary Barra, and deep thinkers like Hackett to pretend that they think electric cars are going to wipe out the internal-combustion engine, and that autonomous vehicles are going to end personal vehicle ownership.
In this context, Uber’s $US60-billion-plus pre-IPO valuation and Tesla’s unfathomable run-up to a $US60-billion market cap on sales of less than 100,000 cars in 2016 are catastrophes. Detroit has always dealt in dreams, but the auto industry is closely tied to facts: if it doesn’t make money and sock in cash to ride out downturns, it’s in trouble. All the storytelling in the world can’t alter that.
“This could all go away”
A now-retired PR man who spent almost most three decades at Ford recounted to me a story about Alan Mulally that sums the situation up very well (I used it for a book I wrote about Ford that came out this past June).
Mulally explained that from his office in Dearborn, MI, he could see GM’s headquarters in downtown Detroit and FCA’s in Auburn Hills. He liked this because he could keep an eye in the competition, quite literally. But he also did it because he liked to remind himself that “this could all go away.”
The frustration that Detroit feels toward Wall Street is, to a degree, reciprocated. Late in an auto sales cycle, with tales of Silicon Valley “disruption” thick on the ground, investors desperately want Detroit to play along with the game.
They point to Tesla CEO Elon Musk, who will preside over what’s likely to be another gigantic quarterly loss on Wednesday and whose company is struggling to build a mid-size sedan, and they ask that Ford just talk the talk.
But Detroit isn’t going to do that, and if Bill Ford is to be believed, Wall Street is going to have to learn to love the silence.
Get the latest Ford stock price here.
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