•The reality of the car business is at odds with widespread chatter about it disruption.
•Ford CEO Mark Fields wasn’t ousted because Ford is lagging Silicon Valley.
•Storytelling has overwhelmed profitability in the auto industry.
Objectively, the US auto industry is in great shape. Sales records were set in 2015 and 2016, and the Detroit Big Three — General Motors, Ford, and Fiat Chrysler Automobiles — have been setting record profits as Americans buy pickups and SUVs.
Even profitless, low-volume Tesla deserves a huge amount of credit for validating a market for all-electric vehicles. And for what it’s worth, just about every other carmaker besides crisis-besieged Volkswagen has been riding high the past three years.
The news on Monday that Ford was firing its quite successful CEO, Mark Fields, has set off a widespread round of cravings for explanations — and fretting about the alleged threats to the major automakers from new players in Silicon Valley, most of which are younger than Tesla (Elon Musk’s company has been around for 13 years).
The story being circulated is that Fields was ousted because he couldn’t organise a strategic vision to combat the tech industry — the Ubers and Waymos of the world, not to mention whatever Apple might be up to. This is flatly wrong. Fields was ousted because Ford’s stock price dropped 40% under his tenure. It makes no sense that it dropped, but it did. Ford is a family business, and the family couldn’t tolerate a stock slide.
Cravings for a bigger story
The obvious explanation hasn’t satisfied various commenters who are looking for a bigger story. Ford’s new CEO, Jim Hackett, who formerly ran Steelcase and had been in charge of Ford Smart Mobility, is being portrayed as a leader who will decisively move Ford away from its old business to embrace the new, in a more dynamic fashion than Fields, who was trying to run both the new business and the old.
I talked at length with both Hackett and Ford Chairman Bill Ford at the Detroit Auto Show earlier this year, and both men are in close alignment when it comes to Ford’s more futuristic ambitions. Hackett has been characterised as an outside-the-box thinker with a down-to-earth managerial sense, and I’d say that’s an accurate assessment. In our conversation, he outlined some ideas that were more far-reaching than anything I’ve heard or seen yet from Silicon Valley.
If anything, Hackett might be a bit too out-there, and I think that’s why Ford promoted a pair of seasoned executives, Joe Hinrichs and Jim Farley, to run the day-to-day car business and retained CFO Bob Shanks to handle relations with Wall Street.
Unfortunately for people trying to figure out what all this means, there’s a lot of chatter emanating from sources that have limited experience with the realities of the present-day car business and are captivated by Tesla’s rise — its market cap now tops both Ford and GM — and the self-driving dreams represented by Google’s self-driving car division (now Waymo) and Uber’s once exciting, but now politically tattered autonomous ride-hailing experiment in Pittsburgh.
Falling for a fallacy
They’re falling for a fallacy: these new businesses must be superior to the old, because they’re new. This analysis, of course, overlooks the gaping expertise gap that any of the Silicon Valley “disruptors” exhibit: they have all decided that building and marketing actual cars is a crummy business — even Tesla has found it to be monumentally challenging.
Thus, there’s been a web of pivots: Silicon Valley has collectively decided not to wipe out Detroit; instead, the tech industry will create the software-enabled systems that will turbocharge self-driving, ride-sharing, and big data harvesting.
This has led to an alarming proliferation of fake news about the impending demise of the traditional car business, even as the traditional car businesses sold 34 million vehicles in the US alone over the last two years (Tesla sold about 150,000). The analogy has come fast and furious: the carmakers are like Kodak when digital photography arrived, or like Blackberry and Nokia when the iPhone hit.
Cars aren’t mobile phones
This is a false equivalence. Relatively inexpensive consumer technologies are easily disrupted. Very expensive industrial products, like cars, aren’t. It’s been obvious for years now that no major disruption of the auto industry is going to take place. Tesla has had over a decade to engineer the revolution and will be lucky to sell 200,000 cars in 2017. Silicon Valley now has designs on remaking the software experience of the automobile, not the automobile itself. Cars aren’t the horses of the 21st century.
Even Musk has given up on radical reinventions: his electric cars have four wheels and four doors — his new obsession is with remaking the manufacturing process, using much greater levels of automation, an imperative given that he wants to increase production ten times in two years.
The darker story here is that Hackett is now in charge at Ford because Ford saw Tesla sell a narrative to investors that generated a near-magical 50% increase in the stock price this year. Tesla spends effectively zero on advertising, struggles to build as many cars in a year as Ford builds in a month, has been beset with production delays and large recalls, is fuelled by Musk’s Twitter feed, and has some analysts saying it could be worth vastly more tomorrow than it is today.
As with Tesla, media scepticism about the narrative has been skimpy. But storytelling can be exceptionally cheap when compared with the gigantic costs of developing and marketing new vehicles and transportation services. When Detroit was on its back after the financial crisis, tech enthusiasts were obsessed with electric cars, but EV sales have been epically disappointing and all the new players, Tesla excluded, have mostly vanished.
Frustration with a lack of change
Traditional carmakers have offered a steady cadence of new EV reveals and concept cars, but unless the Chinese government lends massive support to the electrification of China’s vehicle market — which could be twice as large as the market in the US — few of these concepts will ever hit the streets. Consumers already have various quasi-electric vehicles to choose from, and GM is selling a car, the Bolt, that has the same specs and capabilities of Tesla’s forthcoming Model 3. Yet, even the transitional hybrid technologies have made scarcely a dent in the dominance of the internal combustion engine.
The frustration of the futurists isn’t hard to understand. Media and information technology have undergone a spectacular change in the past 30 years, making a cadre of naturally futuristic people very, very rich. And yet, developed economies have delivered sluggish growth, while “innovation” in other areas, mainly finance, has proven to be systemically bogus and, as in the financial crisis, dangerous.
It makes sense that the change-obsessed would look to the industrial and commodity economy — and especially transportation and energy — to move the needle. For what its worth, Silicon Valley also needs new pathways for growth. Computers, software, and communications technology have plateaued, and social media and search rely on advertising. Transportation is a multi-trillion-dollar opportunity that still runs on systems invented a hundred years ago.
But cars are hard. Nobody knows this better than the auto industry, and that’s why if anything there’s a greater appetite for creative destruction in Detroit than in Silicon Valley. Uber CEO Travis Kalanick has been a walking PR disaster for months and Musk has been talking down Tesla’s stock price. But unlike with Fields, nobody is seriously considering getting rid of either of them.
The worrisome thing is that in its desire to create new business supported by the old while times are flush, Detroit is now feeding a story that at best is unreliable and at worse simply isn’t true.
This column does not necessarily reflect the opinion of Business Insider.
More from Matthew DeBord:
- There’s a simple reason 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)
Get the latest Ford stock price here.
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