Ford's CEO Confronts a Winding Road Toward Change

Ford's CEO Confronts a Winding Road Toward Change

Why you should care

Because Jim Hackett is trying to reinvent the American car.

A year is a long time in a car industry facing a once-in-a-century transformation. But it is a particularly long time at Ford.

Jim Hackett recently hit that length of tenure as chief executive of the U.S. carmaker, one of the toughest top jobs in the global auto industry — tough because investors largely view the company as lagging behind its global rivals in both profitability and preparation for a future when transportation is increasingly shared, electric-powered and driven by technology rather than people.

Many analysts, investors and industry insiders say it is too soon to tell whether Hackett can solve the problems inherited from ousted CEO Mark Fields: slimmer margins than crosstown rival General Motors, higher costs; an older product line; and less demonstrable progress on driverless cars.

But the verdict of Ford’s share price so far is clear: The stock has scarcely budged in the year since Hackett took over.

It was hovering at just above $11 per share when his appointment was announced and it closed at $11.51 on Friday. Over the same period, shares in GM rose 15 percent.

Speaking on the eve of his anniversary, Hackett told the Financial Times in an interview that he was “very happy” with the pace of transformation, adding: “We are ahead of where I thought we’d be and I project we will be ahead of our market,” including in areas such as driverless cars. “The delicate balance is to move fast enough to get confidence that the company is making progress but not so fast that you redesign things into failure.”

If his name was Elon Musk, they’d give him plenty of time.

Efraim Levy, CFRA

Hackett came to Ford with a résumé that included turning around Steelcase, the Michigan furniture-maker, and reinvigorating his alma mater’s football team at the University of Michigan. He has tried to make his mark on Ford by focusing on improving what he calls the company’s “fitness.” He has promised savings that will total $25.5 billion by 2022 — reducing costs by about 3 percent a year — and last month announced that Ford would pare its range of unprofitable saloon models to the bone in North America (see panel below). The aim is for almost 90 percent of the portfolio to be trucks, utilities and commercial vehicles by 2020, compared with about 70 percent now.

As a result, Ford projects it can reach its goal of achieving an adjusted earnings before interest and tax margin of 8 percent by 2020, two years earlier than previously anticipated.

Despite these announcements, much of Wall Street is still taking a wait-and-see approach. “We don’t have much to judge them on right now: There have been a lot of very high-level statements about the vision but it’s really way too soon to prove on execution. Investors we are talking to are starting to run out of patience,” says Adam Jonas, auto analyst at Morgan Stanley.

“There is still a perception in the investment community that they’re not moving fast enough and that investors need a better insight into plans for other reforms,” says George Galliers, an analyst at Evercore ISI who previously worked at Ford.

Other analysts and industry insiders say such criticisms are unfair. “The stock price was languishing even before he took office …  so I think it’s a little early for shareholders to be angry with him,” says David Whiston of Morningstar. “It’s the same story as last year when they got rid of Fields: They need more time.”

“If his name was Elon Musk, they’d give him plenty of time,” says Efraim Levy, automotive analyst at CFRA.

Ryan Brinkman at JPMorgan was encouraged by the recent news that Ford is abandoning several venerable saloon nameplates and, in the words of Bill Ford, the company’s executive chairman, “reinventing the American car.” Hackett promises that those cars will be just as affordable, for entry-level buyers, as saloons — though more profitable for the company.

The move was “significant in and of itself relative to its profit improvement potential,” Brinkman wrote in a recent research note, but “perhaps equally significant in another sense, in that it represents a willingness to form a marked break with the past and a commitment to out-of-the-box strategic thinking.”

He predicted that kind of thinking “is likely to be applied to other aspects of Ford’s business as well, including relative to the previously seemingly intractable problems of continued large losses in South America and often below cost of capital returns in Europe.”

Ford made clear during its first-quarter earnings call in April that all options were on the table for improving profitability. Hackett told the FT that he was “totally focused” on how to get Ford out of unprofitable parts of its business and “that includes vehicles and markets” — though its recent partnership with Mahindra in India means Ford may not exit that market soon.

Company insiders and industry veterans continue to compare Hackett unfavorably with Alan Mulally, the former Boeing executive who came to Ford at a time of crisis in 2006 and resuscitated the company. Within Ford, which is notoriously factious, his “One Ford” mantra united the warring parties and made them all pull in the same direction.

“One thing that Mulally did was he laid out a very simple and straightforward strategy and got everyone to buy into it overnight,” says one analyst. “Hackett hasn’t done that.”

Still, Mulally received mixed reviews after his first year as chief executive too, with Automotive News giving him only a grade of B. Even in the current atmosphere of rapid global change in the industry, a year may be not quite long enough.

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By Patti Waldmeir & Peter Campbell

OZY partners with the U.K.'s Financial Times to bring you premium analysis and features. © The Financial Times Limited 2018.

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