Brocker.Org: There’s a simple reason why Ford’s CEO was pushed out — and it has nothing to do with self-driving cars – Business Insider

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Ousted Ford CEO Mark
Fields.

Rebecca
Cook/Reuters


•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
skepticism 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 $300. 

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 $11.

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


elon musk
Tesla
CEO Elon Musk.


Maurizio
Pesce / Wikimedia Commons



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 $60 billion to $70-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.


Tesla Detroit sales vs market cap
Tesla is tiny, but it’s
worth more than Ford.

Andy
Kiersz/Business Insider


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 $50
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. Jim Hackett FordNew Ford CEO Jim
Hackett.
Ford

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 cozy 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.

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