Tuesday, May 30, 2017

Out With The Old, In With The New: My Take On the Firing of Mark Fields

Alexander Carabitses

Unless you live in a cave, you are probably already aware of the fact that Mark Fields, the CEO of the Ford Motor Company, lost his job last week and was replaced by Jim Hackett, the former athletic director of the University of Michigan, the former CEO of Steelcase (an office furniture company), and the former director of Ford's Smart Mobility subsidiary.
(Image credited to Ford)

The automotive analyst community has pointed to a number of things as being the cause for Fields' firing, such as his poor relationship with the company's chairman, Bill Ford Jr., while former auto industry executive, Bob Lutz, has said that he didn't have the spunk needed by the modern CEO.  In other words, he wasn't the Elon Musk type, the kind of guy who would make bold statements about future plans, that in turn place the company on the map and win favor with the investment community.  Finally, they say that poor earnings for three consecutive years, combined with a lack of all new products (not mid-cycle refreshes) lead to his firing.

However, the best fact-based theory I've heard is that despite communicating his desires to make Ford both an automotive company and a mobility company on nearly every occasion (even through the use of a Super Bowl commercial earlier this year), Fields never presented investors with a solid business case regarding his plans.  If you read my What is the Future of the Auto Show post, you may remember me saying that the investment community treats car companies poorly, as they expect to see returns on their investments right away, and for that reason these car companies are trying to convince investors that they are also sort of like tech companies.  Tesla is an example of a car company that has managed to convince the world that it is more of a tech company than a car company, and by doing so, its stock value has become inflated beyond belief, meaning that Elon Musk can obtain cost-free capital for many years to come without ever making a profit.

Mark Fields and Ford could not get away with this.  Remember that Ford is investing a lot of money in future mobility technology, which is reaping away at Ford's potential profits.  Perhaps if a business plan was put in place and presented to investors, they would be convinced to have patience with the company, while also selling them on the idea that Ford is both an automotive company and a tech company.  My only hope is that appointing the former head of Ford's Smart Mobility subsidiary as CEO will allow for such a business plan to be put together and presented to investors.  Maybe the mentality is that that the guy who was in charge of the operation, to begin with, has a better chance of making the plan seem viable to investors.  If this doesn't happen, the promotion will be completely foolish, especially when once considers that Hackett has no previous experience in the automotive industry (although his subordinates will surely educate him). Speaking of foolishness, also keep this other point in mind as well: How will investors react to the fact the man who was in charge of the operation that squandered Ford's profits, to begin with, is now in charge of the entire company?
(Image credited to Ford)

Another thing that analysts feel didn't help Fields was the fact that his company fell behind in the development of future technology, despite its head start.  Remember, GM has the Chevy Bolt, Maven (the company's in-house car-sharing service), Super Cruise (a partial automation system on Cadillacs), and Cruise Automation (a GM subsidiary that is testing autonomous Bolt EVs on the streets of California).  Ford has autonomous Ford Fusions testing on the company's campus, no partial autonomous system, and someone needs to let me know if they have a car sharing service because if there is, I'm not aware of it.  All Ford has is Chariot (Ford's foray into mass transit using Transit vans) and a bike sharing service.  How is it that the company, despite its jump start, fell so far behind? In many ways, I think this makes the business case an even harder sell for investors, especially when they look at what GM has managed to do in such little time.  And how has GM allocated the capital for such massive investments, while also posting increased earnings?  Simply put, they got out of all the markets that they were losing money in.  Russia, Indonesia, South Africa, and India are history, although GM still manufactures in India.
(Image credited to Ford)

 Ford would be foolish not to do the exact same thing, as that is the only way to free up capital for investment in these future technologies.  When investors see a company's earnings going into something that they view as untried and untrue, it raises red flags, but if it is possible to bolster earnings while also investing in the future, I doubt anyone will give Ford a lot of flack, especially with the Ford family still at the helm.

At any rate, I wish Hackett the best in his new position and I wish Fields the best in his early retirement.  Hopefully, Hacket makes the right decisions that steer Ford towards profitability, without losing sight of the future.  Thank you for reading and have a good week.

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