Facing a falling stock price, Ford signals its willing to make big adjustments

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Ford is reportedly going to cut 10% of its global workforce. This comes after mounting pressure from shareholders after the a slow start to 2017. Jose Sepulveda(@josesepulvedatv) has more.
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Ford, saddled with a corporate strategy that has failed to ignite investor confidence, is sending signals to Wall Street that it’s willing to make big changes to adapt to tougher market conditions and is said to be considering a plan to cut its global workforce by 10%.

That news of pending job cuts comes after a busy stretch of days for the Dearborn automaker, which held its annual meeting with shareholders on Thursday and met with Wall Street analysts on Friday. On Monday, the Wall Street Journal reported that Ford is poised to announce a plan in the coming days that will mostly target salaried workers.

Morgan Stanley analyst Adam Jonas said pressure is mounting on Ford CEO Mark Fields because he has failed to outline a business plan that has the clarity of his predecessor, Alan Mulally, who steered Ford through the recession with his simple, “One Ford” plan.

“After a recent breakfast with Ford CEO Mark Fields, we are left with the impression of a company that is not at all satisfied with its share price performance, aware of the challenges facing the business, and actively pursuing alternative ways to take advantage of opportunities that could narrow the value gap,” Jonas said.

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Jonas said Ford appears to be considering major strategic changes including:

  • Scaling back production of cars as consumers continue to gravitate towards crossovers, SUVS and pickups.
  • Paying down its debt so it has a bigger cash cushion going as the U.S. auto industry heads into a period of slower new vehicle sales.
  • A willingness to exit businesses or parts of the world, such as India, where the automaker is underperforming.
  • Creating new companies or new lies of business so it is better positioned to be a big player in autonomous vehicles and the ridesharing business. Ford has already made big moves in this arena, with the creation of Ford Smart Mobility and a commitment to launch a fully autonomous vehicle by 2021 but it may become even more aggressive, Jonas said.

According to the Wall Street Journal, Ford is poised to outline a plan to cut jobs globally as early as this week. Ford employs about 200,000 employees globally and about 85,000 workers in the U.S. In the U.S., about 30,000 of those workers are salaried while about 55,000 are hourly. That means a job cut plan aimed at 10% of the company’s salaried workers in the U.S. would add up to about 3,000.

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Ford today did not deny the Wall Street Journal report but said the automaker will announce a plan in the coming days.

In a statement ,Ford emphasized its commitment to “transforming underperforming areas of our core business and investing aggressively, but prudently, in emerging opportunities.”

Evercore ISI analyst Arndt Ellinghorst said investors would likely welcome a move by Ford to take decisive action to cut costs.

“It isn’t clear whether any potential job cuts would be part of the already announced cost savings target of $3 billion for 2017, which is part of Ford’s plan to increase profitability in 2018,” Ellinghorst said.

Executive Chairman Bill Ford told shareholders last week that the company isn’t happy with the company’s falling stock price, which has dropped 17% since January. 

“Look, we’re as frustrated as you are by the stock price,” Ford said. “And a couple of people have said, ‘Well, does the Ford family care about the stock price?’ The short answer is yes, a lot.  Much of our — most of our net worth is tied up in the company.  And the stock price matters a lot to us.”

Historically, Wall Street doesn’t give automakers much credit for making billions during boom times and fails to see promise in their long term plans. That dynamic is playing out again, according to Barclays’s analyst Brian Johnson, who argues Ford’s “unsplashy strategy should be appreciated.”

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Ford, as well as General Motors, also recently suffered the embarrassment of being passed in total market value by Tesla Motors. 

Founded by serial entrepreneur Elon Musk, Tesla has captured the imagination of Wall Street even as his company continues to lose money. Tesla, for example, lost $397.2 million during the first three months of the year while Ford earned a profit of $1.6 billion.

“It’s been a tough go for Ford stock, but hopefully some of its unsplashy actions can lead to better stock performance,” Johnson said. “In our view Ford’s stock has suffered from both a lack of a ‘Tweet’-worthy EV (electric vehicle) / AV (autonomous vehicle) strategy and a string of disappointing earnings and guidance.”

Johnson gives Ford credit for an autonomous vehicle strategy that he says is underappreciated.

Earlier this year Ford said it plans to invest $1 billion to buy artificial intelligence startup Argo AI and use that company to recruit some of the industry’s best experts for the software needed for driverless cars.

“Ford has a solid, workman-like AV/EV strategy, as opposed to making Twitter claims around full autonomy and electric trucks, or making large Silicon Valley acquisitions,” Jonson said.

Ford isn’t alone in its struggle to earn respect from Wall Street.

GM, which also has been earning billions annually in recent years, is locked in a major battle with activist investor David Einhorn. Einhorn complains that GM has a “stagnant” stock price and is urging shareholders to vote in favor of a plan to split its shares into two classes of stock.

Meanwhile, Fiat Chrysler Automobiles also faces a tough challenge over the next 18 months as it reaches the end of a five-year strategic plan laid out in 2014 by CEO Sergio Marchionne. FCA also is in the middle of realigning nearly its entire North American production plan as it shifts the location of where it assembles many of its most popular SUVs and pickups.

Contact Brent Snavely: 313-222-6512 or bsnavely@freepress.com. Follow him on Twitter @BrentSnavely.

 

 

 

 

 


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