Sunday, September 17, 2006

Has Anybody Driven a Ford Lately?


...one of the biggest changes I've seen as a result of the Way Forward plan is a new culture of candor and honesty in both our decision-making and our communications. We remain dedicated to honest, open, two-way communications throughout the business even when we have tough news to deliver. And today is no exception.


So began Friday’s conference call held by the Ford Motor bigs charged with turning around the company that Ford family management has done their inadvertent best to drive into the ground.

The “honest, open, two-way communications” did not appear to make Wall Street’s Finest feel any better: Ford’s stock dropped as soon as the market opened midway through the call, and continued dropping, especially when the Q&A session began.

Ford stock finished the day down just over a buck a share on nearly two hundred million shares traded. Now, a buck may not seem like much until you consider there are only eight more of those to go before the stock reaches zero.

“Open” and “honest” management may be, Ford shareholders would probably take “ruthless” and “hard-nosed” any day.

I should make clear that “Way Forward” is the appellation given to the restructuring plan introduced by then-CEO Bill Ford early this year—a clever publication relations means of spinning a large, ugly restructuring plan into a kind of rallying cry.


After all, “Way Forward” certainly sounds more upbeat than other, possibly closer-to-the-truth alternatives, such as, for example, “Failure is Not an Option at This Juncture.” Or my own personal favorite twist on the kind of sappy, eye-rolling motivational slogans you see on posters near the vending machines of cubicle-oppressed drones, which is “If at First You Don’t Succeed, Skydiving is Not for You.”

But I digress.

After noting “a lot has changed since January,” Ford's President of the Americas, Mark Fields, delivered a laundry list of issues leading to Friday's updated “Way Forward” plan, the first being gasoline prices:

In April, gas prices rose $0.40 a gallon to $2.90 and they hit $3.00 a gallon this summer, the first time since Hurricane Katrina. This triggered an acceleration in demand away from less fuel efficient vehicles and it hit the full-size pickups, our bread and butter, particularly hard.

A cynic might note that Hurricane Katrina and $3.00 gas occurred before the first Way Forward plan. Furthermore, our cynic might note gasoline prices have collapsed lately, thanks to the resumption of refinery capacity taken offline for maintenance earlier this year precisely at the same time the summer driving season is winding down.


Nevertheless, Fields moved on to the second burden:

In addition to gas prices commodity costs are up substantially this year. That has put even more pressure on the business. Rhodium and copper are up about 60%. Platinum and palladium are up about 30%. And steel has risen another 15%.

Our cynic might note here that prices for rhodium and copper, as well platinum, palladium and steel, have presumably risen for every car maker, not just Ford.


Nevertheless, so far, it all seemed clear to this listener until Mr. Fields put forth an analysis of changing automobile demand patterns supposedly being caused by the aging of us Baby Boomers.

See if you can spot the non-sequitur in Mr. Fields' speech:

Added to this are the demographic changes that will accelerate over the next decade and dramatically affect the types of vehicles we produce.

Just as the largest buying groups, baby boomers, are downsizing every other aspect of their lives, including their homes, they are moving to smaller cars, crossovers, small SUVs and small premium utilities.

Does anybody out there besides Mr. Fields see baby boomers “downsizing every other aspect of their lives, including their homes”?

I see tiny 2,000 square-foot Colonials on half-acre lots being bulldozed and replaced with 6,000 square-foot McMansions, cathedral-ceilinged and three-car-garaged to boot. I see boomers whose parents rented beach cottages by the day buying, leveling and supersizing those cottages for their weekend getaways. I see Starbucks serving espresso drinks in twenty-ounce "Vente" cups instead of Greek diners serving plain old coffee in six-ounce cups.

And I see zero evidence that Baby Boomers are practicing anything remotely close to the ascetic behavior Ford Motor puts forth in order to justify doing what they should have been doing when oil prices broke above the $40-a-barrel all-time-record a few years back: which was building quality, fuel-efficient cars instead of bigger trucks.

Still, the hands-down strangest part of the conference call came at the end of the company's presentation and before the Q&A, after
Mr. Fields had tried to impart to Wall Street’s Finest the company’s sense of urgency:

Now, to be clear, a lot has changed since January. And it's required us to take another look at the industry and our business in light of the significant changes we've seen externally. The conclusion has been very clear -- we need to go further and faster and accelerate our pace.

Yet after the company’s presentation a Ford Investor Relations came on to announce the following:


“We’ll now take a short break for 10 minutes and then will begin the Q&A session.”

A ten minute break in the middle of a crisis-induced conference call! I am not making that up.

Maybe they needed a vente espresso to get through the Q&A.


Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

12 comments:

RichL said...

The GM restructuring calls last year was substantially different than the F call. The F call was remarkably light on numbers, while with GM there was a plan to deal with legacy liabilities. There was great skepticism voiced after the GM calls, but at least there was a plan to reduce liabilities. Ford didn't present any roadmap that quantifies the effect of their plans.

Just as important, GM has cars that sell, and Lutz has a good lineup of new product coming up. I'm not aware of similar revenue potential at Ford. GM is also an important producer of cars in China. For those people looking at Ford's restructuring as analogous to GM, there is currently no comparison.

Michael said...

Trade journal Automotive News reports Mondya that GM and Ford have disussed a merger or possible alliance:

Story here: http://biz.yahoo.com/ap/060918/gm_ford.html?.v=8

OldLineYankee said...

I was puzzled by the connection between the world changing since "The Way Forward" started in January and the analysis of the aging Baby Boomers. The aging of the Baby Boomers is a trend that has been occuring for 50 years. Even a Ford marketing genius should have been aware of that trend in January.

Chris Fischer said...

I still think it is just a matter of time before Ford and GM declare bankruptcy.. I don't know what the time period is, and it could be a long one - but I think the real issue here is that GM and Ford produce inferior products. Every time I rent a car, it's like a 3 day anti-commerical for American vehicles - I'd rather drive the 1993 Honda Civic that I drove back in college that my folks still have and use as an emergency vehicle (how many people have 14 year old American cars that still run?) Very feel people in my age range that I know (late 20's) is interested in any kind of American car.

One guy I work with, a real die-hard pro-American, recently replaced his aging Ford truck with a Nissan Titan, which surprised me because he was talking about the buying the new Ford F-150. So I asked him why he went with the Nissan - his response - "I test drove them both."

Dress up the issue on a conference call however you'd like, and back it up with all of the irrelevant data you can, (GM tops JD Powers initial quality yada yada) but I think the real, core issue here is that no one is interested in American autos.

burton said...

Chris Fisher asked, "how many people have 14 year old American cars that still run?" I have a 1992 Ford Explorer that I use every workday to get to the train station. Japanese brands like Honda and Toyota do enjoy a well-deserved reputation for superior quality versus domestic manufacturers. But the media, in my opinion, has exaggerated that quality gap.

Chris Fisher stated, "Very feel [sic] people in my age range that I know (late 20's) is interested in any kind of American car." I don't know where you live, but I'll venture a guess that you live on one of the coasts. Drive on the interstate in any mid-western state -- not just big domestic car producing states -- and you'll be struck by how few foreign cars you see.

Chris Fisher also stated "I think the real, core issue here is that no one is interested in American autos." Over 2,000,000 Ford F-series, Chevy Silverado and Dodge Ram pickups were sold in 2005. Those domestic pickup models accounted for three of the four bestselling vehicles in the U.S. in 2005. Sounds like someone is interested in American autos.

Ryan said...

GM and Ford both have numerous problems.

But, for now, the least of them is selling cars as some here suggest.

GM, worldwide, sells more cars then Toyota. Yes, the trend is going against them and at some point Toyota will surpass them.

However, as we sit here today, more people choose to buy a GM product then any other product.

Hence the biggest issue confronting GM and Ford is cost, cost, and cost.

I live in Michigan and am involved in the auto industry.

GM and Ford are horrible to deal with and have been abusive with their supplier base for too many years.

Die hard 'Buy American' Tool & Die shops from yester-year now desire to do work with Toyota.

Things are going to come home to roost as the supplier base begins to have some power swing their way.

GM, Ford, and their unions have survived this long by being heavy-handed with their suppliers.

This game is coming to an end. And, unfortunately for all involved, I don't think the unions or (current) management teams have the backbone to make the tough choices.

Things will get much, much uglier as everyone else is to blame for their predicament.

Fixing costs is 'easier' in a sense then fixing design (which is an issue, of course). The fact that they've been unable to fix the obvious shouldn't give anyone the warm-fuzzies about how they'll tackle the tougher choices.

DaleW said...

Trade journal Automotive News reports Mondya that GM and Ford have disussed a merger or possible alliance:

This sounds like a nightmare from the perspective of working out seniority in the white collar and production ranks on consolidating these two companies. I would think you'd have turmoil on that level for a couple years, plus it's ridiculous to think there's more to squeeze out of the supplier base. This is a boneheaded idea that probably came from the Ford side, which was hopefully rejected by the GM board.

Sounds like more milquetoast out of Ford from Richl's comments. The Bill Ford NYT piece earlier this year was unbelievable -- so much CYA and I-told-you-so it's not surprising the lack of hard-nosed business focus continues.

karl_keller said...

In the last 8 years I have purchased three cars made in America -- they were made in Maryville, Ohio.

By Honda.

I will never by a car made by GM or Ford. Ever. They never lost me as a customer...they never had to me to begin with.

Chris Fischer said...

Burton,

Yes, I do live on a coast (the east.) You've basically summarized what most people know - the that midwest is the last place American cars still have a strong foothold.

As an Engineer, I feel American cars are at least a decade behind in refinement. I'm reminded of this every time I rent one.

"Over 2,000,000 Ford F-series, Chevy Silverado and Dodge Ram pickups were sold in 2005. Those domestic pickup models accounted for three of the four bestselling vehicles in the U.S. in 2005. Sounds like someone is interested in American autos. "

That's nice. GM's seen its market share shrink from 35.5 in 1990 to 27.3 in 2005, Ford has gone from 23.9 to 18.3. This is even after Ford and GM have thrown the consumer every discount imaginable making the domestics comparitively cheaper.

I'm glad you used truck sales as your counterpoint. July sales of the Ford trucks, including the F-150 plunged 44.8%, at GM, 31.2%. ( http://www.cbsnews.com/stories/2006/08/01/business/main1857572.shtml ) Overall, Ford sales are off 26% and GM's are off 21% (compare to a 9% GAIN for Toyota and a 1% gain for Honda. - http://www.theautochannel.com/news/2006/07/27/016114.html ) This is with toyota is just starting to go after the lucrative truck market.

Even the midwest is bound to catch on sooner or later.

Aaron Koral said...

"Maybe they needed a vente espresso to get through the Q&A."

Considering the lines I'm seeing at Starbucks on a daily basis, I could see why those Ford execs would need a ten minute break for vente expressos!!

J Wong said...

Chris, I rent a lot of cars too. The difference is plain to see if you drive a Ford Five Hundred and a Chevy Impala back to back. Ford has a problem with product. The engineers on the Five Hundred drivetrain team should be fired. Granted the Five Hundred does have a slight edge on packaging. Look at the Freestar van, horrible product rename it Freefall.

ASG said...

The Germans have figured out that a) selling cars to rich folk is better than selling to the poor and b) America is a continent and selling in FL, TX, NY (Wash/Bos corridor) and CA is enough to get the unit economics that allow for good profits. They make great products (and great products = great stock prices if costs are under control)! They havent figured out yet how to implement in these states the world class service that exists in Germany & Europe, but they will.

Just wait and see what happens when F/GM try to integrate electronic transmissions and electronic braking systems into their cars. The worst thing that could happen to F/GM is an increase in speed limits to 75/120km. Then we'll see how crap their products are. (I mean who's ever heard of a BMW SUV rolling over!)