Ford's (NYSE:F) stock trailed General Motors (NYSE:GM) last year despite an extremely successful 2016 sales year. Former CEO Mark Fields was unable to sell the vision of Ford as a forward-thinking mobility company, and the board ousted him. Incoming CEO Jim Hackett is seen as a visionary who can drag Ford from its traditional auto-manufacturing roots toward an electric-focused, connected future.
In this episode of Industry Focus: Energy, show host Sarah Priestley and Motley Fool contributor and senior auto specialist John Rosevear discuss Ford's rocky 2017 and how the board's moves will affect the company in the coming year.
A full transcript follows the video.
This video was recorded on Jan. 11, 2018.
Sarah Priestley: GM and Ford, two of the big Detroit 3, as they're often called, which are GM, Ford, and Fiat Chrysler. Last year, GM dominated the market with a little over 19% market share. Ford came in second with 15%. And actually, Toyota was a close third with almost 14%. So we have a tale of two halves here. Last 12 months, GM's stock is up 16%, Ford lags behind at just 1.6%. Let's start with Ford, John, the only U.S. automaker to post year-over-year sales gains last month, but profitability-wise, they're not doing so well. What were the highlights, lowlights, of 2017 for them?
John Rosevear: Last January, last year, it'll be a year ago from next week, Ford's management came out and said, "Here's our guidance for 2017. Our profits are going to be down this year. We see some costs rising. We're spending a lot on future technology, future products, so forth. We don't have a lot of new products coming out in 2017. We're at that point in the cycle. But profits will go up in 2018." That's what they said. Sure enough, first quarter, profits were down significantly because of some big costs. It was more or less as they had predicted. But, I think Ford's board of directors after that thought there were some reasons to change the direction of the company, let's put it that way. I just pulled up, a little while ago, a chart showing, if you were looking for March of 2017, the one-year performance of Ford and GM's stock, GM is up 20% and Ford is down. I think it would have been reasonable for Ford's board to be having that conversation at their March meeting, "Wait a minute, we just had the two most profitable years, 2015 and 2016, in Ford's century-plus history, and our stock is down? What's going on? We're not doing a good job of telling the story of how these investments that we're making that are going to cut into our profits in 2017, how these investments are going to pay off."
I think that was a big part of why they sacked Mark Fields -- or rather, ushered him into early retirement. I like Mark Fields a lot personally, so I want to be kind to him in how we talk about this. He was ushered into early retirement and replaced by Jim Hackett, former Steelcase CEO. He had been working with Ford for a couple of years running a subsidiary that was doing all this future tech, future mobility exploration experimentation. He was brought in by Bill Ford, the executive chairman and great-grandson of Henry Ford, as this deep thinker for this company. He's very much a deep thinker. He's a reader, he's a futurist, he talks to the kind of people who see where technology is going and understand technological disruption and so forth. He is a big thinker around this, and I think Ford wanted him to come in and set and communicate the vision for how Ford becomes a vehicle and mobility company, which had been the catchphrase they've been using for a couple years under Fields. How does Ford become provider of personal mobility, rather than seller of F-150s and SUVs and Mustangs? And the answer is, it has to be both, probably for many decades to come. But, Jim's thing is to tell the story and lead Ford into the future. He immediately revamped Ford's management structure and essentially split what might have been a chief operating officer job between several different very senior Ford veterans. They're actually running the company and making the decisions about where the cup holders should be, and which factory should build what vehicle and all that stuff.
Priestley: That's a smart move, I think.
Rosevear: Because Jim Hackett is not an auto industry veteran. He came out of a very different industry. But he's a leader and a deep thinker, and he's someone who understands technological disruption. And he's who Bill Ford and the board thought should lead Ford right now. Later in the year, he began communicating his plan. And we can see signs of it. More aggressive movement toward developing electric vehicles, more spending on self-driving related things, new mobility visions. He's talked about it more very recently just this past week at CES. I think it's still fuzzy, and I think that's why Ford's stock performance hasn't yet been great. I think Wall Street doesn't quite get it yet, but he'll get them there, I think.
That was really the big story for Ford in 2017, this big change from a CEO who had been a Ford lifer, who was a car guy, who understood the nuts and bolts of the business in great detail, who had come up the ranks, with this voice, who is very much oriented on where is the company going and into the future, and has a good understanding of what Ford's role might be in 2040, in a world where vehicles drive themselves, and they all talk to each other and so forth, and how Ford might thrive in that kind of world.
Priestley: Absolutely. And as you rightly pointed out, Mark Fields, in January, gave a talk about the new products and how this money is going to be spent on self-driving systems, electric drivetrains. But as he said, he didn't contextualize why this was important. And in an era where you have Tesla, which continues to be unprofitable, but continues to be a phenomenal stock for people, people are really buying the story, and he just couldn't sell the story. So, I think you're exactly right. As soon as Hackett starts to sell people on the vision that he's creating, I think we'll start seeing improvement on the stock.