Ford's fortunes looked just as bleak as GMs. But now they're walking again and might be ready to run. Howard Wheeldon...
Magic Mirror on the wall, who is the fairest [western based automotive company] of them all? OK, so I know what your game is – you reckoned that given their success today in finally dumping Saab for considerably more than the £1 BMW got for it from MG Rover a few years ago, that the company I might be writing on today would be GM. Well, not a bit of it. The company I want to touch on today is none other than FORD!
Clearly the last ten years have been a pretty torrid experience for the management of Ford, not to mention its shareholders. It is worth reminding here that from a high point of $54.8 in April 2000 the shares spent nine years declining before the low of $1.26 was finally hit in November 2008. So, it has been absolutely no fun being a shareholder in Ford and not that much better if you happened to be an analyst on the stock either. In 2006, the company posted the worst loss in its then 103 year history, amounting to $12.7bn. It then managed to lose $14.6bn in 2008. So it is hardly a surprise that many considered Ford to be in a state of terminal decline. Just as GM had begun to look somewhat earlier, Ford was increasingly seen as yet another basket case from which there would be little possibility of recovery.
In hindsight, while the company’s declining bunch of fans and shareholders were entitled to have doubts about how Ford was managing itself and seemingly failing to adapt to a very different and far more competitive market arena, they probably hadn’t reckoned that as this was essentially a ‘family controlled’ company there was a different style of determination to succeed at Ford than at GM. Comparisons between Ford and the plight suffered by GM are of course all too easy to make and it is true that both suffered from having a too high cost base, too many models, and poorer quality than some of their newer Japanese based competitors. Both stand accused of failing to adapt to the new world order and of being far too big for their own good or the good of their shareholders. GM was very badly managed for years and was piled up to the rooftops with seemingly unsustainable levels of debt. Ford also had debt but theirs was far better managed, meaning the company could see the wood for the trees, timing wise. Ford had not ignored its customer either, producing models that were essentially fashionable even if they lacked charisma elsewhere. A better range of models than GM anyway. And domestically, Ford only had one brand unlike the countless number of competing brands in the GM stable. That is not to conclude that Ford wasn’t in a horrible mess of course and one that if not arrested quickly could have brought the company to its knees. The bottom line was that for the investor Ford was no fun (except for those that maybe sought to short the stock of course).
Long troubled as they were – forced to watch over more than a decade of falling market share, even seeing the company knocked into third position in terms of overall size globally and yet seemingly unable to do that much about management succession – few had reckoned on the surprising appointment of Alan Mulally as President and CEO of Ford in late 2006.
Having been fortunate enough to know Alan Mulally pretty well through the many years that he had headed up Boeing Commercial, I was to find myself in a somewhat fortunate position among analysts required to judge the real potential that lay behind the Mulally appointment at Ford. Indeed, it was here that in response to media enquiries asking whether or not I though the new President and CEO could turn around Ford I coined the phrase that ‘if anyone can, Mulally can’.
And so it was to be that slowly but surely by chipping away at cost and waste, changing age old practices that no longer worked, putting in very different domestic and global strategies, creating new models while sensibly and, it has to be said, at long last taking what was best from other areas of the world such as Europe and selling them in the US, meant that things began to turn round positively for Ford. In the process many thousands of jobs were to be lost and Ford has of course increased the amount of outsourcing it has done. Make no mistake though, there is still a very long way to go before margins might just hit what may be regarded as an acceptable level, meaning that even though Ford is, according to many, likely to confirm that it made an actual net profit in excess of $2bn for 2009, the battle to turn this one round is as yet far from complete. For a start the debt mountain thought to be well in excess of $33bn will need to be addressed. Revenue must also rise along of course with the still miserable 15% domestic US market share. And while the work must continue within the Ford US domestic production arena so too must change occur in Europe, Asia, South and Latin America – in fact wherever Ford happens to still be.
Of course, gone in the process of change under the Mulally watch too has been Jaguar, Land Rover, Aston Martin and very soon, Volvo will likely finally disappear to new owners as well. Mulally’s strategy to bring Ford back into itself and to concentrate on what it does best – cars produced for the volume market – has in my view certainly worked. The implication of the title for this piece today though posed the question of whether Ford could now manage to sustain new found profitability and grow it? To that it is my strong belief that the answer is yes.
Howard Wheeldon is the Senior Strategist at BGC Partners
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