The unexpected ouster of Ford Motor Co. CEO Mark Fields comes as one of the biggest shake-ups Detroit’s Big Three have experienced since they emerged from the Great Recession – and it highlights the challenges they face trying to adapt to a global transformation in what automakers build and how they market those products.
The appointment of Jim Hackett to replace Fields is, however, just the latest in a series of big announcements from Detroit that last week saw Ford announce plans to cut 1,400 salaried workers in North America and Europe, while General Motors said it would stop selling cars in the huge Indian market and sell off operations in South Africa.
“As the (Detroit) Big Three look out at the landscape, they see dramatic changes coming in the concept of mobility,” says Joe Phillippi, a veteran Wall Street auto analyst and now the lead at AutoTrends Consulting. “They are desperately trying to figure out the future business model and how they will fit in.”
(Ford shaking up almost entire senior management team. Click Here for the full story.)
During his tenure, Ford’s Fields attempted to address some of the areas where change is expected to come most rapidly – and which could impact the auto industry most dramatically, including connected car technology, ride and car-sharing, electrification and autonomous driving.
While Ford said it now wants to address “underperforming parts of the business,” it also wants to continue to “unleash innovation.”
Ford isn’t alone. Since it emerged from Chapter 11 bankruptcy protection in July 2010, the traditionally hidebound General Motors has been more than willing to walk away from business operations that don’t work.
Even before it announced plans to sell off operations in South Africa and Eastern Africa and stop selling vehicles in India – where it will maintain assembly operations solely for export – it had already walked away from the Russian market. But perhaps the most surprising move came in March when, GM confirmed rumors it would sell off its long-struggling Opel/Vauxhall brands, that European division running deep in the red since 1999, despite a series of turnaround efforts.
“These actions will further allow us to focus our resources on winning in the markets where we have strong franchises and see greater opportunity,” GM President Dan Ammann said on Thursday morning.
(For more on GM’s global retrenchment, Click Here.)
GM’s move runs counter to conventional automotive wisdom on several fronts. For one thing, it has become accepted gospel that the so-called BRIC nations – Brazil, Russia, India and China – spell the future of the auto industry. Then there is the religion of growth, manufacturers ceaselessly seeking improved economies of scale, with many analysts predicting only those companies capable of selling at least 10 million vehicles annually will survive.
GM nudged that figure last year, though it slipped to third in the global auto sweepstakes, behind both Volkswagen and Toyota. Once it completes the sale of Opel and the other newly announced moves it could slip behind Renault-Nissan, Hyundai-Kia and others, its global volume dipping to around 8 million.
GM’s cross-town rival Ford is continuing to chase volume. It has, if anything, ramped up its presence in India, as well as China, where it was slow to get off the ground.
But CEO Fields was convinced that simply tapping emerging markets wasn’t going to take Ford far enough. He set out to make what might be called a “CASE” for change – targeting connected cars, autonomous vehicles, car- and ride-sharing, and electrified vehicles.
Ford is, for example, planning to launch a fully driverless vehicle in 2021 that will target ride-sharing and delivery services. It is developing a new wave of hybrids, plug-ins and pure battery-electric vehicles. And it has teamed up with Amazon to let owners with Ford’s in-car Sync infotainment system access Amazon’s Alexa voice assistant to, among other things, pre-order a cup of coffee from a nearby Starbucks.
All that may be great for the long-term, but investors remain focused on the short-term, said analyst Phillippi. And they’re not pleased by Ford’s slumping U.S. sales and the 35% dip in first-quarter profits.
Ford was hoping Wall Street would be assuaged by its job cuts and broader cost-cutting plans, but even after announcing plans to trim $3 billon costs, followed by the 1,400 job cuts, investors were hardly reassured. Already down 40% since Fields was named CEO, its stock briefly dipped to a 52-week low before rebounding slightly before the management shake-up was announced.
The irony, some observers suggest, is that the stock market is punishing Detroit for thinking long-term, even as investors have rewarded Tesla for its grand plans. Last month, the battery-electric carmaker’s market capitalization surged above those of both Ford and GM, despite the fact Tesla has lost money in all but two quarters since going public.
Fiat Chrysler has also been struggling to find a future direction. CEO Sergio Marchionne has made no attempt to hide his interest in finding a partner, or even a buyer in his own search for better economies of scale. Marchionne has so far been rejected, however, by General Motors, Volkswagen and a number of other major competitors, leading some to wonder whether the Euro-American maker might eventually tie up with an ambitious Chinese carmaker.
Marchionne last month raised another possibility, during an analyst conference call to discuss Q1 earnings, he said “Yes,” when asked if he would consider selling off the only two truly profitable brands in the Fiat Chrysler portfolio: Ram and Jeep. That, observers noted, would not leave much of anything if such a move occurred.
FCA has been lagging in many of the key areas Ford has targeted, including electrification and autonomous vehicles, so its options could be running out, analysts like Phillippi warn, without a breakout move.
What seems clear is that all three of the Detroit makers are trying to find unique solutions to a very challenging future. What they look like in the coming years may be very different from what they are today. And what seems all but certain is that the management shake-up at Ford is not likely to be the last big announcement to come from the Motor City in the near future.
(Uber now going after the freight market. Click Here for that story.)