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« Sedans, SUVs and Group Think | Main | Has Ford Made a Fatal Mistake? »
Thursday
May102018

Ford’s Fast Fading Future

By Christopher A. Sawyer

Will history repeat itself? Ford declared the small pickup market dead, and kep tthe so-called Global Ranger of out the U.S. until it discovered the vibrant market GM was already serving with its Colorado and Canyon. Now that it has declared sedans dead, will it once again be surprised when competitors stick with it and reap the rewards? Peter DeLorenzo’s column in this week’s Autoextremist takes a second look at Ford’s decision to basically abandon the car market. In it, he places the blame for this decision squarely on Jim Farley, who was poached from Toyota by former Ford CEO Alan Mulally who made Farley the company’s global marketing chief. The piece paints a grim but, say my sources, pretty accurate picture of Farley.

This is backed up by stories told by a former colleague who worked at scion while Farley was there. He stayed behind as Farley moved to Lexus, then jumped ship to join Ford. Once Farley had left the Toyota campus, the knives — and stories — came out, which was not unexpected. Nor was it pretty. The same thing happened at Lexus, and is now taking place at Ford; though this time while he’s still employed by the company. That’s never a good sign in Dearborn; a place that makes Washington D.C. look like summer camp.

DeLorenzo, like many in this town, gives Jim Hackett a pass, though he does — correctly — refer to him as Ford’s interim leader. Often referred to as “Buddy” behind his back, the former head of Steelcase is famous for telling people, “I’m not your typical car guy executive. I see things they can’t.” A statement that has been changed by underlings to a mocking Sixth Sense-like, “I see dead people.” One of the things he sees is the need for Ford to take over the old and decrepit Michigan Avenue train station in Detroit, and turn it into the company’s product development center in an attempt to attract young people to the company. The same people the “experts” say want to live and work in an urban setting — especially a recovering city like Detroit. Let’s not forget that the same “experts” claimed these same young adults were uninterested in cars, and forgot this generation had come of age during the Great Recession, were carrying unprecedented student debt, and didn’t have the credit rating — or jobs — necessary to make the payments, much less get a car loan. Nevertheless, work on revamping Ford’s Dearborn campus has slowed to a crawl as all projects not currently underway have been put on indefinite hold as the inhabitants of the 14th floor (Dearborn-speak for Ford’s executive leadership that work in the headquarters building on a floor that is the 13th in all but number) decide what to do.

The old train station is just the latest idea. Not long after Hackett rose to top, insiders say he stopped development to push a single, giant, all-encompassing building along the lines of Apple’s new headquarters. Ironically, one of the reasons behind Mark Fields’ departure was the way Hackett, supported by Farley according to some insiders, whispered in Bill Ford’s ear about the former CEO’s inability to make bold, hard decisions in a timely fashion. Those decisions included building a campus that would attract next-generation workers at the expense of retaining seasoned employees, pushing a “connected cities” vision with Ford as a major mobility provider, and canceling underperforming vehicle lines. It also didn’t help, these same sources say, that Fields was front-and-center in auto industry negotiations with the Trump Administration, something that rankled the liberal Ford scion no end. By the time Fields realized he was being undermined, it was too late.

Also late are Ford’s product decisions. Though sold as a bold plan and a measure of the company’s willingness to do what it takes to turn Ford’s fortunes around, Wall Street yawned when it was announced that the Mustang was the only car that had a long-term future at Ford. The concentration on high margin SUVs, though applauded by some in the financial community, had little to no effect on Ford’s share price. In contrast, GM and Fiat Chrysler Automotive shares continue to outperform Ford’s.

DeLorenzo also mentions Farley’s incredibly substandard performance at the Deutsche Bank Global Auto Industry Conference, but fails to mention the collective yawn that followed Hackett’s keynote address earlier this year at the Consumer Electronics Show. It was a warning bell to analysts — the same people who hype Tesla and anything to do with the “autonomous future” — that the basics were being neglected, and Ford’s long-term planning was nothing more than a fire drill of buzzwords and ideas selected to appeal to fund managers. According to sources, Farley’s “ban the sedan” plan had the full backing of Bill Ford and Hackett, and was seen as a bold stroke that would prove to naysayers, especially those in the financial markets, that Ford’s leadership team were the true industry visionaries.

Nevertheless, these visionaries forgot one important fact: The cancellation of the future car projects shifts all design, development, and engineering costs onto the new SUV programs. No longer will the first program out of the gate — more often than not a car — absorb the cost of new components, systems, and platforms. These will now be borne by SUVs, crossovers, and light trucks whose profitability margins will be significantly narrowed.

Even more disturbing is the “cut-and-run” nature of the decision. The last time Ford did something this precipitous, it declared the market for small pickups in the U.S. dead, made the Global Ranger a vehicle that would not be built or sold here, and then rediscovered a market GM had been serving with its latest Colorado and Canyon. Chances are it will do the same in the car market, but not before ceding significant market share to its closest competitors.

Finally, it should be noted that in the run up to this decision, both Farley and Hackett claimed that today’s SUVs are no longer the gas-guzzling tanks of yore, and have fuel economy on par with their sedan siblings. (They are not, in fairness, the only industry executives to do so.) In a statement notable for its brass, Farley claimed the two segments were so close in terms of fuel efficiency that the Escape and Fusion were separated by just one mile per gallon in their EPA fuel economy rating. Not only did a compliant media take this statement at face value, it failed to note that for this to be an apples-to-apples comparison, it would require comparing the Fusion sedan to its Edge platform mate, not the smaller Fusion-based Escape.

It remains to be seen if Ford can find the knowledgeable, capable, charismatic leader it needs to change its fortune before it’s too late. It may be too early to say Ford is indeed in free fall, but only because the absolute last instant for the parachute to be safely opened hasn’t yet been reached.  Unfortunately for the company and all who work there, the ground is rushing up fast.

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