Ford to cut car line-up

The carmaker plans to shrink its passenger car line in favour of low-volume, high-margin models

The 2019 Ford Motor Edge ST sport utility vehicle at this year’s North American International Auto Show in Detroit.
The 2019 Ford Motor Edge ST sport utility vehicle at this year’s North American International Auto Show in Detroit.PHOTO:BLOOMBERG

MICHIGAN • Ford Motor, the 114-year-old carmaker that put the world on wheels, is turning away from its original mission of selling sedans to the masses.

The company responsible for launching the modern carmaking era with Henry Ford's assembly line will pivot away from being a full-line carmaker, shrinking its passenger-car line-up and shifting only to low-volume, high-margin models.

The reason? Years of coming up short on a long-held profit-margin target. Earnings disappointments cost former chief executive officer Mark Fields his job in May last year and his replacement, Mr Jim Hackett, has since laid out plans to reorient the company around lucrative sport utility vehicles (SUVs) and pickups, plus play catch-up on the trends that are sweeping the auto industry: the rise of electric, autonomous, connected and shared vehicles.

"Let's be clear: We are not satisfied with our performance," chief financial officer Bob Shanks told analysts on Tuesday. "For the past seven months, we have undergone a rigorous assessment to ensure we are fit as a business and are making the choices that will create the Ford of tomorrow."

Ford shares plunged 7 per cent, the steepest drop since July 2016, to close at US$12.18 (S$16.12) on Wednesday. The stock rose just 3 per cent last year, trailing Tesla's 46 per cent surge and General Motors' 18 per cent jump.

Before delivering a presentation at the Deutsche Bank Auto Industry Conference, Mr Shanks warned that adjusted profit will fall this year to US$1.45 to US$1.70 a share, down from about US$1.78 last year. While Wall Street had been expecting a drop from last year, the low end of the company's guidance is worse than what analysts were anticipating.

Ford's automotive business earned just a 5 per cent profit margin last year, less than its average since 2010 of about 6 per cent, according to Mr Shanks. The company has not achieved its 8 per cent goal in any year since the global recession, he said.

The carmaker flagged its expectation for weaker earnings two days after executive chairman Bill Ford said the company founded by his grandfather is going "all in" on electric cars. Ford kicked off this week's Detroit auto show by pledging to invest US$11 billion to bring 40 electrified vehicles to market by 2022.

Mr Hackett, 62, last year took over a carmaker that lacks a model to compete with cars such as General Motors' Chevrolet Bolt or Tesla's Model S.

On Tuesday, he rejected the notion that Ford is behind. "Ford is going to aim ahead to where it has to be," he said at the conference Automotive News World Congress in Detroit. "Because it has to be ahead in order for people to believe our strategy isn't about catching up to somebody else."

Executives did, however, acknowledge that Ford has to change course. That will include cutting car lines that no longer sell well.

"We know we must evolve to be even more competitive and narrow our full line of nameplates in all markets to a more focused lineup that delivers stronger, more profitable growth, with better returns," Mr Jim Farley, Ford's president of global markets, said in a statement.

The biggest factors contributing to Ford's expectation for lower profit this year are the rising price of commodities, including steel and aluminium, and adverse effects from currency exchange rates, in part due to Brexit. Those costs represent a US$1.6-billion headwind to earnings this year, Mr Shanks said.

The profit forecast prolongs the payback from spending on autonomous vehicles and other technology that Mr Hackett's predecessor, Mr Fields, had been promising to investors before his ouster in May.

Profit will rebound over time, Mr Shanks said in a phone interview.

"We certainly see us on a path towards the margins that we have been targeting for a long time," he said, referring to the 8 per cent target. "Not this year or next year, but within the next several years."

Besides electrifying its line-up, Ford is reallocating investment towards crossovers and rugged off-roaders amid slumping demand for passenger cars in its home market. The Lincoln luxury brand, already highly reliant on models like the Navigator, will orient towards sport utility vehicles (SUVs) in the future.

Ford projects it will boost the share of its sales from SUVs by 10 percentage points - all at cars' expense - over the next couple of years to cash in on more lucrative models that American consumers want.

"We'll have more utilities," Mr Shanks said. "We will be simplifying, if you will, our participation in the car segments to move into sub-segments that have more margin and are more attractive."

General Motors surprised Wall Street earlier on Tuesday by predicting steady profit this year to be followed by another earnings jump next year. A redesigned Chevrolet Silverado pickup and fresh crop of crossovers are helping fund CEO Mary Barra's ambitious plans to put robotaxis on the road in a ride-sharing fleet next year and roll out 20 all-electric models by 2023.

Ford also announced it will start being more transparent about its own bets on mobility. Within the slides Mr Shanks presented, the company disclosed it lost about US$300 million in this business last year.


A version of this article appeared in the print edition of The Straits Times on January 20, 2018, with the headline 'Ford to cut car line-up'. Subscribe