As Ford Motor Co. continues a global reorganization that is certain to include significant job reductions, one way forward could lie in Ford Credit and the consumer data it collects.
More than $1 in $3 in profit is coming not from car or truck sales but the finance entity that makes loans to more than 5,000 car dealers and 4 million customers, mostly in the United States and Canada.
That’s up from $1 in $4 in 2017, according to regulatory documents.
Potential clues to the future path of Ford can be provided partly by Facebook, which has illustrated to shareholders the value of using customers’ personal information to earn billions. Advertisers buy not the customer information itself but access to the consumer based on data about their lifestyles.
Last week, Ford announced the purchase of the electric scooter company Spin, an acquisition that brings with it a new trove of data about how people travel. The value of the company may be less in the hardware than the tracking that goes along with use of the scooters. When do people travel? What are key travel routes? What days of week see the most use?
A Nov. 8 news release announcing the scooter purchase explicitly noted that the carmaker would share user data with partner cities.
Data mining is a highly lucrative revenue stream.
General Motors recently tracked the habits of 90,000 drivers in Chicago and Los Angeles who agreed to have their car-radio listening habits tracked to assess the potential relationship between what they listen to and what they buy.
Ford CEO Jim Hackett provided a glimpse into what sounds like a potentially massive data mining plan. His remarks were made during a Freakonomics Radio interview for a podcast released Nov. 8.
“We have 100 million people in vehicles today that are sitting in Ford blue-oval vehicles. That’s the case for monetizing opportunity versus an upstart who maybe has, I don’t know, what, they got 120, or 200,000 vehicles in place now. And so just compare the two stacks: Which one would you like to have the data from?” Hackett said, according to the podcast transcript.
“The issue in the vehicle, see, is: We already know and have data on our customers. By the way, we protect this securely; they trust us,” Hackett said. “We know what people make. How do we know that? It’s because they borrow money from us. And when you ask somebody what they make, we know where they work, you know. We know if they’re married. We know how long they’ve lived in their house because these are all on the credit applications. We’ve never ever been challenged on how we use that. And that’s the leverage we got here with the data.”
Ford Credit has provided financing since 1959 to customers to buy or lease Ford and Lincoln vehicles. The company also finances dealer vehicle inventory and capital loans for dealership improvements, and other products and services for customers and dealers.
The cash flow, which rarely gets much media attention, is staggering by any objective measure.
So far in 2018, Ford Credit has accounted for 35 percent of Ford profits, or nearly $2 billion of $5.5 billion in total profit, according to company documents filed with the U.S. Securities and Exchange Commission. That’s up from last year, when Ford Credit generated 24 percent of Ford profit, or $2.3 billion of $9.6 billion total.
But the financial picture is changing.
“Automakers will lose money on electric cars for years to come. None of them knows exactly how they’re going to make money on autonomous cars,” said John McElroy, a veteran industry observer and host of Autoline.tv. “But they could make a fortune monetizing data. They won’t need engineers, factories or dealers to do it. It’s almost pure profit.”
While Wall Street analysts note that Ford Credit just reported its best earnings quarter in seven years, Garrett Nelson of CFRA Research expressed concern about the strength and direction of the Dearborn-based company.
“Its international operations continue to lose money across the board with the exception of the Middle East and Africa,” Nelson said. “While year-over-year comparisons may begin to improve in the next few quarters, we think Ford faces significant operational and cost headwinds from tariffs and slowing demand across several markets, and we continue to have a low degree of confidence in management’s ability to successfully engineer a turnaround.”
Analyzing what’s currently making money, how to increase those margins and find new sources of cash are top priorities for a global carmaker seeing major financial loss in markets outside the United States and Canada.
“Ford is shrinking, based on sheer sales,” said Jon Gabrielsen, an independent market economist who advises automakers and suppliers. “Over the last 10 years, all of Ford’s business outside the U.S. and Canada has steadily declined to the point that all that will ever be sufficiently profitable is in the U.S.-Canada. Indeed, many regions are hemorrhaging.
“And in these two countries, Ford profits are driven entirely by pickup trucks, SUVs and vans. Its exiting cars could result in the loss of sales of 10 to 20 percent.”
That may help explain why Ford is having wide-ranging talks with Volkswagen. Executives from each have indicated that collaboration could save the companies billions of dollars in research and development costs and help each in the development of driverless and electric vehicles.
VW and Ford are working with BMW and Daimler to develop a rapid electric-vehicle charging network across Europe. Emissions standards continue to increase worldwide, with the major markets of China and California driving significant growth.
“In Europe, Ford has lost $973 million in the last five years _ indicating that, no matter what they have tried, they failed to turn it around despite being at the peak of the cycle. Things will get far worse in the next downturn,” said Gabrielsen, who gets his data from Ford’sSEC filings. “In South America, Ford has lost $3.9 billion in the last five years.”
Bob Shanks, Ford chief financial officer, reported big losses in Europe, Asia and South America. He told financial analysts after quarterly meetings this year:
“Clearly our European business requires a major redesign. “Moving forward, we’re focused on getting our China business back on track.
“We’re only going to allocate capital to new investment opportunities going forward that generate the appropriate returns on capital. In the process, we will either move the low-performing parts of the business through fitness … or we will dispose of them.”
But industry analysts have asked why change is taking so long.
In the past decade, Ford has lagged in Mexico while Europe is “unsalvageable” and South America is a “dumpster fire,” Gabrielsen said. As for China, he said, “it’s ‘do or die time’; that must be fixed because it’s a horrible tragedy to forfeit that market.”
In October, Shanks and Hackett told investors that Ford must be fundamentally redesigned. They promised to announce details as things unfold.
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“Around the globe, the company is moving with a sense of urgency to redesign and restructure the business to capitalize on our strengths, while selectively and smartly ‘disposition’ where we cannot make appropriate returns,” Ford spokesman Brad Carroll said. “To do this well, with a grounding in the future, takes time, but we are committed to making the right decisions for the long-term health of the company.”
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From 2013 to 2017, vehicle sales in North America generated $42.6 billion in profits with the help of pickup sales led by the Ford F-Series, while its Ford Financial arm earned $9.6 billion.
“The risk to Ford of its total reliance on just North America for all its past and future profits, is that the North American market is highly mature and saturated with vehicles, while the regions in which Ford is unsuccessful, and losing both market share and money, are the growth markets of the future,” said Gabrielsen, a 40-year industry consultant.
“In the U.S., there are already 1.19 cars or light trucks for every licensed driver in the country, and 1.9 vehicles per household. That means that if every licensed driver in the country were driving a vehicle at this moment, 19 percent of the total vehicles in the country would still be parked doing nothing. What are the odds that U.S. consumers are going to want more than that per driver and per household? Indeed, vehicles per household have actually dropped from a peak of 2.1 in 2009, back to 1.9 in 2017. A further indication that the prospects for further growth are maxed out.”
Meanwhile, China would have to increase the number of vehicles in the country by nearly a billion just to reach the level of maturity and saturation of the United States.
Which brings the spotlight back to Volkswagen, a company widely viewed as a highly competitive player in the market _ with fresh product lines.
On Friday, Volkswagen executives are scheduled to meet and reportedly discuss the future of the company.
Both automakers have said a major decision about their potential engagement will be announced before Dec. 31.
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Partnerships, common for years in carmaking, are taking on added urgency as companies try to put limited resources toward extremely expensive research and development of advanced autos.
Honda recently committed to investing $2.75 billion for a stake in the driverless vehicle unit of General Motors known as Cruise Automation.
In July, Ford created a separate company, Ford Autonomous Vehicles LLC., for its driverless operations and sought investors. In 2017, Ford announced an investment of $1 billion over five years in the driverless startup company Argo AI. It remains an independent entity with a board of five directors, including two from Ford.
Investors are watching with curiosity.
Adam Jonas, auto analyst at Morgan Stanley, said in late August: “To be clear, we think Ford´s operations need restructuring. We do not see restructuring at Ford as a ‘nice to have’ … but as a crucial step.”
He went on to offer a grim landscape:
“It is very difficult” to see Ford continuing operations on a profitable basis in South America. “We expect operating losses to continue through at least 2020.”
“As our vehicles become more connected, so do the opportunities for automakers to collect data. What they do with it is the next question,” said Ivan Drury, senior manager of industry analysis at Edmunds.
“Using data to help refine your morning commute to work to avoid slowdowns is seen as a positive. Selling your daily commute time, speed and path, to insurance companies, that might not be so positively received. Our lives are becoming increasingly refined through data and automotive data is rich. Time spent and location can reveal great insights into one’s lifestyle. The question is, do you want to share everything you do in your vehicle like it is Facebook?”
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