March 19–Pickup enthusiasts like to talk about towing capacity.
Ford is counting on it, last week publicly hitching the entire 115-year-old automaker to its truck franchise that’s led by the best-selling F-150, hoping to haul the company’s stock and image out of the muck where it has been spinning its wheels for months.
It’s a good idea, Morgan Stanley analyst Adam Jonas had coincidentally argued in a note to investors Wednesday, asserting that the F-Series franchise is actually more valuable than the company as a whole.
On Thursday, Ford announced that 86% of its North American production by 2020 would be trucks and SUVs, up from 70% now. It brought in every major journalist and industry analyst who would come to Dearborn to listen to corporate brass tout the plan. CEO Jim Hackett and his top lieutenants for North America lifted the covers off SUVs scheduled for release in the next 24 months, on the condition that the news media not reveal design details.
“Car companies only do this when they’re in trouble,” said John McElroy, host of “Autoline” and a longtime industry observer. “The stock price has gone nowhere. And Wall Street has been heavily critical of Ford for being in a real product drought.”
While Ford’s balance sheet is a fortress with ample resources, stalled spending on future products has dulled enthusiasm.
“Ford has not presented a narrative that has convinced anybody that it’s going to be growing its earnings and profits in the future,” McElroy said. “Now, Ford has sent a signal to Wall Street that they’re essentially going to be become a truck company.”
Morgan Stanley’s Jonas had argued in his note the day before that were the F-Series a company on its own, it would be worth $16 a share, rather than the $11-$12 range where Ford stock has generally hovered for a year and a half.
“Ford’s out-of-favor status has brought valuation to where the F-150 may be worth” more than 150% of the company’s enterprise value, wrote Jonas, whose broader point was that Ford is underappreciated on Wall Street.
He gave the company a rare “double upgrade” and set the share target price at $15, arguing that Ford’s truck leadership positions it well for expected increases in U.S. infrastructure spending.
Still, Ford closed at $11.15 a share on Friday.
As much revenue as Facebook
Jonas’ point about Ford trucks is solid. Ford gets as much revenue from its beloved F-Series brand as the social media behemoth Facebook earned in 2017 — about $41 billion. Ford officials often point out the trucks, which have led all U.S. auto sales for 36 years, top sales of Coke and Nike.
“The revenue of what’s generated at the Kentucky Truck Plant alone would be a Fortune 500 company,” Joe Hinrichs, president of global operations at Ford, noted on a tour of that factory last month.
Despite this valuable franchise and a strong consumer shift to trucks, it’s as if Ford lately is the Rodney Dangerfield of domestic automakers. It’s a sharp contrast with the years after the Great Recession, when the company got credit for avoiding bankruptcy and for its discipline under former CEO Alan Mulally.
Why can’t the company persuade investors that things are on track?
“We’re not really seeing a lot of new and different,” Stephanie Brinley, senior analyst for IHS Markit, said after Thursday’s session.
Ford’s event Thursday began the process of what it needs to accomplish, which is convincing its constituencies, including car dealers, media and analysts, that the company had a plan in place, said Michelle Krebs, executive analyst at Autotrader.
“What Ford did — pull back the curtain on future products — was out of character for the automaker but it was necessary,” she said. “Now, Ford must successfully execute its plan.”
Analysts were surprised to hear the extent to which Ford plans to shift production to trucks and SUVs over the next 24 months, including commercial heavy duty trucks.
While Ford is touting its commitment to hybrids, analysts dismissed the promises as a need to accommodate mandates in China and California just to be competitive.
When discussing trucks, which are more efficient than times past but will still cost more to fuel when gas prices inevitably spike, Ford “is taking out an insurance policy against potentially higher fuel prices by emphasizing less dependence on gasoline” and more use of electrification, Krebs notes.
Ford even predicted it would overtake Toyota as the top hybrid vehicle producer.
“The plan, emphasizing SUVs and trucks, plays to Ford’s strength,” Krebs said. “The bigger bet is the hybrids. They have not been selling well. Whether Ford can be successful with hybrids remains to be seen.”
Skepticism is rampant.
“It’s a bold move to pull back on passenger cars almost completely, but the good news is that the consumer shift to SUVs shows no signs of slowing down,” said Jeremy Acevedo, industry analysis manager at Edmunds. “However, this trend is far from a secret, and by the time 2020 rolls around, Ford’s new vehicles will have a lot of stiff competition. Even though SUV sales are robust, the market is starting to contract, and when dealer lots are inundated with SUVs of every size, shape and brand, it’s going to take a lot to stand out.”
A number of analysts continue to say slow product development is a leadership issue.
“The big puzzle is, here they’ve got Jim Hackett as the CEO. He has been there since, what, May 2017? You don’t see much difference at the company. Compare him with Alan Mulally,” McElroy said. “You saw huge changes in a similar time frame.”
Everyone seems to be wondering about the future of once-popular models, including the Taurus, Fiesta and Flex. Ford isn’t providing details yet.
“There are so many unknowns right now that it is still difficult to get overly excited about new product,” said Dave Sullivan, manager of product analysis at AutoPacific, Inc.
A trade showdown with China or changes to the North American Free Trade Agreement would have a detrimental impact on Ford’s product plans, he said.
“The Focus is coming from China. The EcoSport from India. The Transit Connect from Spain. The Edge from Canada. The Fusion and MKZ from Mexico. A new Taurus could also come from China,” Sullivan said. “With the changes to steel and aluminum tariffs, the president has thrown a wrench into a very sensitive supply chain with no time to react. Who’s to say we don’t see similar changes to finished vehicles coming from outside of the U.S.?”
More is at stake for Ford than just new product.
“The unknown is what is spooking investors,” Sullivan said.
In the near term, the F-Series will continue to be the bread and butter of Ford.
“The F-150 will fund the future,” Krebs said, noting gains in assisted driving and connectivity technology.
Meanwhile, the Ford team remains hopeful that Wall Street will come around.
“We won’t comment on the company’s valuation, but we can say that Ford has a solid balance sheet, with over $35 billion of liquidity, which provides financial flexibility,” said Ford spokesman Brad Carroll. “We continue our intense focus on improving the operational fitness of the business to deliver stronger results while building toward our vision of the future. We’re confident that as these fitness actions take hold, the market will recognize our progress.”
Contact Phoebe Wall Howard: 313-222-6512 or email@example.com. Follow her on Twitter@phoebesaid.
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