I’ve been talking about the stock market in my podcast recently, and it’s not because I’m some obnoxious MBA who loves illustrating the fact that I know what financial terms mean, in fact I don’t even own any stock outside of my 401k. But when car companies are publicly-owned, the products they make - the vehicles we get - are often a consequence of profit seeking for the sake of shareholder satisfaction. Now I’m going to try to not get too far into the weeds, but Moody’s, a service for investors, downgraded Ford from Baa2 to Baa3, which actually means like it sounds - baaaaaad. It’s a step above junk bond status, which may be a term you’ve heard that basically means if you invest in this stock, you are investing in junk and you should not expect to see a return.
So why, you’re saying, is this happening now, mere months after Ford made the decision to kill off all its cars and focus on more profitable vehicle segments in a transparent attempt to appease shareholders? Well, according to Moody’s, because of an “erosion in the company’s global business position and the challenges it will face implementing its Fitness Redesign program,” which is a nicer, fancier way of saying that Moody’s doesn’t believe Ford knows what they’re doing to right the ship. And there’s been a lot of news this week that might lead you to believe that Moody’s is exactly right.
If you’ll recall, when Ford announced that the U.S. would no longer receive any cars, they did qualify that by promising us a new Focus Active, which would be a jacked up hatchback similar to the Subaru XV Crosstrek. Well, what Ford didn’t count on when they made that announcement, was that Donald Trump was going to come in and slap a 25% tariff on cars made in China, which the Focus Active is. So guess what, America, no Focus Active for you, leaving the EcoSport as the most entry-level vehicles for U.S. consumers. The company says that it doesn’t think it’s going to be a huge deal because they were only likely to sell about 50,000 of them a year, which is still a lot. Considering that, through July, Ford has already sold more than 114,000 Focuses and Fiestas this year, I think maybe their target was a little low and that Ford may be seriously shooting themselves in the foot by giving up that many sales to GM, Honda, Toyota, Kia, Hyundai and basically every other car maker that has a vehicle in the compact and sub-compact segment.
Then the company came out and said they’ve reversed course on the Mondeo, which is the same car as the Fusion here in the U.S., saying they are not going to kill it off, but rather revamp it later this year because it’s a “core part” of their lineup. Uh, it wasn’t so core that just a few months ago you were ready to scrap it and move on to baby Broncos and Ranger Raptors! And if it’s important enough to get new powertrains, interior and exterior upgrades and enhancements to the hybrid range in Europe, why the hell would it not be worth trying that here, especially if they’re using the same basic car with the same basic safety features?! As of Monday, Ford has sold 97,800 Fusions in the U.S. this year, and I refuse to accept that there isn’t a way for the company to make more money with a mid-sized sedan that sells that many copies.
And then there’s the Mustang. Poor, sweet, simple Mustang. You’re the best ever version of yourself right now and, if the rumors are true, this is how I want to remember you. That’s because the rumors say that, in order to cull the number of platforms to just five, the next Mustang might share the same chassis as the Ford Explorer and Lincoln Aviator mid-sized crossovers. You know what other sports cars share their platform with crossovers? None! Ford, while not going far enough to confirm the rumors, did say that they would not “bastardize” the Mustang and that the next generation car would be just as Mustang-y as all previous generations, but let’s be clear: when you compromise on a vehicle’s platform for cost-cutting, you change the inherent character of the vehicle. No matter how much additional bracing you add, no matter what suspension bits you tack on, you’re still driving an Explorer that has been modified to become a Mustang. Add to that the fact that the next Shelby GT500 is allegedly not going to be available in a manual transmission and you can probably hear, if you listen closely enough, Mustang purists crying tears of pure 10W-30.
Finally, Ford announced, with much fanfare this week, the creation of the Enterprise Product Line Management group, a special committee that has been tasked with studying what customers want and then turning that information into creating more profitable, competitive vehicles. Uh, correct me if I’m wrong, but isn’t that just what the entire freaking company should be doing? What is the purpose of a company if not to be making products that people want and then making money from that? Like what have you people been doing until this group was created? Was there an actual plan behind the killing off of all the passenger cars, and will this group have the ability to resurrect those vehicles if their market research indicates there’s a market for them? This team is apparently split into ten divisions: family utilities, urban utilities, rugged utilities, performance vehicles, luxury vehicles, compact trucks, F-Series, commercial vehicles, electric vehicles, and emerging market vehicles. You’ll notice that none of those categories is “passenger vehicles,” which leads me to believe that, no matter what these guys decide, we’re not getting the Focus, Fiesta or Fusion back.
But the pressure on these groups is going to be crazy. They are not only supposed to be in charge of creating new vehicles and bringing them to the market and achieving a specific level of profitability, but they’re meant to ensure consumers are “engaged” with Ford offerings, whatever that means. I like a good challenge in my work, but I don’t like no-win scenarios, and this sort of sounds like a game of automotive survivor, where the last remaining head of one of these divisions gets to be the next CEO and face scrutiny on investor calls for why their profit margins still suck.
And they really, really suck right now. Ford’s global profit margin is just 3% and in North America, it’s down to 7.4%. Which again points to why Moody’s has a pretty negative outlook on Ford’s future. Yet Ford has come out and said it plans to spend $740 million on revamping Michigan Central Station, the old train station in Corktown in Detroit that it recently bought. One really has to wonder where the company’s priorities are.
The overwhelming sense I get from this collection of stories is that Ford lacks a strategic direction and doesn’t really have any idea what customers want. They hear analysts say “well SUVs are the big hot thing right now” and decide “okay, we’re all in on SUVs!” without ever giving much thought to what that means for their overall product line or to what the customer journey might be. I said this after they first announced they were killing off cars, but by completely lacking an entry-level car, Ford is essentially telling first-time buyers or customers without much money to spend that they don’t care about them. And for a non-luxury car company, that’s a mistake, because it’s not like kids grow up with big posters of a Ford Edge on their walls as something to aspire to. Instead they’ll get a Hyundai, and stick with a Hyundai because it’s what they know and are comfortable with.
For so long, Ford looked like they had it figured out by avoiding bankruptcy during the big recession bailout and by hitting home runs with the Mustang, Focus and others. But the more news that comes out, the less it seems like they are going to be able to keep up with GM, who has repeatedly affirmed its commitment to sedans, or with any number of foreign manufacturers. Maybe this Enterprise Product Line Management group will figure it out and become what the company should have been all along - listeners to the consumers they serve rather than the shareholders.
Authored by
Devlin Riggs