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Fields Demise At Ford Signals Impatience With Pace Of Change

Fields Demise At Ford Signals Impatience With Pace Of Change.

New CEO Hackett Expected To Stay 3 To 4 Years

“It remains to be seen whether the elevation of Hackett leaves Ford better placed to tackle the evolving nature of the auto industry”

Ford Motor’s surprise move to fire CEO Mark Fields and replace him with relatively unknown outsider Jim Hackett was seen as an interim move to quickly change the company’s direction towards Silicon Valley before a more traditional candidate emerges.

Hackett had been in charge of Ford’s Smart Mobility subsidiary for about one year, after previously leading the office furniture manufacturer Steelcase. He was appointed to the Ford board in 2013.

Fields paid the price for Ford’s slipping market share in a slowing market and a couple of expensive recalls.

“This has made it harder for Ford than for cross-town rival General Motors to absorb the mounting costs of investing in technology such as electrification, driverless systems and mobility apps,” said the Wall Street Journal’s Heard on the Street columnist Stephen Wilmot.

“First quarter numbers were particularly weak, with adjusted profits down 35 per cent year over year. Ford’s stock has underperformed GM’s by almost 25 percentage points over the past year,” Wilmot said. 

Barclays Equity Research thought Hackett was probably a mid-term caretaker, with a successor likely in 3 to 4 years, and said he will be expected to sharpen Ford’s execution and drive forward the strategy on emerging technologies.

“At the same time, with Jim Farley and Joe Hinrichs now respectively managing the business units and some of the key business functions, it appears both are vying to take over as CEO after Hackett’s work is complete. Both have big challenges and perhaps the board’s thinking is this will motivate them to cut deeper, act faster, etc,” said Barclays analyst Brian Johnson.

“Second, we expect a greater focus on cost-cutting and optimisation than we saw under Mark Fields’ tenure. If there was one area where Ford was admittedly soft in recent years, it was around exceeding expectations of profitability. Compared to GM, which has exceeded expectations on guidance and quarterly results, Ford’s quarterly results and guidance have been mixed at best,” Johnson said.

Oversees Lincoln Too
Farley moves from running Ford Europe to become an executive vice president and president of global markets. He will oversee Ford’s regions, global marketing and sales and Lincoln Motor Co. Joe Hinrichs, head of the Americas since December 2012, will become an executive vice president and president of global operations.

Investment researcher Evercore ISI said Fields tenure hadn’t been all plain sailing, but wasn’t bad either.

“It remains to be seen whether the elevation of Hackett leaves Ford better placed to tackle the evolving nature of the auto industry,” said Evercore ISI analyst Arndt Ellinghorst.

BMI Research said the appointment of Hackett shows Ford is seeking a change in direction.

“Although Fields has overseen the investment of billions of dollars in autonomy and mobility initiatives, reports suggest that investors felt the company is still lagging some of its biggest rivals – not just elsewhere in Detroit but in Silicon Valley. As other tech giants including Google and Apple increase their footprint in the industry, make progress in areas such as connected and autonomous cars, and the shift to mobility fleets, will be a priority if established carmakers (like Ford) are to avoid falling behind,” BMI said.

Artificial boost
Investment researcher MorningStar of Chicago wasn’t sure what moves Hackett could make in the short-term to boost the stock price, beyond the artificial boost from the news of a new CEO.

“We expect Hackett to try to be more specific on timelines around Ford’s mobility services, which Fields said is a 20 per cent operating margin opportunity, but we think large amounts of revenue from mobility services is still a ways off. We would not be surprised to see Hackett make more acquisitions in mobility, possibly move into ride hailing, or make an acquisition in a field such as development of pure electric vehicles or autonomous vehicles, as Ford did earlier this year with Argo A1,” said MorningStar analyst David Whiston.

Morgan Stanley was enthusiastic about the change at the top, saying Hackett might take a different approach and lead cultural change by hiring experts in consumer electronics, software and data analytics.

“We are encouraged by (the move) and interpret this as a healthy sign that Ford’s board understands the gravity of the industry challenge and is trying everything in its power to help improve the odds that Ford has a relevant long-term place in the auto/transportation industry,” Morgan Stanley analyst Adam Jonas said.

Unenviable position
Heard on the Street’s Wilmot wasn’t so sure.

“As the U.S. auto boom peters out while technological change accelerates, carmakers are in an unenviable position. This – not market share losses or technical hiccups – is the key reason Ford’s stock is so lowly valued. Investors shouldn’t expect the new boss to deliver a quick fix,” Wilmot said.

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