Ford is Either Playing the Long Game Well or the Short Game Poorly
General Motors and the Ford Motor Company both saw U.S. sales declines in the third quarter, but GM was the only one achieving earnings that widely beat expectations. Still, which company is playing the game better is up for debate.
This could turn out to be an Ant and the Grasshopper situation if there is another economic downturn on the horizon. The ant-like Ford could be more ready for an economic winter, while the improvident Grasshopper Motors is left out in the cold with acres of unsellable vehicles — forced to eat its own legs for sustenance.
Of course, if there isn’t an economic downturn, Ford is going to look like a lame duck next to GM’s golden goose.
At the moment, the Detroit Three automakers are on completely different paths with wildly different outlooks on the future. Automotive News reports GM enjoying record third-quarter profits while Ford had its worst quarter in almost two years. GM launched more fresh product in showrooms this year and has plenty of redesigns coming for next year. Meanwhile Ford doesn’t have any exciting lineup changes scheduled until 2018.
This has translated into more retail volume for GM while Ford was left with a slowly growing dependence on fleet sales. Ford also suffered a nasty recall and spent quite a bit of money on fuel-saving technology. And, with gasoline prices relatively low right now, it’s hard to recover the costs of that tech from consumers when they aren’t all that impressed by a few extra miles per gallon.
We also have the ever-cautious Ford stalling production at six assembly plants to reduce inventory surpluses while General Motors has decided to ramp up overall production in North America for the next quarter.
“I would call our approach realism. Not optimism, not pessimism; it’s realism,” said Ford CEO Mark Fields in a conference call with analysts last week. “We don’t see a recession on the horizon, but we do see a marketplace that, from a cycle standpoint, it’s matured.”
But parts suppliers do see a downturn on the horizon and they aren’t alone. This year was littered with little hints and warnings that might signifiy impending economic doom. However, General Motors remains unfettered.
“We’re running a different play, and it’s generating different results,” GM CFO Chuck Stevens informed analysts on an earnings call. “We’re very focused on retail in a very disciplined way. Our retail market share is up; we’re less reliant on less profitable daily rental, and that’s showing up in our results.” Stevens thinks that — even if U.S. sales flatten out — GM will continue to yield strong margins in North America.
Whether Ford is actually preparing itself for a future market catastrophe or genuinely screwing things up by being so conservative will only be evident in hindsight. There are some similarities to the pre-recession days, where Ford soaked up some early hits and made some fairly unpopular decisions, resulting in saved face and money. We’ll have to wait and see if this all ends with Mark Fields giving America a pre-mic-drop “I told you so,” or just more underwhelming quarterly reports from the Blue Oval.
[Image: Ford Motor Company]
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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Ford has a car problem - their production cycles are getting really long. While their trucks and SUVs have a more mixed average age, their passenger cars are old, save for the Mustang. For 2017, the Taurus is entering its eighth model year; Fiesta, seventh; Focus, sixth; Fusion, fifth. Ford keeps hemming and hawing over whether or not the Taurus will be replaced. After all the hullabaloo Mulally had about the car being cancelled and then resurrected, it seems dumb to just let it whither again when there's a perfectly good Taurus ready to go in the Chinese market. Yes, I know the fullsize market is way down. But again, there is a Taurus ready to go in China. The Fiesta finally has a replacement on track for 2018 and I've heard the next Focus will be ready for 2018 or 2019. The Fusion won't be replaced until 2019 at least, and six year design cycles in the cutthroat midsize market without a major refresh* (like what the Camry received in 2015, its fourth model year) is a problem. *The Fusion's refresh for 2017 is very minor and should have happened for 2016. But are six year design cycles that bad? Other carmakers have had six year cycles without it hurting their products much. Well, it does seem to be bad when you're Ford. Firstly, because other leading carmakers only let one or two of their models in an entire decade get that old before replacement. With Ford, it's nearly everything. Secondly, because their cars seem to start strongly out of the gate, sales wise, but fade badly into the third or fourth model year. Appealing styling and features drew people in initially, but reliability problems catch up to them later. I don't mean to crap all over Ford, I like their offerings a lot, but they have some issues going on.
Now, I'm not some big-city analyst, but it seems to me that while Ford is more of a domestic-market darling, GM is better situated in the global context.