Maybe I am just too cynical, but when I heard yesterday that Ford (F) was firing car guy Mark Fields as CEO and appointing Jim Hackett, reportedly in an attempt to take a more “Silicon Valley” approach, I couldn’t help but think of JC Penney (JCP) and the saga of Ron Johnson.
For those with very short memories, the retailer brought in Johnson, an ex-Apple executive, to “turn around” their underperforming operation; a move that is now seen by many people as a corporate mistake of “New Coke” proportions. I would argue that Johnson was essentially tasked with the impossible.
Retail was by that time a long way down a path of revolutionary change and the basic business model at JCP was, as recent results have confirmed, simply outdated.
The question for Ford investors is, is this also too little too late, or can the Detroit giant shift focus effectively?
To listen to the Chairman of the company, William C. Ford Jr. yesterday one would think that the main issue Ford has had was one of communication, but the performance of the stock relative to the S&P 500 suggests that the problems run deeper than that.
As with JC Penney what is changing, at least in part, for Ford is that they are no longer competing solely against other companies that do the same thing. The move towards autonomous vehicles has been spearheaded by the likes of Google (GOOGL) and Apple (AAPL) along with companies more directly involved in the auto business such as Tesla (TSLA) and Uber.
Car manufacturers, a group that has spent years trying to convince consumers that their latest tweak to existing technology made their cars the “must have” item, are now seeing real technological change.
That does not mean, however, that Ford, or for that matter GM (GM) or any other traditional manufacturer, is doomed. Many traditional retailers, fooled by the false start at the turn of the century, spent a long time in denial of e-commerce, and when they finally began to address the problem it was too late; consumer behavior had already changed. By promoting the head of their autonomous vehicle program to CEO, Ford has made it clear that they at least recognize the threat, and that is plus.
There can be no doubt that established global networks and levered free cash flow of over $50 billion give them a significant advantage over somebody like Tesla, so they have a chance at success in the electric and autonomous vehicle markets..
However, addressing the immediate problem still might not be enough for Ford, or for that matter for other manufacturers. The logical extension of the autonomous vehicle, and the reason Uber is so involved, is a world where personal car ownership is only for enthusiasts. Actual transport needs could be served by fleets of cheap, non-polluting autonomous vehicles.
If and when that sci-fi like scenario becomes reality, then Ford will become just another buggy whip manufacturer, but that change involves a massive cultural shift so is likely not to come overnight.
Even so, the future is visible. As the above chart shows, Ford stock has been under enormous pressure, and the market’s tendency to overshoot the logical mark has become evident. At a forward P/E of 6.7 and with a 5.5% yield there is almost certainly a short-term opportunity in Ford as optimism builds following the change at the top, but longer term it is not a stock I would want to hold. The last year has been marked by record auto sales, but F has lost around 16% as the market has focused on the long-term outlook.
The appointment of Hackett may well address some of Ford’s immediate issues with regard to autonomous vehicles and other technology but at some point, those long-term worries will move back to center stage. My advice then would be to buy F as a trade on the news by all means, but be sure to take a profit in a timely manner.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.