Ford Made All The Right Moves In The Recession. So Why Is GM Reaping The Benefits?

After the recession, (L-R) former CEO Alan Mulally, with Chairman Bill Ford and Mark Fields, now CEO, poured everything into a new F-150, but ignored other profitable segments. (Photo credit: Andrew Harrer/Bloomberg)

Ford Motor’s up-by-the-bootstraps story of survival during the Great Recession has been well-documented: a fortuitous $23 billion loan provided an escape from bankruptcy so the company could focus on strengthening its core brand and invest in small cars, fuel-efficient engines and lightweight, aluminum-bodied trucks.

With gas prices around $4 per gallon in 2009, and the government mandating sharply higher fuel economy standards, Ford’s strategy under retired Chief Executive Alan Mulally was absolutely the right one for the moment. It didn’t need distractions like Volvo, Aston Martin, Jaguar and Land Rover, so it got rid of those brands. It doubled down on its most profitable vehicles — F-series and Super-Duty pickups — with an innovative redesign that made them less thirsty yet as capable as ever.

As with any decision, though, there are opportunity costs. We learned in Economics 101 that choosing one alternative over others means you accept the loss of potential benefits from the choices not made. Ford chose to invest its limited capital in improved fuel economy and high-margin pickups, while forgoing investments in other products, particularly big SUVs (and their big profits), small trucks and crossovers, and its Lincoln luxury brand.

Unfortunately for Ford, the future it planned for didn’t happen.

Gas prices plunged to less than $2 a gallon, and have stayed low since then, driving consumers back into SUVs and allowing its chief rival, General Motors, to take advantage of Ford’s outdated lineup. GM’s Chevrolet Tahoe and Suburban, GMC Yukon and Cadillac Escalade, redesigned in early 2014, now command almost 50 percent of the large and luxury SUV market, while Ford’s Expedition and Lincoln Navigator have just 13 percent, according to Morgan Stanley. Escalades sell for an average $13,800 more than the Navigator, and half of all Expeditions end up in rental lots.

“Mulally kept a razor-sharp focus on the core product. But it’s pretty clear that one of the costs of doing that was large SUVs, which got no love at the same time,” said automotive consultant Eric Noble, president of The Car Lab. With only minor updates, the Expedition and Navigator, he said, haven’t been competitive since the late 1990s. “What that has meant is that GM, with no competitor, has simply ordered white paper and green ink and printed money for half a decade.”
Recommended by Forbes
GM makes an average $9,000 profit on each Tahoe and Yukon it sells, insiders say, which helps explain why GM saw record profits in the third quarter, while Ford’s profit fell by half as cash flow turned negative. There were other reasons for Ford’s swoon: a $600 million recall for faulty door latches and the cost of launching the new Super Duty trucks. But by yielding the lucrative large and luxury SUV markets to GM, Morgan Stanley analyst Adam Jonas believes Ford gave up as much as $2 billion in pre-tax profit to GM.

Ford’s position should improve next year when it introduces new, aluminum-bodied versions of the Expedition and Navigator. Noble expects the next-generation utilities to be technologically superior, but worries about the timing. “They’ll launch in the teeth of the next recession which is sub-optimal.”

He’s got the same worry about Lincoln. Starved of resources, Lincoln somehow hobbled along under Mulally, selling fancier versions of Ford models. But without worthy offerings to match those offered by Lexus, Mercedes and BMW, Lincoln missed out on the explosion of worldwide demand for luxury vehicles. Ford’s current CEO, Mark Fields, says fixing Lincoln is one of his top priorities, but there’s little sign that the company plans to invest the kind of money a standalone luxury brand needs. “When you look at the profit levels at Ford, if not now for Lincoln, then when?” asks Noble.

The new Lincoln Continental, hitting showrooms now, has been well-reviewed in Forbes and elsewhere, but despite many unique luxury features, it’s still built on the bones of a mid-market Ford. What Lincoln really needs is a dedicated engineering platform for luxury cars, like GM is pursuing at Cadillac, says Noble. That’s expensive, though, and will take a decade or longer to achieve. And Cadillac, which is preparing to launch several new models, has yet to prove it can do it either.

Ford’s focus on its bread-and-butter trucks also caused it to miss the boat on other segments like compact pickups and small urban utilities like Honda’s HR-V. Ford scoffed when GM introduced the mid-sized Chevy Colorado and GMC Canyon pickups, but that segment has come alive, partly because small trucks are more affordable. Now Ford plans to re-launch the Ranger pickup in the U.S., but not until 2019. “Again, it’s awfully late,” said Noble. He doesn’t fault Ford for staying on the sidelines, noting that it’s tough to make money on small pickups. But GM’s small trucks have helped in other ways: by improving GM’s market share and its fuel economy ratings.

In a recent note to investors, Morgan Stanley’s Jonas wrote that Ford’s “bet on higher-for-longer oil prices may be out of step with the consumer for the next few years.”
But in fairness to Ford, its focus on fuel-efficient engines like its 3.5-liter EcoBoost has set a new benchmark for the full-size truck market. “GM used to be the powertrain leader. Now Ford is,” said Noble.

And Ford doesn’t seem to be shying away from other big bets, either. It’s pouring $4.5 billion into new hybrids and plug-ins over the next few years, and is vowing to have a high-volume fleet of self-driving taxis on the road by 2021 as it tries to ensure its role in the fast-developing market for personal mobility.

Fields has laid out a road map to “fortify” its strengths (trucks, vans, performance vehicles, SUVs, Ford Credit and parts) while fixing underperforming businesses (luxury, small vehicles and emerging markets) and pushing into new areas (electrification, autonomy and mobility).

Competitors aren’t standing still, however. GM, Toyota and Honda, now healthy after struggling with self-inflicted wounds, are moving just as fast, while FCA, parent of Ram and Jeep, remains a scrappy rival. With Asian brands like Nissan and Hyundai layering on the incentives and dumping cars into rental fleets, a price war seems likely.
Ford’s long-term strategies won’t matter if it can’t successfully navigate the near-term.
Publicar un comentario