By Jamie Barrie W hen oil and gas prices were high, Ford bet on an innovative strategy to increase gas effi- ciency offering smaller cars, small engines and light weight aluminum-bodied trucks. Consumers were looking to automakers to lead the change and the U.S. government had mandated that automakers improve fuel economy by 40 percent to 54.5 miles per gallon by 2025. Well the U.S. government still has the 2025 mandate but with oil prices low and consumers getting a break at the pumps consumers are to buying full size SUVs. Given the change in strategy and oil prices it is no surprise that FordMotor Co.’s profits are slumping, when companies like rival General Motors Co are posting record earnings as consumer’s demand for full size sport utility vehicles that have come roaring back in the U.S. and Canada. This is a market segment that Ford’s rival General Motors dominates owning 49 percent of the U.S. market for full size and luxury SUVs. General Motors’ GMC Yukon and Cadillac Escalade models carry large profit margins for the automaker that give General Motors an annual $2 billion pre-tax profit edge over Ford. This can explain why Ford’s third-quarter net income fell by more than half to $957 million, while General Motors booked a record $2.8 billion. Bob Shanks, Ford’s chief financial officer acknowledges that General Motors “clearly has an advantage” in big SUVs, but said Ford will begin to get a “better and fairer
share of the revenue in that segment” next year when it introduces new, aluminum-bodied versions of the Ford Expedition and Lincoln Navigator. “They’ll be straight state-of-the art, gorgeous, beautiful with great interiors,” Shanks said of the most substantial redesign of its largest SUVs in years. Ford is reviewing sales and production of slow sellers like the Fusion and Focus compact and temporarily shutting down five plants in October in an attempt to cutting production 12.5 percent in the last three months of 2016 to reduce inventories of unsold cars, this is in addition to the 12 cut Ford made in the 3rd quarter of this year. Slowing sales is a direct hit to the bottom line because the company books revenue when a car or truck leaves the factory, not when it is sold in the showroom. As Ford focuses on the future, Chief Executive Officer Mark Fields has said profits would fall this year and next as the automaker invests heavily to transform itself into a mobility company that cancompetewith the likes of Uber andcontinue to with its $4.5 billion investment in electrified vehicles. “For the foreseeable future, we’re going to be in invest- ment mode” on mobility projects, Fields said. “Clearly the investments we’re making in emerging opportunities, whether it’s electrification or autonomy or mobility, will impact our earnings. Further out, those businesses will start to contribute to the company’s bottom line.”
33
NOVEMBER 2016 • SPOTLIGHT ON BUSINESS
Made with FlippingBook - Online magazine maker