Is This The End of Ford?

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Last Friday, Ford Motor Company (NYSE: F) announced plans to cut an “unknown number” of salaried positions, with the goal of restructuring the company’s workforce to contain less white-collar employees. By shrinking their corporate presence, CEO Jim Hackett hopes to make Ford more lightweight, while focusing on their best-selling vehicles. Back in late April, Hackett confirmed his company’s strategic elimination of both the Taurus and Fusion from Ford’s fleet of sedans – two cars that ended up hurting profits in the long-run.

The change was spurred on by Ford’s credit rating downgrade in August, which took the company to just one level above junk status.

As one of “the Big Three” automakers (and the largest domestic employer in the bunch), Ford is made up of over 85,000 American employees, and 201,000 worldwide – 70,000 of whom work in salaried positions. Hackett’s most recent announcement could cut that last number down significantly.

Mark Truby, vice president of communications at Ford, said in an interview with the Detroit Free Press:

“We need to dig into the process deeper before we know the absolutes. What we’ve kicked off is a redesign of our global salaried workforce — in North America, Europe, Asia, South America. […] ”

And while Ford revealed their plans on Friday, an internal memo the day before broke the news to employees – letting them know that every department would be subject to scrutiny in an attempt to identify weaknesses that could harm efficiency.

However, in both Ford’s Friday statement and the company-wide announcement on Thursday, no specific strategies were mentioned, nor what departments would be getting the axe. Company representatives say that any future changes will be made public in the coming months, and there will be  corresponding announcements for any major decisions.

Truby, however, gave a more specific timeline:

“This is a process that’s very participatory. People will dig in and think about the organization and the resources needed. This process won’t be completed fully until the second quarter of next year. We’re going to go through various waves. We’re in the early stages.”

If things go according to plan, it looks like Ford – a company that is still profitable despite its many issues – will have a completely different look by Q2 2019, a date that could be the light at the end of the tunnel for bullish investors – many of whom suffered through Ford stock’s four-year drop to around $9 after touching $18 back in July 2014.

The last time Ford shares traded at this price level was all the way back in August of 2012.

The question many investors have asked time and time again, though, is if Ford is actually in trouble and worthy of a sinking stock – after all, the company is profitable for crying out loud!

However, being a prosperous automaker is less about simply being profitable, and more about being able to maintain market share and pricing power. Ford is knee-deep in a hyper competitive, highly capital intensive industry that forces companies to defend their market share in order to gain investor confidence. Profitability is great, but Ford needs to reclaim some territory in Europe, China, and even the American sedan market (don’t forget, they’ve cut the Taurus and Fusion) if a major turnaround is going to happen.

Earnings continue to drop year-over-year, and that’s driven by significant losses in market share – not bureaucratic waste as a result of having too many corporate employees. Ford can restructure its white-collar workforce until it’s blue in the face, but all the efficiency in the world won’t make a difference if their vehicles continue to get suppressed in key markets.

CEO Jim Hackett’s original vision – which included shifting production to Mexico and China – is now crumbling beneath his feet thanks to Trump’s recent trade dealings, and I believe his most recent push to make a leaner, nimbler Ford is a last-ditch effort to stem the decline of what was once a great American automaker.

Investors will likely be satisfied by Friday’s announcement in the short-term, but unless Ford can show that they’re regaining market share (in markets that they seem to have given up on), the next small rally could simply be a road bump en route to yet another steady downwards spiral in share prices.

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