By Peter M. DeLorenzo
Detroit. The news that Ford was cutting most of its passenger car lineup, deleting the Fiesta, Fusion, and Taurus in favor of building more crossovers and SUVs seemed to set off a media firestorm last week. Yes, the Mustang will survive, as will an activity vehicle/wagon based on the Focus imported from China, but from this point forward Ford will be all trucks, crossovers and SUVs, all the time.
Why this news seemed to capture the media’s fancy seemed a little odd to me, considering the fact that this was an American automobile company being proactive while anticipating and positioning itself to take advantage of market conditions that were destined not to change anytime soon. And I am quite sure if this was an imported car company declaring this step, the hand-wringing would be negligible to nonexistent. But then again this is Ford, and the mainstream media feels it is eminently qualified to weigh in on the matter, even if too many of its members are not.
Taking a closer look, on the one hand it’s easy to see Ford’s point of view on this. Keeping plants open to build slow-selling products may have been a signature of Detroit’s “old days” but it is a nonstarter in today’s cutthroat automotive environment, because the burn rate of cash to keep the enterprise afloat is simply too staggering to contemplate. And of the three vehicles in question, the Taurus easily won’t be missed, and neither will the diminutive Fiesta. The Fusion is a worthwhile sedan, however, and I can see why it will be the last of the vehicles to go. (And these products won’t cease to exist this week; it will be a gradual phaseout over the next two years.)
On the other side of the equation, by eliminating these vehicles Ford will be willingly ceding even more market share to the Japanese and Korean manufacturers, who are not walking away from building cars at all. Is it really worth doing that?
But there is a third dimension to this story that people are forgetting. The news of these product moves wasn’t really aimed at public consumption. These moves were squarely aimed at the skeptics on Wall Street who are routinely dismissive of Ford, and who regularly play a role in suppressing the price of Ford stock. In fact, CEO Jim Hackett has been regularly skewered by Wall Street-types for not doing enough in his tenure, and this move was meant to demonstrate to the critics that Ford is moving decisively to position itself for the new normal in the U.S. market by catering to American consumers’ seemingly insatiable desire for trucks, crossovers and SUVs.
When these product moves became public, however, the media jumped all over the news, dredging up what the Taurus once meant to Ford (albeit a long, long time ago) and portraying this development as nothing less than The End of the American Automobile as We Know It. This wasn’t accurate, of course, but for a hectic week in Dearborn the Ford executive team and its PR minions were forced to backpedal and assume a defensive posture, while taking great pains to explain its rationale.
And what the Ford executives were saying made sense of course, as consumers’ need for versatility, usability and adaptability in their vehicles shows no signs of abating, and Ford would be stupid not to reconfigure its product portfolio to take advantage of a trend that is not going away any time soon, as I said previously. Unfortunately, the dominant takeaway in the media and the angle that was splashed over a wide swath of media outlets across the country was that Ford – in spite of all of the explaining and justification for its future product moves – had somehow blown it and even let the American public down, which is a giant bowl of Not Good from Ford’s perspective.
This should be a hard lesson for the denizens of Dearborn, however. Catering to Wall Street is a dangerous game, especially when the domestic automobile industry has always been considered an anachronistic afterthought from a forgotten time languishing in the flyover states. The auto business is too down and dirty for the swells and smugly defined hordes that fancy the bright and shiny objects over everything else, which is exactly why Elon Musk has gotten away with squandering billions while Wall Street keeps propping up Tesla stock against all rational evaluations.
And don’t think ego isn’t playing a role in this either. It grinds the executive team at Ford to no end that GM’s stock has performed appreciably better, and that the GM executive team is considered to have it going on by the Wall Street types, while Ford doesn’t. Jim Hackett in particular has been taking direct broadsides from Wall Street, as they fail to see why they should be buying into Hackett’s somewhat esoteric vision for Ford at this juncture. Hackett has been going on the counterattack to deflect this criticism, embarking on a ruthless cost-cutting initiative that is reaching into every corner of the Ford organization in an effort to demonstrate to Wall Street that it will be lean and fit for the future. (I have one major caution for Mr. Hackett, however, and that is that you can’t cut your way to prosperity in this business; this has been proven time and time again.)
The harsh reality, unfortunately, is that to a large degree Wall Street’s perspective of Ford is not fixable. It is an ingrained notion that, fair or unfair, has been lingering over the company for decades. And there are no switches available to be flipped to fix this either. The bottom line is that the Ford management team’s obsession with justifying the company’s existence for the edification of Wall Street is not likely to yield the results they’re hoping for.
In the meantime, since its future product announcement didn’t exactly set the world afire, the Ford executive team needs to press the reset button and focus on the task at hand. That means focusing on designing, engineering and building the best products they can muster for every segment the company competes in, despite the Wall Street cloud of negativity hanging over them.
Because in the end, there is one fundamental aspect of this business that will never change, and that is that it’s about the product, it has always been about the product, and it always will be about the product.
And that’s the High-Octane Truth for this week.