What Ford's big news means for Michigan

Ford hosted more than 100 Wall Street analysts and investors in Dearborn on Wednesday and spent four hours explaining why they should buy into the automaker's vision for the future as it navigates a rapidly changing industry and expands into transportation services.

The session was remarkable in terms of its scope and the level of detail the automaker presented about its strategic vision for the next several years.

Here are some of the key things the automaker revealed:

Moving to Mexico: Ford confirmed plans to move all small car production to Mexico and once again created a stir in the U.S. presidential campaign.

"Over the next two to three years, we will have migrated all of our small-car production to Mexico and out of the United States," said Ford CEO Mark Fields.

This isn't exactly new, but it is jarring news for many. Ford said in April it would spend $1.6 billion to build a new plant in Mexico and will build small cars in that plant and said last year it would end production of the Ford Focus and Ford C-Max in Wayne in 2018.

Does this mean there will be job losses? No. Ford made a commitment last fall to invest $9 billion in U.S. plants and create or retain more than 8,500 jobs as part of a new four-year contract with the UAW. Of that, $4.8 billion goes to 11 facilities in Michigan.

Ford is doubling down on electric cars: Despite tepid industry sales of electric cars, Ford said it will spend $4.5 billion to develop more than a dozen new electrified models by 2020.

Fields said the automaker is confident there is a big future for electric vehicles in part because the cost of lithium ion battery packs continues to drop significantly.

Ford isn't worried about being late on autonomous vehicles: Ford has said it will introduce a fully autonomous vehicle by 2021. That's later than the time frame for other automakers. Meanwhile, ride-sharing company Uber has already deployed a small fleet of semi-autonomous cars in Pittsburgh.

"I am worried about perhaps an introduction of the technology before it is ready by someone," said Raj Nair, Ford's group vice president of global production. "A premature introduction, an introduction as a development test, in my view, might be premature …and damaging to the industry."

Major acquisitions unlikely: Ford has announced a number of acquisitions and investments in recent months related to its push into mobility, autonomous vehicles and transportation services.  But it has made relatively small investments in small companies instead of major acquisitions and that's not likely to change. Ford showed investors a chart outlining its capital expenditures over the next three years that only includes small slivers to represent money set aside for mergers and acquisitions.

Still, Fields emphasized Ford remains open to larger acquisitions if the opportunity is right.

Ford hasn't made up its mind on a ride-sharing partnership: While General Motors has invested $500 million for 9% of Lyft and Toyota has invested in Uber, the Dearborn automaker is still watching to see how it all shakes out.

"We haven’t ruled out either doing ride-sharing or ride-hailing on our own or through partners," Fields said. "We may decide it would be better to do it with partners or to do it on our own."

Don't say "Ford Mobility Company:" Despite Ford's commitment to become "a mobility company and an automotive company," Ford says it will remain focused on making cars and trucks and even got a little sensitive about the suggestion a name change would make sense.

"So as we think about Ford Motor company morphing into Ford Mobility Company," said Bank of America Analyst John Murphy as he began.

"We are NOT changing our name," Fields interjected before he could finish his question.

Why invest in transportation services? Why would a manufacturer of cars and trucks want to get into the transportation services, or mobility business? For the money.

Ford estimates that the global automotive industry generates $2.3 trillion in annual revenue while transportation industry represents $5.4 trillion in annual revenue.

In recent years, the automaker has been able to earn a profit margin of about 10% or more in North America. In the transportation business, Ford thinks its profit margins will exceed 20%. Also, the automotive industry is notoriously cyclical while the transportation business provides a steady stream of revenue.

Profits are falling: Ford expects that its 2017 profit will fall below the $10.2 billion estimated for this year due to spending on emerging new mobility opportunities, potentially higher material costs and unexpected recalls.

Financially sound, bright future: Despite a short term decline in profits Ford's top executives said the automaker is in vastly better financial shape than for most of its recent past.

Despite rising costs for capital expenditures CFO Bob Shanks said the automaker will be able to maintain $20 billion in cash on hand over the next three years and is in a far better position to withstand a downturn in the industry or a recession.

“Operationally, financially, we are not the Ford of the past," Shanks said.

Final pitch: 

"We’ve given you clear evidence that Ford is a solid investment with an attractive upside," Fields told Wall Street analysts and investors as the event wrapped up. "I believe we have made the case that answers the question of of why Ford and why now."

Final verdict? It likely will take some time for investors and Wall Street to digest the 130-page slide deck and daylong event, but the early verdict probably disappointed Ford.

 

The company's stock price down 24 cents, or 1.9%, to close at $12.14 per share. Ford's stock has dropped 13.8% since the start of the year.

(2016 © Detroit Free Press)


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