Why 2017 Was a Year to Remember for Ford Motor Company
John Rosevear, The Motley Fool
Updated
2017 started out as a year to forget for Ford Motor Company (NYSE: F). The company gave pessimistic guidance in January, followed it up with a rough first quarter -- and then fired its CEO.
Have things changed since? It's not yet clear, but there's a chance 2017 will go down in Ford's history as a significant year for good reasons. Here are the highlights.
Bill Ford and Mark Fields are shown standing next to a red 2018 Ford F-150 pickup.
Ford's executive chairman, Bill Ford, and then-CEO Mark Fields began 2017 by showing off a revamped 2018 version of the huge-selling F-150 pickup. But Fields would be gone before the 2018 F-150 hit the market. Image source: Ford Motor Company.
January: Ford predicts that profits will decline
In a presentation in January, then-CEO Mark Fields explained that Ford's profits were likely to decline in 2017, as the company ramped up spending on new products and advanced technologies like self-driving systems and electric drivetrains.
What Fields didn't explain was how all of that spending would eventually pay off, and when. That didn't seem like a big deal to most observers at the time, but it turned out to be one reason Fields' days as CEO were numbered.
April: Ford's first-quarter profit declined 36%
Ford's first-quarter result wasn't happy news: Net income fell 36% from the year-ago period, to $1.6 billion, on increased costs. A lot of that was the ramped-up spending we had expected, but some of it wasn't: Ford spent $295 million on recalls in the quarter.
That year-over-year decline looks big, and it was. But to be fair, it was a tough comparison: The first quarter of 2016 was Ford's most profitable quarter ever.
May: Out with Fields, in with Hackett
After months of frustration with Ford's stalled stock price, the board of directors abruptly ushered CEO Mark Fields into an early retirement on May 22. His successor was a surprise: Jim Hackett, the former Steelcase CEO who had joined Ford to run its future-mobility subsidiary.
Jim Hackett and Bill Ford are shown seated before a large Ford-logoed backdrop.
Bill Ford, right, introduced Jim Hackett as Ford's new CEO in May. Image source: Ford Motor Company.
Hackett had no prior experience running an automaker, but he was (and is) known as a deep thinker who is well-attuned to future-technology trends. Ford's board, led by chairman Bill Ford, saw in Hackett a leader who could realize their vision of Ford as a provider of "personal mobility" as well as a builder of vehicles.
A larger shakeup of Ford leadership followed
Hackett's promotion was the beginning of a larger shakeup at Ford. He immediately appointed Jim Farley, Joe Hinrichs, and Marcy Klevorn, all highly regarded Ford veterans, to newly created roles as presidents of "global markets," "global operations," and "mobility," respectively.
What does that all mean? Think of it this way: Hackett essentially split a traditional chief operating officer's role between the three. Hinrichs is in charge of product development and manufacturing, Farley leads Ford's regional business units and the Lincoln luxury brand, and Klevorn runs information technology, digital services, and the future-mobility subsidiary.
(Your humble Fool interviewed Hackett and his boss, executive chairman Bill Ford, a few hours after the news was made public. You can read that interview here.)
Ford announced a more expansive management shuffle on May 25, three days after Hackett became CEO, in which a slew of well-regarded Ford veterans moved into new roles.
July: Ford's profits rise -- thanks to a tax maneuver
Ford's result in the second quarter of 2017 was a decidedly mixed bag. On the one hand, adjusted pre-tax profit fell 16% to $2 billion on higher commodity costs and unfavorable exchange-rate moves, despite good sales of Ford's high-profit pickups.
On the other hand, Ford's net income rose slightly after the company gave itself a tax break: Ford's accountants had found ways to use overseas losses to reduce the company's taxes by $421 million in the quarter.
Signs of change: Automated pizza delivery and cheap electric cars
Hackett hadn't yet articulated a detailed plan for Ford, but evidence of his thinking began to become visible in some new Ford initiatives beginning in August. Among them:
A partnership with Domino's Pizza (NYSE: DPZ) in which the two companies began testing the idea of a self-driving pizza-delivery vehicle (a highly modified Ford Fusion).
A deal with a small Chinese automaker, Anhui Zotye Automobile, to explore the idea of building a new range of affordable electric vehicles in China. (That deal led to the formation of a new joint venture in November.)
A white Ford Fusion sedan with Domino's logos and visible self-driving hardware is shown outside a Domino's restaurant.
Automated pizza delivery? Ford and Domino's began testing the idea in August. Image source: Ford Motor Company.
October: Hackett shows his plan for Ford
Hackett presented his strategy for Ford to Wall Street analysts on October 3. The presentation was short on specifics; instead, Hackett explained the general direction of his thinking about Ford's future, and how that might play out in several parts of the business.
In a nutshell, Hackett's plan is to improve Ford's "financial fitness" by reducing product complexity, taking better advantage of its global scale, and shifting investments toward higher-return opportunities (for instance, spending more on higher-margin SUVs and less on lower-profit sedan models.)
A key observation from the presentation: Ford's revenue has grown significantly over the last several years, but so have its costs. By slowing the rate of cost growth, Hackett hopes to improve Ford's profit margins over time.
Ford's third-quarter profit jumped 63% -- but that's not as good as it sounds
Ford reported its third-quarter earnings in late October, and at first glance, they looked great: The Blue Oval's net income rose a whopping 63% to $1.6 billion, a gain that Ford attributed to (among other things) cost reductions and strong pickup sales.
Was Hackett's vision already becoming reality? Not quite. While Ford's pickup sales did generate a lot of profit, much of the year-over-year gain had to do with the expensive launch of Ford's all-new Super Duty pickups in the third quarter of 2016.
The truth is that the third quarter of 2017 was only so-so for Ford, as its margins were squeezed by ramped-up discounting in a stalled market. But a tough year-ago result made for a flattering comparison.
A high-performance "Raptor" version of the Ford Ranger pickup undergoing testing in the Australian outback.
Coming in 2018: The midsize Ford Ranger pickup returns to the U.S. lineup. Image source: Ford Motor Company.
Up next in 2018: A new Ranger and more details on Ford's future
Ford plans to begin producing a new version of its midsize Ranger pickup for the U.S. market late next year. It's expected to show the new Ranger at the North American International Auto Show in January.
Around the same time, Ford will release its guidance for 2018. That should give us an answer to the big question hanging over Ford right now: How quickly will Hackett's efforts lead to profit growth?
The near-term outlook for Ford's stock will hang largely on the answer to that question.
