(Article Originally Published on Forbes.com, Oct 29, 2016. Author: Bryce Hoffman)
Investors were understandably underwhelmed by Ford Motor’s third-quarter earnings announcement on Thursday. Even though the automaker beat the Street’s estimates, its earnings were still half what they were a year ago — and this at a time when Ford’s crosstown rival, General Motors, is posting record profits.
There is certainly cause for concern in Ford’s fall. The costly safety recall to fix faulty door latches on more than 2 million vehicles built over the last five years suggests the company has not fully exorcised the gremlins that have long plagued it and the other American automakers.
GM is making big money these days on its big sport utility vehicles, just like it did in the 1990s when oil was cheap and Americans were living large. But we all know how well that worked out.
Once gasoline prices began to rise, consumers could not trade their big SUVs in fast enough, and GM big profits turned into big losses — losses that ultimately helped push the company into bankruptcy.
The same thing happened to Ford too, though the Dearborn automaker was able to pull itself back from that precipice. But while Ford learned from its mistakes, GM seems intent on repeating them.
Today, GM dominates the market for large and luxury SUVs, controlling 49% of that lucrative segment in the United States, according Morgan Stanley. In contrast, Ford’s share accounts for just 13%.
That is by design.
While oil is cheap today, Ford does not believe it will stay that way. And even if it does, Ford knows tough new fuel economy regulations are just around the corner. So it has focused on producing smaller, more fuel-efficient vehicles. Ford is also readying a new lineup of lighter, aluminum-bodied SUVs that promise to give consumers the size they crave with the fuel economy they need when they go on sale next year.
“I would call our approach realism,” Ford CEO Mark Fields said on a conference call with analysts and reporters Thursday. “We do see a marketplace, from a cycle standpoint, that’s matured. We’re being very proactive and taking very prudent actions and realistic actions for our company.”
Field’s contrarian strategy may give GM an edge today, but it puts Ford in a far better position for the future.
Fields deserves a lot of credit for choosing longterm success over short-term profits. It takes courage to do that, particularly when you are running a publicly traded company.
Ford is making another big bet on the future with their plan to build 100,000 robot taxis a year by 2021. Fields and company are taking a lot of heat for that strategy as well — and not just from cabbies. Many investors worry that the automaker is straying to far afield from its core business of building traditional cars and trucks.
Some have even suggested it is not what Fields’ predecessor, legendary Ford CEO Alan Mulally, would have done.
But they’re wrong.
“You’ve got to focus on the plan, but you’ve always got to be working on the better plan,” Mulally told me many times during the years I covered Ford as a journalist.
That is what Ford is doing today: working on the better plan.
Hockey great Wayne Gretzky famously advised skating “ to where the puck is going, not to where it has been.” That is what Ford is trying to do right now. It may mean taking a hit today, but it promises bigger profits tomorrow.
Ford is betting on the future. GM is betting on the past. I know which company I’d put my money on (and in the interest of full disclosure, I do own shares in Ford).
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