Ford Motor Company Update
"A leader is best when people barely know he exists, not so good when people obey and acclaim him, worse when they despise him. But of a good leader who talks little when his work is done, his aim fulfilled, they will say, 'We did it ourselves.'." -- Lao Tzu
It never ceases to amaze me how incredibly brilliant our ancestors were. Somehow many of us are conditioned to believe we are more intelligent than those before us. Nothing could be further than the truth. We have more accumulated knowledge as a global society but the minds of our ancestors could be brilliant business leaders, inventors, artists, scientists, teachers and the like in today's world. This quote remains some of the most prescient words on leadership ever spoken. And they were spoken thousands of years ago. Forget about the latest leadership schemes, gimmicks and strategies of the moment meant to sell books. True leadership strategies are timeless as are their virtues.
First off, all of the perspectives on macro issues I've posted on here remain my view unless I've followed up with a different viewpoint. On that note, one topic I feel compelled to update is my position on Ford's stock. I haven't done any recent analysis but it's apparent the price is weakening and the upward pricing action that gave some downside protection is basically gone.
I remain very bullish on the American auto industry long term but with economic fundamentals deteriorating, those turnarounds are likely to face very significant headwinds. As we discussed before, bullish on the company's prospects doesn't always translate into bullish on the stock. Especially when fundamentals aren't aligning with a turnaround.
I also find it ironic that while everyone was telling us to buy Toyota's stock some time ago, I was and remain negative on its outlook. In fact, since I wrote that commentary, Toyota's stock has collapsed and a quick look has the stock down over thirty percent while Ford has remained flat to up in price. Too many people that didn't understand the global economic risks or the massive transformational efforts of U.S. automakers were piling into Toyota. As we discussed before, Toyota has been taking candy from a baby in the form of GM, Ford and Chrysler. Those days are gone forever. Toyota remains a great company but on a go forward basis, they will face formidable competitors in resurgent U.S. auto manufacturers. As time goes on and transformational efforts gain more traction, Toyota's dominance will be pushed like never before. Toyota's foray into large, expensive automobiles, SUVs and pickups makes them very vulnerable to a global slowdown. Their product mix has never been so vulnerable and that translates into significant risk not priced into the stock. Honda, on the other hand, has maintained a more conservative product stance and that is one reason I have expressed my belief that Honda is the best managed car company on earth. Honda remains focused on engineering excellence while Toyota has become partially focused on growth for the sake of growth. The desire to unseat GM as the world's largest automaker will likely cause Toyota much pain. Pain caused by straying from the company's core principals.
Ford is making tremendous progress in its efforts and astonished Wall Street recently with results much better than anticipated. All of this with a poor product mix and dated designs in its core U.S. markets. These issues will be addressed over time. (Bring over some of those awesome Ford designs from Europe!) Ford is moving aggressively to a global product development strategy, global engineering and global procurement. These strategies will pay of very handsomely in speed to markets, strategy, execution and profits. Mulally has also jockeyed to put finance where it needs to be in a design and engineering company: in an important support role. Finance should not be telling engineers and designers how to build a car as was the case at Ford. As Henry Ford told us, finance should run banks not car companies. This change in strategy will give opportunity to the creativity of Ford's tremendous intellectual capital to rise to the challenge. Mulally has shown a deft hand at empowering his team and working with the rank and file as opposed to legacy American auto executives who lay blame to paying a decent wage for their market place ills. The primary objective of any CEO and Mulally in this turnaround is to unlock the economic capital inside of one of the world's richest intellectual companies. Not run roughshod over it as a domineering "fix-it" guru as is so typically believed. That is why Lao Tzu's quote is timeless. The employees and their cumulative genius will save Ford. It is a leader's job to empower those employees and create an environment conducive to success. The only thing Mulally needs to fix is the focus on personal responsibility, organizational structure, strategy and alignment of resources. The rest will fall into place.
I am very bullish on Ford's decision to sell Aston Martin, Jaguar and Land Rover. I would be even more bullish if they would sell Volvo. And, if they would do it quickly. The volumes at Volvo are insignificant to the long term health of Ford and premium brands will represent serious risk and drag on operations for some time. The buyers of these brands are likely top ticking the premium auto market and will be left holding the bag. Good for Ford. Bad for private equity and other potential buyers. These acquisitions never should have happened in the first place and were a result of pressure by Wall Street in the "bigger is better" automotive merger wave and very poor management decisions.
I mentioned the risk of bankruptcy earlier and while I believe those risks for American auto makers remain remote, they do exist and could rise. With Ford's stock floating in a band of long term support and with cash flow moving in the right direction, I don't foresee a break down in its price but anything is possible given the unfolding global dynamics. Therefore, with the accumulated downside protection in the stock evaporating, I prefer to revisit Ford's stock at a later time for possible purchase.
UPDATE: To answer a question, I am not bearish on the long term viability of Toyota. Toyota is one of the greatest companies on earth. I am bearish on the stock because of changing fundamentals.
It never ceases to amaze me how incredibly brilliant our ancestors were. Somehow many of us are conditioned to believe we are more intelligent than those before us. Nothing could be further than the truth. We have more accumulated knowledge as a global society but the minds of our ancestors could be brilliant business leaders, inventors, artists, scientists, teachers and the like in today's world. This quote remains some of the most prescient words on leadership ever spoken. And they were spoken thousands of years ago. Forget about the latest leadership schemes, gimmicks and strategies of the moment meant to sell books. True leadership strategies are timeless as are their virtues.
First off, all of the perspectives on macro issues I've posted on here remain my view unless I've followed up with a different viewpoint. On that note, one topic I feel compelled to update is my position on Ford's stock. I haven't done any recent analysis but it's apparent the price is weakening and the upward pricing action that gave some downside protection is basically gone.
I remain very bullish on the American auto industry long term but with economic fundamentals deteriorating, those turnarounds are likely to face very significant headwinds. As we discussed before, bullish on the company's prospects doesn't always translate into bullish on the stock. Especially when fundamentals aren't aligning with a turnaround.
I also find it ironic that while everyone was telling us to buy Toyota's stock some time ago, I was and remain negative on its outlook. In fact, since I wrote that commentary, Toyota's stock has collapsed and a quick look has the stock down over thirty percent while Ford has remained flat to up in price. Too many people that didn't understand the global economic risks or the massive transformational efforts of U.S. automakers were piling into Toyota. As we discussed before, Toyota has been taking candy from a baby in the form of GM, Ford and Chrysler. Those days are gone forever. Toyota remains a great company but on a go forward basis, they will face formidable competitors in resurgent U.S. auto manufacturers. As time goes on and transformational efforts gain more traction, Toyota's dominance will be pushed like never before. Toyota's foray into large, expensive automobiles, SUVs and pickups makes them very vulnerable to a global slowdown. Their product mix has never been so vulnerable and that translates into significant risk not priced into the stock. Honda, on the other hand, has maintained a more conservative product stance and that is one reason I have expressed my belief that Honda is the best managed car company on earth. Honda remains focused on engineering excellence while Toyota has become partially focused on growth for the sake of growth. The desire to unseat GM as the world's largest automaker will likely cause Toyota much pain. Pain caused by straying from the company's core principals.
Ford is making tremendous progress in its efforts and astonished Wall Street recently with results much better than anticipated. All of this with a poor product mix and dated designs in its core U.S. markets. These issues will be addressed over time. (Bring over some of those awesome Ford designs from Europe!) Ford is moving aggressively to a global product development strategy, global engineering and global procurement. These strategies will pay of very handsomely in speed to markets, strategy, execution and profits. Mulally has also jockeyed to put finance where it needs to be in a design and engineering company: in an important support role. Finance should not be telling engineers and designers how to build a car as was the case at Ford. As Henry Ford told us, finance should run banks not car companies. This change in strategy will give opportunity to the creativity of Ford's tremendous intellectual capital to rise to the challenge. Mulally has shown a deft hand at empowering his team and working with the rank and file as opposed to legacy American auto executives who lay blame to paying a decent wage for their market place ills. The primary objective of any CEO and Mulally in this turnaround is to unlock the economic capital inside of one of the world's richest intellectual companies. Not run roughshod over it as a domineering "fix-it" guru as is so typically believed. That is why Lao Tzu's quote is timeless. The employees and their cumulative genius will save Ford. It is a leader's job to empower those employees and create an environment conducive to success. The only thing Mulally needs to fix is the focus on personal responsibility, organizational structure, strategy and alignment of resources. The rest will fall into place.
I am very bullish on Ford's decision to sell Aston Martin, Jaguar and Land Rover. I would be even more bullish if they would sell Volvo. And, if they would do it quickly. The volumes at Volvo are insignificant to the long term health of Ford and premium brands will represent serious risk and drag on operations for some time. The buyers of these brands are likely top ticking the premium auto market and will be left holding the bag. Good for Ford. Bad for private equity and other potential buyers. These acquisitions never should have happened in the first place and were a result of pressure by Wall Street in the "bigger is better" automotive merger wave and very poor management decisions.
I mentioned the risk of bankruptcy earlier and while I believe those risks for American auto makers remain remote, they do exist and could rise. With Ford's stock floating in a band of long term support and with cash flow moving in the right direction, I don't foresee a break down in its price but anything is possible given the unfolding global dynamics. Therefore, with the accumulated downside protection in the stock evaporating, I prefer to revisit Ford's stock at a later time for possible purchase.
UPDATE: To answer a question, I am not bearish on the long term viability of Toyota. Toyota is one of the greatest companies on earth. I am bearish on the stock because of changing fundamentals.
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