Ford CEO Issues No-nonsense Letter to Employees, Seeks Doubling of Profits
Ford’s chief executive, Jim Hackett, told employees Thursday evening that 2019 cannot be a repeat of last year.
“2018 was mediocre by any standard,” Hackett said in an email to employees. “Yes, we made $7 billion last year. But think of it this way: this represents a 4.4 percent operating margin, about half what we believe is an appropriate margin. So we are aiming for much closer to $14 billion.”
Despite being at the helm of The Blue Oval for nearly two years. Hackett’s Ford continues to endure a slipping share price and a market cap of 34.5 billion — substantially less than General Motors’.
“I become mad for a short time. Likely mad at myself, but also because I know we are better than that,” the CEO said of Ford’s current situation. “I know that our competition hasn’t been better than us by magic.”
Reuters, which was the first to report Hackett’s letter to staff, outlined recent moves aimed at making the company more competitive, while also citing its current financial situation. Ford, which announced fourth-quarter results on Wednesday, reported a $7 billion operating profit for 2018, with a profit margin of 4.4 percent. That’s significantly less than 2017’s 6.1 percent, but last year wasn’t particularly kind to the industry as a whole — giving Ford an easy out that Hackett wisely isn’t interested in taking.
He claimed it was “time to bury [2018] in a deep grave, grieve over what might have been and become super focused on meeting, and, in fact, exceeding this year’s plan.”
Ford’s already trimming down its lineup and restructuring its global operations, including plans for widespread job cuts in Europe. It also recently announced an alliance with Volkswagen to jointly produce commercial vehicles before potentially moving on to co-developed electric and self-driving vehicles. Hackett claimed Ford accelerated its timeline for the introduction of new EVs and the electrification of its broader portfolio since taking the helm of the company.
Hackett’s letter also asked what the company could do about China, a region where General Motors has thrived and most other automakers see a future, but Ford has repeatedly struggled with.
[Image: Ford Motor Co.]
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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Somehow, I don't believe this is all on Mark Hackett. His board, like a lot of stockholders, demands huge results at any cost. What usually happens is the executives capitulate, the stock goes up quickly and dramatically, and...the stockholders sell for a quick profit and go after someone else's company. And everyone's happy. Well, everyone except the employees that got laid off, the employees that are about to be laid off (from a severely weakened company), the customers who have an inferior product, the dealers who now have to sell an outdated product (because the R&D teams are usually the first to go), and the stakeholders. But the executives get their bonuses, and the stockholders got their profits, so they're happy enough for all of them!
He's concerned about margin, yet so far most of the plans and direction we've heard are margin constraining. Mass electrification, mobility dead ends, making their highest margin vehicles with needlessly expensive materials and tech. With all this whiz bang talk, they can't seem to get customers to pay more to make up for increased costs. Ford needs to wake up and realize that it's a mainstream automaker and not some glamorous tech company. Wall Street isn't buying it and neither do customers. They've made a move to cut cars which will improve margin but decrease revenue. I'm not saying they shouldn't have done that because I don't believe they could effectively increase margins on cars. But while the margin looks better on paper, you can't put margin in the bank either.