Ford to stop selling all but 2 models of cars in North America

DEARBORN, Mich. (AP) – Ford Motor Co. said Wednesday it will shed most of its North American car lineup as part of broad plan to save money and make the company more competitive in a fast-changing marketplace.

The changes include getting rid of all cars in the region during the next four years except for the Mustang sports car and a compact Focus crossover vehicle, CEO Jim Hackett said as the company released first-quarter earnings.

The decision, which Hackett said was due to declining demand and profitability, means Ford will no longer sell the Fusion midsize car, Taurus large car, CMax hybrid compact and Fiesta subcompact in the U.S., Canada and Mexico.

Exiting most of the car business comes as the U.S. market continues a dramatic shift toward trucks and SUVs. Ford could also exit or restructure low-performing areas of its business, executives said.

The company has found another $11.5 billion in cost cuts and efficiencies, bringing the total to $25.5 billion expected by 2022, Chief Financial Officer Bob Shanks told reporters. Savings will come from engineering, product development, marketing, materials and manufacturing. The company previously predicted $14 billion in cuts by 2022.

One-third of Ford’s belt-tightening will come by the end of 2020, Shanks said.

“We’re starting to understand what we need to do and making clear decisions there,” Hackett said.

Ford also promised to raise its operating profit margin from 5.2 percent to 8 percent by 2020, two years earlier than a previous forecast. That includes a 10 percent pretax margin in North America.
The company said its first-quarter net income rose 9 percent due largely to a lower income tax rate.

Ford made $1.74 billion from January through March, or 43 cents per share, compared with $1.59 billion, or 40 cents per share a year ago. Revenue rose 7 percent to $41.96 billion.

Earnings and revenue beat Wall Street estimates. Analysts polled by FactSet expected 41 cents per share on revenue of $36.78 billion. As usual, North America drove Ford’s profits for the quarter with pretax earnings of $1.9 billion.

Pretax automotive earnings fell $443 million to $1.7 billion, mainly due to higher metals costs such as steel and aluminum.

Investors reacted favorably to the earnings. Ford stock rose nearly 3 percent in after-hours trading Wednesday to $11.40. Through the close of regular-session trading Wednesday, it has fallen about 11 percent so far this year.

The cost savings will come by optimizing digital marketing and discounts on vehicles, as well as putting multiple vehicles on five flexible global architectures in the next few years. The company currently builds vehicles on nine platforms that aren’t as flexible.

Shanks said Ford is “unleashing the creativity of the teams to challenge norms, challenge conventions.” Cuts and efficiencies are not done yet, he said.

Ford will cut $5 billion from capital spending from 2019 to 2022, reducing it from $34 billion to $29 billion. The company will spend less on low-performing areas such as cars. It identified Lincoln as a low-performing area but Shanks said sales are growing and the brand is not in jeopardy. More capital will be allocated to higher performing areas such as trucks and sport utilities, he said.

Lower-performing areas will be targeted for restructuring and some areas could be targeted for “disposition,” Shanks said. Shanks defined disposition as a different business model, efficiency improvements, exiting or downsizing. “Whatever it takes,” he said.

Shanks wouldn’t say if employees would be cut but said nothing is off the table.

Executives talked about the need to further improve operations in Europe and South America.

“We’ll restructure as necessary and we’ll be decisive,” Hackett said.


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Author: Associated Press
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Ford CEO’s Cost-Cutting Strategy in Focus During Earnings Slump

Auto maker is ‘burning a lot of cash in a lot of places,’ says one analyst

Ford Motor Co. Chief Executive Jim Hackett spent his first year in the job hammering away on the need to cut costs, aiming to slash $14 billion by 2020 and prodding its 202,000 employees to get more financially “fit.”

When Mr. Hackett took the post in May, he sought to jump-start Ford’s response to a rapidly changing business in which auto makers are increasingly focusing on electric cars and autonomous vehicles. To find the money to finance such projects, the new CEO had to look for savings. Analysts are expecting to see more details on cost cuts when the No. 2 U.S. auto maker reports quarterly results Wednesday after the closing bell.

Mr. Hackett is running a company with an operating margin below that of both General Motors Co. and the smaller Fiat Chrysler Automobiles NV in the fourth quarter. Ford’s annual 5% operating margin trails GM’s 9%, and is lower than its internal long-term target of 8%.

First-quarter earnings highlight a shift in the Motor City. Ford emerged from the financial crisis as the healthiest U.S. auto maker and held that crown for several years. Today, however, Ford’s market value of $43.2 billion is closer to Fiat Chrysler’s valuation than GM’s, a trend that has sharply accelerated since Mr. Hackett took the helm.

Mr. Hackett needs to address Ford’s spending habits. In the critical area of engineering, research and development, Ford’s $8 billion budget last year outpaced GM’s by nearly 10%, even though GM sells far more cars globally and has more advanced electric cars. In addition, Ford also dished out more to cover warranties and materials. And Ford’s overall head count increased in 2017.

“They are burning a lot of cash in a lot of places,” said Rod Lache, an auto analyst with Deutsche Bank Securities. Ford’s automotive operating cash flow slipped 40% last year, and the company’s annual profits are projected by Wall Street analysts to drop 12% in 2018, even though first-quarter earnings are expected to increase.

Mr. Lache, who expects Mr. Hackett to elaborate on his restructuring plan during the earnings call this week, said GM and Fiat Chrysler have been far more decisive in exiting money-losing parts of the business, such as unprofitable car lines or geographic markets that return little or no profit.

“Ford really never went through this,” Mr. Lache said. “That’s ultimately come home to roost.”

Sinking more money into engineering cars with pricier materials, engines and features has helped Ford better meet fuel-economy targets and boost transaction prices of profitable trucks. But the Lincoln lineup and certain passenger-car lines can require steep discounts that erode or erase margins.

Mr. Lache estimates 60% of the volume delivered in the U.S. was sold at a price below the industry average.

Mr. Hackhttett plans to shift about $7 billion in spending away from small cars and sedans and move it toward development of more profitable trucks and sport-utility vehicles. He also is increasing investment in electric, autonomous and internet-connected cars.

If he succeeds, Mr. Hackett could polish Ford’s image and brighten the investment case. The road ahead, however, will be bumpy.

Ford’s own outlook for 2018 calls for a third consecutive year of earnings decline. Operations in South America and India are losing money, and sales in China slid 19% in the first quarter, a decline that could further pressure earnings.

 

“There won’t be much to get excited about with the Ford story until 2019, or perhaps 2020,” Brian Johnson, a Barclays analyst, wrote in a recent research note.

 


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Author: Christina Rogers
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To Buy a Car in China, Hit the Vending Machine

Internet giant Alibaba aims to disrupt China’s auto retail landscape with an experiment that sidesteps car salesmen

GUANGZHOU, China— Eric Zhou is interested in buying a Ford Kuga sport-utility vehicle. So last week, he picked up the car for a three-day test drive from a vending machine.

Mr. Zhou never visited a dealership or spoke to a salesperson. He booked the test drive online, then showed up at a service center where employees can identify would-be buyers using facial-recognition technology. His SUV was then delivered from the eight-story “vending machine”—essentially an automated parking garage.

“This is so much more efficient and convenient than traditional dealerships,” said Mr. Zhou, 38 years old.

It’s the first of several such car-vending centers that Chinese e-commerce giant Alibaba Group Holding Ltd. plans to open across China this year—part of the company’s latest effort to translate its success in online retailing to the physical shopping world.

Alibaba is betting on the experiment to succeed in China, where consumers have enthusiastically embraced the e-commerce economy. Mr. Zhou buys clothes, home appliances and even the construction materials needed for his recent home renovation without going into a traditional store.

The car-vending concept has been tried in the U.S.—with limited success. Carvana, a used-car dealer in Phoenix, has been operating such structures since 2013. Customers can search for, purchase, finance and trade-in vehicles online, then have the option of picking it up from a giant vending machine filled with cars.

But the model hasn’t taken off more broadly in the U.S., where many consumers prefer to negotiate a deal in person, and have the salesperson help them with tasks such as pairing their smartphone with a car’s Bluetooth, said David Sullivan, a Michigan-based analyst with AutoPacific Inc.

China’s automotive retail climate is different—and ripe for disruption, analysts say.

China’s consumers, often first-time car buyers, are more open to trying out new concepts, said Dean Stoneley, Ford’s Asia Pacific vice president for marketing. Ford has seen sales in China decline sharply in recent months as domestic competitors become more popular. Ford is now searching for new ways to engage customers, as more and more go online to do their car-buying research, Mr. Stoneley said.

“A car vending machine is the ultimate word in friction less commerce—you don’t have to deal with salespeople trying to talk you into things you don’t want, and you don’t have to haggle over price,” said Jessica Wolfe, a principal in the Consumer and Retail practice of A.T. Kearney, a consulting firm. “You can think for yourself, do the research, and make the purchase when you’re ready on your phone. That’s exactly how millennials like to transact.”

At the vending center, attendants are available to explain a car’s basic features and to answer questions. Ford said each car has contact details of local dealerships where customers can go with questions or problems.

China’s internet giants are experimenting with bringing the principles of e-commerce into other corners of the physical retail world as well. Just as Amazon.com Inc. is experimenting with unmanned supermarkets, Chinese e-commerce companies are taking stakes in malls and supermarkets, digitizing such operations as they seek growth beyond their core online retail business. In some cases, they’re aiming to use the vast troves of data they have gleaned from e-commerce to change the way consumers shop in the real world.

Alibaba is experimenting with using augmented reality mirrors and vending machines in malls to allow consumers to “virtually” try on various lipstick colors and buy them on the spot through Alibaba’s online platforms.

JD.com Inc., which made its name in online ordering and delivery, is also getting into brick and mortar with a chain of clerk less convenience stores where shoppers can pay using facial-recognition technology.

Under the auto vending-machine program rolled out by Alibaba last week, customers go to Alibaba’s Tmall website to book the test drive, which is free for those with high scores on the Sesame Credit rating system by Alibaba affiliate Ant Financial Services Group. Without a high credit score, consumers have to fork out 99 yuan ($16) to test-drive selected Ford sedans and 198 yuan for other models including a Ford Mustang sports car.

Alibaba is currently offering only Ford models, but it is in talks with other foreign and domestic brands to expand the inventory, said Lu Huan, the marketing director for Tmall’s automotive division.

The vending machine in Guangzhou saw brisk business on its first day of operation. In the first two days, Ford received 450 orders to test-drive the vehicle, Mr. Stoneley said. Ford declined to say if the new approach has resulted in any sales yet.

The vending machine helps to ease anxiety for potential car buyers, who are often tense when they enter a dealership expecting a hard sell, said James Chao, a Shanghai-based automotive consultant at IHS Markit.

Still, Mr. Chao said car brands face a challenge with this approach: Without a salesman, it may be tougher to convert a test drive to an actual sale, or to respond to customer feedback in the process.

“With extended test drives you don’t have someone seated next to you, listening to your feedback and trying to overcome your objections,” he said. “That’s one of the reasons that the auto retail process has stayed the same in the last 30 years.”

 


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Author;  Liza Lin
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Ford could make electric cars in Germany after 2023

FRANKFURT (Reuters) – Ford could make electric cars in Germany after 2023, when the life cycle of Ford’s Fiesta model is due to end, the head of the carmaker’s German business told a paper, adding he would welcome state subsidies to support the shift.

“Purely hypothetically that (2023) could be a good time for it,” Gunnar Herrmann told German business daily Handelsblatt in an interview published on Tuesday,

He said it would take around 15 months to retool the company’s plant in Cologne but said it would not be worth the investment if sales of electric cars reached only 30,000 or 40,000 vehicles a year.

“It will be possible if the sales’ numbers are moving up more powerfully. Unfortunately, today electric cars are not especially profitable yet,” said Herrmann.

German premium carmaker BMW last week echoed Hermann’s comments, saying it would not mass produce electric cars until 2020 because its current technology is not profitable enough to scale up for volume production.

U.S. carmaker Ford plans to invest $5 billion in electric vehicles by 2022 and introduce at least 13 electric or hybrid models worldwide in the next five years and aims to make its first fully electric vehicle in Europe in 2020.

Herrmann suggested that the western German state of North Rhine-Westphalia, where Ford’s Cologne plant is located, could offer subsidies to support the shift to electric vehicles.

“The state could do its part to initiate the structural shift, as could the federal government,” he said.

Germany’s new coalition government plans to ease the tax burden on drivers of electric vehicles, provide at least an additional 100,000 charge points across the country and subsidize car-sharing to push a shift to greener transportation.

There are also plans to provide funding for research into autonomous driving technology and support the establishment of battery cell production in Germany.


 

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