The surprising departure of CEO Mark Fields from Ford Motor Company (NYSE:F) stock already has had a modest impact on Ford stock.
In fact, F stock rose a bit over 2% on the news.
Of course, Ford stock was trading at its lowest levels in over four years, save for a short-lived dip in mid-2015. That performance in F stock was a key reason for Fields’ departure. But Fields wasn’t the only reason for the decline in Ford stock, and he’s far from the only CEO with questions about his performance.
As such, investors expecting a quick return to glory for the company, or a sharp rebound in Ford stock, under new CEO Jim Hackett are likely to be disappointed.
Our James Brumley argued that Ford would regret hiring Hackett, but I’m not quite that pessimistic. At the same time, however, the company’s challenges aren’t all self-inflected, and they aren’t all fixable. That’s the real problem for F stock, and for Hackett — even improved leadership might not be enough.
‘Peak Auto’ Concerns for Ford Stock
In some quarters, Fields’ departure was blamed on Ford’s lack of development in electric vehicles and autonomous driving. In that telling, the hiring of Hackett — who headed Ford’s tech-heavy Mobility business — was an effort to speed up Ford’s competition with Tesla Inc (NASDAQ:TSLA), Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Waymo and other forward-thinking companies.
There may be some truth to that. But F has problems in the near-term that go beyond the long-term risks of self-driving cars on automotive production. It certainly looks as if near-term demand for new cars has peaked, as pent-up demand dating back to the financial crisis finally has been met. In April, a Toyota Motor Corp (ADR) (NYSE:TM) executive predicted an industry-wide decline going forward. Other analysts and executives have made similar predictions.
The worst-case scenario for Ford stock is that 2016 truly was “peak auto”. In that outcome, decline recedes after record sales over the past few years, and then it is further depressed by cyclical weakness. (Keep in mind that the U.S. is heading into year nine of its economic recovery, the longest on record.) By the time that cycle turns, the billions invested in autonomous driving technology has irrevocably changed the nature of the business.
Hackett’s hiring may be a way for Ford to tackle the longer-term risks inherent in the business. But neither he nor Ford has the ability to change the short-term concerns on their own.
A Ford Turnaround Won’t Be Easy Or Quick
Much of the coverage surrounding Hackett has focused on his efforts at the University of Michigan, and his tenure at Steelcase Inc. (NYSE:SCS). In both cases, Hackett is credited with turning around the organizations.
But neither job compares to F. When Steelcase went public in 1998, four years after Hackett took over, it had sales of $2.8 billion. Ford has trailing twelve-month revenue of $153 billion — more than 50x that amount. Changing Ford, as the old saying goes, is akin to turning around a battleship. It will take years to change the culture at F. Any changes in product strategy won’t be seen on showroom floors for at least two years, given the development cycle in the business.
And the glowing reviews of Hackett’s tenure at Steelcase elide some of the details of that company’s performance. Steelcase was a mess when Hackett took over in 1994. But Steelcase also opened at $28 on its first day of trading in 1998. It traded around $17 when Hackett retired in 2014. The office furniture space has been troubled, to be sure. Shares of rival Herman Miller, Inc. (NASDAQ:MLHR) stock barely moved over that 16-year stretch.
But Steelcase revenue over the last twelve months is just $3.1 billion — up 10% since its IPO. The performance of the company and the stock is proof that even a successful turnaround doesn’t guarantee an increased share price. That’s doubly true in a declining industry, as Hackett learned at Steelcase.
Short-Term Concerns for F Stock
There’s one more piece of bad news coming out of the CEO change. It almost certainly implies that 2017 sales and earnings expectations have to come down. Ford earnings did beat lowered expectations in Q1, but it seems highly unlikely that Fields would exit amidst a roaring Q2.
Rather, Ford likely is in for a rough couple of quarters, which is likely to keep a lid on F stock. Again, that doesn’t necessarily break the long-term case for the stock. But it does imply that a better price for that stock might be on offer at some point as the year plays out.
All told, it’s too early judge Ford’s hiring of Hackett. But what’s clear at the moment is that a new CEO isn’t a quick fix for Ford Motor Company – or for Ford stock. Hackett has his work cut out for him because Ford has a lot of challenges. And the concern has to be that neither Hackett nor F has enough time, or enough ability, to solve all those problems.
As of this writing, Vince Martin did not hold a position in any of the aforementioned securities.