Ford’s Big Management Shuffle Is About Changing Perceptions

It is often harder to be a century-old company with a record of profitability than it is to be a young one with potential. This sums up the difference between legacy automakers like Ford and Tesla. With only two profitable quarters in its 14-year history, Tesla’s most recent resulted from strategic timing of paying bills and delivering cars. Meanwhile, Ford—despite periods of losses over its 114-year history—has generated immense profits, including records in the past 2 years. Nonetheless, Tesla is the darling of Wall St., while now former Ford CEO Mark Fields and communications VP Ray Day lost their jobs over the weekend.

In the 3 years since Fields succeeded Alan Mulally, the company’s stock price has dropped more than 35% despite record profits. Pre-tax 2017 profits are projected at $9 billion, which is more than Tesla’s total 2016 revenue of $7 billion. Yet, Tesla’s market cap recently topped that of both Ford and General Motors (GM). Clearly, the markets are placing their bets on the perception of where these companies are going in the coming years rather than on the fundamentals of each business.

Fields has been on point in Ford’s effort to be perceived as a forward-thinking technology company since his 2007 CES debut with Microsoft founder Bill Gates to announce SYNC. Even with repeated Las Vegas keynotes by Fields and Mulally and countless investments in developing automated driving and mobility services, investors perceive Ford and other companies that manufacture and sell physical objects as laggards compared to software startups.

Ford isn’t alone in this perception battle. Most automakers are making the pilgrimage to CES to woo the tech community. While few have been hit as hard as Ford, none of the incumbents are getting the love shown to Tesla.

In our Navigant Research Leaderboard Report: Automated Driving, Ford, GM, Renault-Nissan, and Daimler scored highest and ahead of several technology companies. Waymo is arguably somewhat ahead on the pure technology front, but automakers have necessary pieces such as manufacturing, service, distribution, and support infrastructure to make viable mobility businesses. Additionally, automakers have a proven ability to deliver physical products—not just the components and software that control them.

Ford’s leadership team, including Executive Chairman Bill Ford, EVP Joe Hinrichs, CTO Raj Nair, and many others, all supported the direction the company was heading under Fields. However, investors didn’t seem to believe in it.

During a press conference with new CEO Jim Hackett, Ford and Hackett both emphasized that the overall strategy of transformation into a mobility services company is moving full steam ahead. Hackett, who comes to the role from being chairman of Ford Smart Mobility LLC, aims to reinforce the strategy and focus on executing the plans. The elevation of Marcy Klevorn from CIO to EVP and the newly created role of President, Mobility highlights this ongoing commitment.

While Hackett’s success or failure won’t be evident for several years, Ford still needs to change investor and public perceptions to boost its stock price and the sales of vehicles it has today. That challenging near-term task falls to Mark Truby, who moves over from Ford of Europe to replace longtime PR chief Ray Day. Day and his team have had successes on the product communications front, but changing the overall perception of the company among investors who have favored high flying tech stocks has been elusive. Whether Truby or anyone else can succeed will be crucial.


Increasing Collaboration between Tech and Automakers Is Better for Everyone

Over the past several years, there has been an ongoing narrative that a battle has sprung up between Silicon Valley and the auto industry. The tech industry hype machine wants the world to believe that venture capital-backed startups are going to appear with some magic technology that disrupts and destroys the century-old incumbents. The reality is likely to turn out quite differently, with some of the brightest minds in the valley coming up with cool ideas that become a key part of the transportation ecosystem.

Tech Has Saved the Automobile Industry Before

The fact that the auto industry has remained vibrant over the past 50 years can in large part be traced to innovations that have emerged from the San Francisco Bay Area, particularly the silicon microprocessor that gave the region its nickname. At the onset of environmental regulation at the end of the 1960s, most of the functional aspects of cars were mechanically controlled, and these vehicles consumed more fuel and spewed more pollution than they do today.

As engineers struggled to meet the new regulatory requirements, the industry entered what became known to car enthusiasts like myself as the malaise era. Attempts to better control engines through mechanical means like vacuum lines led to many terrible engines with weak output, awful drivability, and barely improved emissions and efficiency.

Silicon Valley saved the auto industry from being suffocated by regulations. As early microprocessors and sensors were applied to engine and transmission management as well as new safety systems like anti-lock brakes, it became clear that computers in the car would be the key to enhanced driving. By the mid-1980s, electronic controls were enabling engineers to extract more power while using less fuel and cleaning up emissions. As fuel economy regulations stopped climbing, car companies offered customers improved performance and capability without making them spend more at the pump.

After earning my degree in mechanical engineering, I spent the next 17 years working on improving vehicles through  more sophisticated software running on a series of cheaper, yet more powerful slivers of silicon. Today’s most sophisticated vehicles utilize anywhere from 50 to 100 onboard computers to manage everything from lights that follow the angle of the steering wheel to automatically maneuvering a truck to connect a trailer.

Looking Forward to More Industry Collaboration

Silicon Valley has been a key enabler of the modern vehicle for decades. As we shift toward a world where most of the driving is done by software instead of people, the tech and auto industries must continue to collaborate more closely. The auto industry has developed an immense base of knowledge in building complex pieces of hardware at high volume and with high degrees of reliability and durability. Those machines come in a huge variety of configurations to meet virtually every possible transportation need.

Meanwhile, the tech industry has an unrivaled set of capabilities in developing software and electronics and driving down costs while improving performance. There are great minds on both sides focused on how to make mobility safer, cheaper, and more universally accessible. The Navigant Research Leaderboard Report: Automated Driving scored automakers and tech companies on their likelihood of success in commercializing this technology.

Almost everyone recognizes that transportation will change in the coming decades. The collaboration between the tech and auto industries has yielded incredible results for nearly half a century. New partnerships are going to form on the way to fully automated driving. There’s no need to spin those relationships into a competition when greater collaboration will likely yield much better results for everyone moving forward.


Who Stands To Benefit From Tesla’s Stock Price?

As I read this Bloomberg story this morning about Elon Musk closing in on the goals required to get 5.27 million stock options granted to him in 2012, a thought occurred to me. We all know the financial system is absolutely rigged. That much is no secret. 
 
At the current share price of Tesla stock those options are worth about $1.4 billion. Despite many on Wall St acknowledging that the value of the company has nothing to do with its current business fundamentals, they keep pushing the price up based on “future potential.”
What rarely gets talked about is that every time Tesla goes back to the markets to sell shares in order to keep the lights on, Elon himself buys up a big chunk of those shares. There’s absolutely nothing wrong with that and demonstrates Musk’s own confidence in his company while also ensuring that his own substantial stake in the company (currently at more than 22 percent of outstanding shares) isn’t diluted. Again nothing wrong with any of this.
However, keep in mind that relatively little  Musk’s net worth which is well over $10 billion is in cash. Like most billionaires that don’t want to give up their stakes in companies he borrows money against those investments. When he wants to buy more Tesla shares, he goes to his bankers, including Morgan Stanley for a loan. As of March 2017, Elon owes more than $624 million
The banks that are owed money by Elon Musk have a financial incentive to maximize the value of the company and help it reach the lofty goals set by the board of directors when they granted those options in 2012. If Tesla fails to reach those goals, especially the market capitalization, Musk won’t get those shares and may not be able to pay back those loans. On top of that, many of the same banks also own a lot of Tesla shares directly, including Morgan Stanley with 3.7 million shares.
To the best of my knowledge (I’m neither a lawyer or financial expert) none of this is illegal. But it’s worth having some context when listening to any arguments pro or against the value of a company, including my own. For the record, I don’t own any stocks in any company directly aside from funds in my retirement accounts.

2017 Chevrolet Cruze Diesel – The Answer For VW TDI Refugees?

With the Volkswagen diesel buyback now in full-force here in the United States, up to half a million drivers will be looking for new cars in the coming months. A significant chunk of that group has declared that they want to keep their cars despite the emissions cheating while others including at least one friend of mine are lining up to buy the leftover unsold 2015 models now that a fix has been approved by the EPA. There is clearly still some demand for affordable diesel cars in America and Chevrolet wants a piece of it with the new 2017 Cruze diesel.

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Success in Automated Vehicles Depends on Tech, Services, and Manufacturing

An old axiom in motorsports goes: “to finish first, first you must finish.” This means you can have the fastest car on the track and qualify on the pole position, but if you don’t have the preparation or team to back you up, the quality of the car is meaningless. In the race to make automated driving a successful commercial reality, hype may get companies all the media attention, but a fully realized strategy combined with the ability to execute are the keys to success. This is why Ford, General Motors (GM), the Renault-Nissan Alliance, and Daimler are the leaders in the latest Navigant Research Leaderboard Report: Automated Driving Systems.

Outside observers would not be faulted for believing that companies in Silicon Valley were about to roll over the entire automotive industry and take over personal mobility in the coming months based on news coverage. However, as many veterans of the technology industry have become painfully aware of, the reality is that building vehicles to safely transport the world’s population is far more difficult than just writing an app and publishing it to an online store.

Horse Before the Cart

Assembling a suite of sensors and writing the basic software to control a vehicle are actually the easy parts. Before that package can become a real product, you need a vehicle. Google developed its automated driving system in 2009 by hiring many of the top brains from Stanford, Carnegie Mellon, and several automakers that had previously created winning vehicles in the DARPA Grand Challenge program between 2004 and 2007. Then Google went to local Toyota and Lexus dealers and bought vehicles one or two at a time. Companies like Cruise Automation and Uber followed similar paths. In order to commercialize a system, they will need to invest billions more to develop and manufacture vehicles or find an automaker partner willing to supply cars.

Uber is reported to have lost more than $3 billion in 2016 without capital investment in vehicles or manufacturing. The world’s major automakers already have the engineering and manufacturing infrastructure in place, and many of them have been working on autonomous technology for far longer than Silicon Valley. Major automakers understand the intricacies of developing, validating, and certifying vehicles for profitable production.

At Navigant Research, we believe the leading automakers are learning what it takes to develop automated vehicles faster than new entrants can learn how to build cars. Companies like Ford, GM, Nissan, and Daimler also understand the regulatory and product liability hurdles faced by bringing automation to the world’s roads. These companies have heavily invested in controlling and understanding the key technologies required to make vehicles and automated driving system work seamlessly.

Just Around the Corner

The leading companies in this field are also rapidly developing their own in-house mobility services so that they can provide consumer access to automated driving systems while retaining control of vehicle manufacturing. This will help to ensure that the vehicles are properly maintained and updated—something that is key to safe and proper use within the early years of deployment.

Technology companies like Waymo and nuTonomy, as well as suppliers like Delphi and ZF, will have an important role to play in the new mobility ecosystem. But for now, automakers lead in the automated driving system race.


2017 Ford Focus RS – A Hot Hatch With Extra Spice

2017 Ford Focus RS

It’s been just over four decades since the modern hot hatch was born with debut of the original Volkswagen Golf GTI. In the intervening years, most other automakers have produced higher performance versions of their compact cars but since the turn of the century a new class of even quicker machines has evolved. Until recently, with the exception of the Volkswagen Golf R, these machines have been forbidden fruit on American shores. Fortunately for enthusiasts, Ford finally homologated its legendary Focus RS and American Honda dealers will soon start delivering the latest edition of the Civic Type-R.

Read the full review at Forbes

 


2017 Acura MDX Advance SH-AWD – Better But Still Unclear In Its Mission

 

Cadillac -The Standard of the World. Built Ford Tough. Mercedes-Benz -The Best or Nothing. BMW – The Ultimate Driving Machine. Audi – Truth in Engineering. Well maybe not so much on that last one, but you get my point. Successful automotive brands have an image associated with them that may or may not be entirely accurate, but that’s what marketing is all about. Honda’s premium Acura brand has always struggled with trying to determine what it’s image should be, no matter how good its products have been and they have typically been very good. The latest stab at remaking the brand image image is the 2017 MDX SUV which I just spent a week with.

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2017 Volvo S90 T6 Inscription AWD – Taking the Fight to the Germans

2017 Volvo S90 T6 Inscription

Given the current market trends and consumer favor for SUVs, Volvo probably made the right call in coming out of the gate with the big XC90 for the first complete reboot of its product lineup after separating from Ford. Fortunately, for those of us less enamored with driving utilities on a daily basis, they’ve quickly followed that up with the S90 sedan and soon the V90 wagon. I recently spent a week with the S90 and found that unsurprisingly it shares most of the same strengths and foibles as its higher riding sibling but in a much sleeker package. (more…)


Leave The Brake Pedal, Take The Bolt – Driving Chevrolet’s New EV

It’s been more than eight years since I first drove one of BMW’s MINI E electric prototypes around downtown Los Angeles. One of the first characteristics I noticed about that car was the extremely aggressive regenerative braking that enabled driving virtually without touching the brake pedal. While BMW has persisted with that strategy as the only control mode on the production i3, other automakers have provided similar abilities only when shifting the transmission to Low mode. After driving the new Chevrolet Bolt EV from Tesla’s Silicon Valley backyard into the heart of San Francisco, I think all Bolt drivers should consider driving this way all the time.

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Perception vs. Reality: CES and the North American International Auto Show

If there is any one lesson that we should all take away from 2016, it’s the confirmation that perception does not necessarily equal reality. What people perceive to be the truth is often the most important part of their decision-making, a concept now shown in the auto industry’s seemingly increasing participation in the International CES and apparently declining interest in Detroit’s North American International Auto Show (NAIAS).

There has been a lot of consternation in Michigan recently about the impact that CES has had on the Detroit show over the past decade. The two events tend to run back-to-back over the first 2 weeks of January. I was on hand in 2008 when then-General Motors CEO Rick Wagoner was the first major auto executive to keynote at CES after demonstrating the autonomous Chevrolet Tahoe, which won the DARPA urban challenge the prior year. While more automakers and suppliers than ever took part in CES this year, GM actually took a pass for the first time since Wagoner’s speech.

While the Detroit Auto Dealers Association, which organizes the NAIAS, is concerned that manufacturers are increasingly favoring CES, the issues of the auto show are largely unrelated to what’s happening in Vegas. Auto shows are consumer events designed to showcase all of the latest products available for sale, and media previews show what is arriving in the coming months.

With rare exceptions (like 2016, when Chevrolet unveiled the production version of the Bolt EV), new production vehicles are almost never shown at CES. The electronics show is a business-to-business event that isn’t open to the public; instead, the industry flocks to Las Vegas to talk up technology.

NAIAS Is About Reality; CES Is About Perception

For many years, the financial market’s perception of the auto industry has been that of old-school manufacturers of commodity widgets. The view of Silicon Valley and technology companies is that of innovators on the bleeding edge that are poised for explosive growth. Thus, you have investors pouring billions of dollars into startups every year; most of those companies getting all of that investment fail without ever producing anything noteworthy while burning through cash.

Meanwhile, the modern car is one of the most complicated and technologically sophisticated devices ever created and is produced by the latest cutting-edge processes. The industry that produces them employs tens of millions of people globally directly and indirectly, generating trillions of dollars in revenue and tens of billions in profit. Yet the industry gets little respect and low market values.

The presence of the auto industry at CES is designed to reach a group of media that cover companies like Apple, Google, Microsoft, Amazon, and Facebook alongside countless startups, the same media that investors follow. The goal is to change the perception of the auto business from one that looks like it came from the dawn of the industrial revolution to one that innovates on a daily basis.

That’s not a message you can get across by showing off the refreshed Ford F-150, even though it may be packed with far more technology than anything from Silicon Valley. That’s a message you communicate by demonstrating automated cars in Las Vegas traffic jams; partnership announcements with chip designers like Nvidia won’t reach its intended audience in auto shows in Detroit, Frankfurt, or Geneva. These shows have issues to address, but the fault doesn’t lie in Las Vegas. It’s all about perception.