February 11, 2018
According to Wall Street, Ford is in deep trouble. Shares for the automotive manufacturer fell last week to a point lower than when the new CEO took office in May 2017. The earnings outlook for the year are lower than what was expected in 2017. The company has been given a notice that its credit rating will drop to just above junk status if clear progress is not demonstrated soon. Junk status would have both financial and symbolic ramifications on the company’s image and financial status.
Ford, the second-largest automaker in the U.S., was the only Detroit automotive manufacturer to avoid bankruptcy during the recession and came out of the recession with a strong lead. Sales for the automaker were at record levels for 2015 and 2016. Although Ford is still making billions and selling vehicles at a steady rate, the bleak news has placed a cloud over the company.
Since Hackett became CEO, Ford has been very open about the state of its financial affairs. CEO Jim Hackett referred to the problems as lack of “competitive fitness.” He mentioned plans to increase profit margins by 2020. However, analysts and investors both say that Ford is holding back on details necessary to create enthusiasm about the prospects for the company. As a result, the market is snubbing Ford and paying closer attention to rivals such as General Motors.
According to David Kudla, it does not inspire investors to invest in stocks when the CEO of a company comes out and states that it is going to be a bad year. Kudla is the CEO of Mainstay Capital Management in Grand Blanc, Michigan. No information has been released that will give investors confidence in placing stocks in Ford. This lack of communication has created uncertainty about Ford’s success this year.
Moody’s Investors Service downgraded the credit outlook for the company to negative during the last week in January and said that Ford has allowed an erosion to occurred in many of the operating disciplines established in 2009. Hackett admitted to this in October 2017, saying that Ford has not grown revenue or volume according to the plan following the recession.
The challenge for Ford will be to allocate capital strategically across key investment opportunities that include certain vehicle categories, joint ventures and partnerships, geographic markets and mobility business models. There is only a small chance that these changes will affect Ford favorably before 2021.
The automaker sent out an email stating that the company has “delivered year after year of solid financial results” since the recession. The email further said that the company will be placing an intense focus on improving operational fitness to increase positive gains for the future.