Automakers are having a hard time staying on top in the automobile industry.
The industry has been facing a lot of struggles, specifically in the past 10 years when gas prices continued to skyrocket to unreasonable amounts. I remember, at one point, I was paying $4 a gallon to fill up my car — with those kinds of prices, I didn’t want to drive anywhere.
Automakers needed to do something about this, so they began brainstorming to find a way where car owners wouldn’t have to pay so much for gas. No one wants to buy a $15,000 or more car if they’ll also be paying $30–$40 a week on gas.
Which is why automakers started making more fuel-efficient and electric vehicles, giving consumers a reason to buy cars again.
The automobile industry has had a decent past two years. But we’re starting to see the industry struggle again, and this time, it might be harder to recover.
A prime example of this struggle can be seen with Ford (NYSE: F).
Last month, Ford CEO Mark Fields was working hard to reassure shareholders that they had nothing to worry about in terms of Ford’s future. He emphasized that the company would be more than capable of competing with the new market for vehicles.
Fields said: “You have to have one foot in today… but also one foot in the future… I think investors understand our strategy.”
Investors are skeptical of traditional automakers and if they’ll be able to keep up with companies like Tesla that are more focused on software enriched self-driving vehicles, which are essentially the future of the automobile market.
Tesla’s value of $48.7 million is ahead of Ford’s $45.6 million. Investors feel more confident investing in a company that’s pushing forward with driverless technology than with one sitting back and not making any effort toward innovation.
A shift toward autonomous vehicles is the only way to lead in this industry. If an automaker isn’t taking the initiative to expand itself in this space, then tech companies like Alphabet (NASDAQ: GOOG) and Tesla (NASDAQ: TSLA) will begin to dominate the market.
Ford’s efforts to stay ahead have taken a toll on its finances. Research and development costs for electric and self-driving cars have deteriorated Ford’s profits, and, as a result, its shares have lost about 10% this year.
And with profits gradually melting away, Ford’s CEO Mark Fields announced that the company would be cutting 1,400 jobs — 10% of its salaried staff. Laying off employees seemed like the only solution to counteract the loss of profits Ford has been experiencing.
Not Quite Enough
Fields’ decision to cut 1,400 jobs to reduce costs wasn’t enough, at least not enough to keep shareholders on his side — and with good reason.
Ford’s car sales have seen a 25% drop this year. It’s barely making any money on the cars that it does sell. It’s having a hard time trying to balance a strong business plan for both now and the future. Ford needs to start making changes as soon as possible, or it’ll continue to disappoint its shareholders and could further see a decrease in its share price.
So, that’s exactly what Ford decided to do — make some changes.
On Monday, May 22, 2017, Ford announced that it would be replacing Mark Fields and appointing Jim Hackett to the position. Fields worked for Ford for 28 years and became CEO in 2014.
During Field’s short three-year term, Ford’s stock declined by 40%. Hoping to turn that around is Jim Hackett, a former CEO of office furniture company Steelcase. He came on board with Ford last year to help Ford’s efforts toward developing autonomous vehicles.
The announcement did bring some optimism to Ford’s shareholders. Friday, prior to the news, Ford’s stock closed at $10.87 and opened on Monday, May 22, 2017, with $11.04 — a 1.55% increase. That may seem small, but it’s still proof that a change needed to happen.
And, of course, only time will tell if a new CEO will bring Ford the strategy it needs to stay ahead and to stay relevant in the world of driverless cars.
Until next time,
Jennifer Clark
Pro Trader Today