Auto Service World
News   September 23, 2016   by Steve Pawlett

Ford Says Plunge Into Mobile World Worth Short Profit Slump


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Ford Motor Co.’s headlong push into driverless and electric cars will come at a price, with financial results falling next year as it boosts spending on the new products and fixes weaknesses in luxury autos and emerging markets.

The trade-off should be temporary, with earnings rising again in 2018, and is needed to stay ahead of dramatic changes in how people will get around as more of them migrate to big cities, Ford told investors at an all-day conference Wednesday. The good news, the automaker said, is the promise of 20% profit margins in these as-yet untapped mobility markets — more than double the returns in its traditional car business.

“This is very different thinking for us,” chief executive officer Mark Fields told analysts and investors. “We have always thought about the ‘thing’ and how many ‘things’ we sold. Now we’re opening up the aperture of the lens and thinking about how people use our products.”

The overhaul of the 113-year-old company is intended to capture a piece of a $5.4 trillion transportation services business where it now makes no money. For the first time, Ford began putting specifics to some of that promise.

Executives said they expect to sell more than 100,000 robot taxis a year come 2021, producing vehicles with no steering wheel, gas or brake pedals for ride-hailing and ridesharing fleets. A commuter-van service Ford is introducing in San Francisco could be part of a business generating as much as $200 billion industrywide by end of the next decade, the company said.

By the end of the next decade, self-driving cars will account for one in five vehicle sales, Ford forecast. Around the same time, the automaker expects that electric vehicles will surpass autos powered by traditional internal combustion engines. The transformation will come as the cost of electric-car batteries falls as much as 38 per cent by 2030, while tougher regulations and higher fuel costs will drive up the cost of gasoline-powered cars, Ford said.

The company reiterated its plan to invest $4.5 billion to introduce 13 new electric vehicles, accounting for 40% of its lineup by 2020.

Fields said a ride-hailing tie-up like General Motors has through investing $500 million in Lyft is a possibility. Chief financial officer Bob Shanks told investors that Ford has set aside extra money for equity investments and acquisitions in 2017.

“We haven’t ruled out doing a ride-hailing or ridesharing business by ourselves or with partners,” Fields said. “We have our minds wide open because it’s still very early innings on this.”

Ford said it also is investing in the traditional business that still makes all its money. The company is expanding the Lincoln luxury lineup, working to improve small-car profitability and investing in struggling emerging markets including Russia and South America. It also is introducing four new sport-utility vehicles and outfitting large SUVs with aluminum bodies to improve fuel economy.

“Our capital allocation continues to be disciplined and to deliver strong returns, and we are fully prepared for a downturn,” Shanks said in Wednesday’s statement.

The automaker said it’s working to reduce expenses after cutting its 2016 pre-tax profit forecast last week to $10.2 billion from at least $10.8 billion because of the cost of an expanded recall of faulty door latches. The second-largest U.S. automaker said it plans to trim costs annually by $3 billion between this year and 2018, and is “re-evaluating” its strategy and business model in India.

Fields said Ford will move all small-car output out of the U.S. to Mexico because of lower production costs.

The company said the increasingly likely decline in U.S. industrywide auto sales this year from 2015’s record 17.5 million light vehicles poses no immediate threat. It said it could break even if sales were about 11 million.

“We don’t see any signs of recession,” Shanks told investors. “We see it plateauing and eroding a bit. We don’t see a collapse.”

 

 


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