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Ford Nearly Completes Car Purge


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5 minutes ago, mustang84isu said:

 

My wife and I bought an Edge Titanium a couple years ago as her new daily driver.  She was previously a Corolla owner.  She has a harder time seeing out of it and seeing over the hood and doesn’t like parking it because she can’t tell where the lines are.  Also, this may just be how the Edge’s suspension is set up, but it is not the most sure-footed vehicle over bumps and corners—my MKZ and even her Corolla had better ride quality on the terrible roads around my area.  Long story short, she wants to go back to a sedan for her next vehicle…and Ford will have nothing to offer.  And I’ve always driven sedans and Ford will have nothing to offer in the spring when I’m looking at another vehicle (besides the dead-man-walking Fusion and MKZ, and I’m not interested after hearing some of the de-contenting that is going on with 2020 models).

Handling may not matter to the majority, but it does matter to some.  Some people like having a trunk.  Some people like a lower seating position.   Some people like the better rear visibility out of a sedan.  A few extra MPG may not seem like a big deal, but it does at up over time.  I've seen a few comments that Boomers, Gen X, and Millennials are driving this move away from sedans.  What is fashionable now may not be fashionable in 10 years, especially with Gen Z who have way different thought processes than even Millennials.  They’re almost becoming the anti-Millennial generation.

 

 

The problem is your assuming your needs and wants and what you like as gospel for the entire marketplace...which is really ill-advised. 

 

The modern SUV have only been around for 30 years or so and CUV has been around for about 20 years or less. The market is trending towards a 70-30% market spilt between sedans vs Trucks/CUV/SUVs this year.  Sedan sales have been trending downwards 20-25% since 2013 or so.

 

Autos are only getting more expensive and CUV are becoming more popular because they are a Swiss army knife of design..they do alot of things ok, not great in most cases and people think they have more value because of that.

 

Just look at this way, you have 30K to spend on an auto...an average buyer is going to lean towards a CUV just because it has more cargo space then an sedan and doesn't have the stigma that a minivan does and wagons are more or less a non-starter with buyers....they are like stick shift buyers...a vocal minority that don't really put their money where their mouth is. 

 

Sedans are more or less like personal coupes where back in the 1970s=they might be more stylish, but don't offer really any major improvements over a CUV that would make your average buyer more inclined to buy them. 

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1 hour ago, mustang84isu said:

 

My wife and I bought an Edge Titanium a couple years ago as her new daily driver.  She was previously a Corolla owner.  She has a harder time seeing out of it and seeing over the hood and doesn’t like parking it because she can’t tell where the lines are.  Also, this may just be how the Edge’s suspension is set up, but it is not the most sure-footed vehicle over bumps and corners—my MKZ and even her Corolla had better ride quality on the terrible roads around my area.  Long story short, she wants to go back to a sedan for her next vehicle…and Ford will have nothing to offer.  And I’ve always driven sedans and Ford will have nothing to offer in the spring when I’m looking at another vehicle (besides the dead-man-walking Fusion and MKZ, and I’m not interested after hearing some of the de-contenting that is going on with 2020 models).

Handling may not matter to the majority, but it does matter to some.  Some people like having a trunk.  Some people like a lower seating position.   Some people like the better rear visibility out of a sedan.  A few extra MPG may not seem like a big deal, but it does add up over time.  I've seen a few comments that Boomers, Gen X, and Millennials are driving this move away from sedans.  What is fashionable now may not be fashionable in 10 years, especially with Gen Z who have way different thought processes than even Millennials.  They’re almost becoming the anti-Millennial generation.

 

Ford is giving up on 1/3 of the market that buys cars now, and data has proven that orphaned buyers usually defect to other brands, so we will likely see more permanent market share loss.  I did a quick excel spreadsheet, and Ford'st post 2008 market share peaked in 2011 at 16.67% and has been steadily declining every year since then, currently sitting at 14.12% YTD.  So for years, Ford has been saying that we want to right size the business by cutting unprofitable models and segments, with the reasoning that fewer models and more efficiency will improve margins.  Yet the facts so far do not bear this out; Ford's post-'08 operating margin peaked in Q1 of 2011 at 10.03%, and has steadily declined since then to 1.05% as of Q3 2019.  Gross and net margins also peaked around 2011 and have been steadily decreasing since then.   I'm not an accountant to really analyze deep into why this is happening, but clearly Ford is doing something wrong here and this is part of the reason Wall Street is so bearish on them.  It's just interesting that despite all the cutting of models and brands throughout the years, and more focus on SUVs, that margins have never improved like they were supposed to.

 

https://www.macrotrends.net/stocks/charts/F/ford-motor/profit-margins

Ford sales.png

Just walk across street from ford to the mazda lot..they will have a sedan...we tried to replace our fiesta with a focus in 2018...all ford had was those garbage auto's..drove new mazda off lot with 6sp and its been troublefree smiles ever since...

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56 minutes ago, mustang84isu said:

I did a quick excel spreadsheet, and Ford'st post 2008 market share peaked in 2011 at 16.67% and has been steadily declining every year since then, currently sitting at 14.12% YTD.  So for years, Ford has been saying that we want to right size the business by cutting unprofitable models and segments, with the reasoning that fewer models and more efficiency will improve margins.  Yet the facts so far do not bear this out; Ford's post-'08 operating margin peaked in Q1 of 2011 at 10.03%, and has steadily declined since then to 1.05% as of Q3 2019.  Gross and net margins also peaked around 2011 and have been steadily decreasing since then.   I'm not an accountant to really analyze deep into why this is happening, but clearly Ford is doing something wrong here and this is part of the reason Wall Street is so bearish on them.  It's just interesting that despite all the cutting of models and brands throughout the years, and more focus on SUVs, that margins have never improved like they were supposed to.

 

https://www.macrotrends.net/stocks/charts/F/ford-motor/profit-margins

Ford sales.png

 

Good analysis mustang84isu sir. Ford's decline in market share results from a combination of deliberate actions by Ford such as exiting certain segments and regions, the effects of a toxic corporate culture that allows the same mistakes to be made over and over, and increased competition. The last 2 factors also explain why Ford's operating margins have been relatively low since 2011.

 

In any case, the main thing is that Ford has lots of organizational issues that need to be fixed. It is a company that is continually in crisis. Jim Hackett understands that, and is trying desperately to get Ford "fit" again before pursuing market share and sales growth. That makes sense.

 

As I mentioned in another thread, here are some thoughts business consultants Jim Blasingame and Peter Meyer had about the fallacies of growth.

  • "If a tree is bent, fertilizing it won't make it grow straighter – only faster in the wrong direction. If you have organizational challenges, don't grow until they’re resolved."
  • "One of the rudest awakenings any business can have is when projected sales growth is achieved, but profit is no better, or perhaps worse, than a period of lower sales."
  • "Being the market leader is overrated. Peter cites research showing only 29% of market leaders were also profit leaders. Not only are you not going to sell every customer, you don't want every customer. Many customers, and some customer profiles, aren’t profitable. Remember, you don't spend sales."
  • "Write this on a rock ... Just because you can grow your business doesn't mean you should."
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Ford is a relatively small global carmaker now, it's 6th in the world and soon to become the 3rd ranked automaker in Detroit.  It has only so many resources at this point to turn around the business and it has to make them count.  Ford is only going to get smaller before it gets bigger, but it's good to be the growth company if you can do so profitably.  The fact Ford can weather this turnaround without sacrificing plants and workers tells me they are the right size which is a great place to be in for growth.  I definitely trust a company less focused on growth and more focused on strength.  If they can achieve the same product shift of the larger companies with the resources of a smaller company, I think that's impressive. Nothing strikes me as dysfunctional about Ford, they are proving to be highly adaptable and responsive now.  

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1 hour ago, mustang84isu said:

 

 

Ford sales.png

 

I'm not saying I disagree w/you entirely---and it's possible that CAFE is more of a factor in this than either of us realize.

 

However, you shouldn't comp global margins w/US volume. The chart below is a lot less elegant (but it's easier to cut/paste into Excel & mess around with).

 

It would be interesting to comp. Ford's NA revenue per unit with the industry as a whole.

 

Also, margins are going to be roughly cyclical, based on product launch timing, etc. It'll take more than 9 years of data to observe whether Ford's margins are trending upward after smoothing out cyclical effects. Toward that end, I've clipped comparable data from 1997-2000.

 

As can be seen, over all, Ford has definitely improved their margins while seeing a significant drop in market share and sales. And there's a pretty weak correlation between market share & margin per unit.

 

  NA Volume (K) Revenue ($B) Pre-tax net ($M) Revenue/Unit Profit/Unit Margin/Unit Market share
1997                  4,016  $         89.00  $          4,434.00  $  22,161.35  $      1,104.08 4.98% 19.70%
1998                  3,988  $         87.00  $          4,612.00  $  21,815.45  $      1,156.47 5.30% 19.20%
1999                  4,385  $         99.20  $          5,418.00  $  22,622.58  $      1,235.58 5.46% 19.90%
2000                  4,933  $       103.90  $          4,886.00  $  21,062.23  $         990.47 4.70% 19.10%
               
2010                  2,413  $         64.40  $          5,409.00  $  26,688.77  $      2,241.61 8.40% 16.58%
2011                  2,686  $         75.00  $          6,191.00  $  27,922.56  $      2,304.91 8.25% 16.67%
2012                  2,784  $         79.90  $          8,343.00  $  28,699.71  $      2,996.77 10.44% 15.58%
2013                  3,006  $         88.90  $          8,781.00  $  29,574.18  $      2,921.16 9.88% 15.90%
2014                  2,842  $         82.40  $          7,443.00  $  28,993.67  $      2,618.93 9.03% 14.96%
2015                  3,073  $         91.90  $          9,345.00  $  29,905.63  $      3,041.00 10.17% 14.95%
2016                  3,019  $         92.60  $          9,001.00  $  30,672.41  $      2,981.45 9.72% 14.85%
2017                  2,967  $         93.50  $          7,511.00  $  31,513.31  $      2,531.51 8.03% 14.96%
2018                  2,920  $         96.60  $          7,607.00   33,082.19  $      2,605.14 7.87% 14.37%
               
        Correlation: -0.868007306    
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12 minutes ago, snooter said:

So that is the reason for the increase margin/unit is sourcing cheaper parts or less parts content??...am i reading that right?


That might be a small piece of it but it’s mostly higher transaction prices and lower incentives along with general cost cutting.

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Europe has been a big drag on the bottom line lately.  But Ford’s 3Q profit was $2B if you take out the one time Europe restructuring charge.  That’s pretty good considering the Explorer launch issues.
 

Ford’s problems have been warranty costs and letting some models languish too long without visual updates.  You also have Nissan doing more fleet dumping and the Koreans entering the car and crossover market with competitive models.  They also had to spend a lot on platform consolidations which they’re now repeating to some degree.

 

Its not a good market to be in with commodity products that don’t stand out in some way.  The Koreans are operating on a 1-2% margin.  That’s why Hackett’s plan for more desirable vehicles that aren’t subject to commodity price wars is so important.

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