Ford CEO Jim Hackett’s decision to dump cars ‘may prove fatal’

In 2007 Mulally borrowed $23.6 billion by mortgaging all of Ford’s assets, including the famous Ford Blue Oval, along with acted decisively to focus on the Ford brand by spinning off Jaguar along with Land Rover. He used the loan along with proceeds coming from asset sales to finance a major overhaul of the company’s automobiles along with factories along with provide “a cushion to protect for a recession or different unexpected event.”

At the time the loan was interpreted as a sign of desperation. Even General Motors CEO Rick Wagoner belittled the move. When the economy collapsed the following year, Mulally’s vision saved the company as GM along with Chrysler were forced to declare bankruptcy. By the time GM was back in business along with Chrysler was bailed out by Fiat, Ford had a several-year head start in revamping its product line.

Ford’s F-series along with its Ford Focus became America’s best-selling cars, along with its F-150 the top-selling truck, enabling Ford to reverse its declining share from the U.S. In addition, Mulally negotiated a landmark labor agreement with the United Auto Workers in 2009 in which eased onerous work rules along with introduced a 50 percent lower wage for fresh factory hires. Mulally’s strategy turned Ford around, as the item went coming from losing billions to solid profitability.

Hackett is usually correct in acknowledging in which today’s market has shifted to SUVs along with trucks along with in recognizing the success of Ford’s Expedition along with Explorer SUVs along with F-150 trucks. yet he is usually overplaying his hand by jettisoning automobiles.

The dramatic drop in oil prices to $40-60 from the past four years after a decade of $100 per barrel oil has lessened consumer concerns about gasoline prices along with boosted SUVs along with truck sales. Hackett is usually gambling in which the present oil glut will keep gas prices so low in which consumers won’t worry about fuel costs, yet history shows in which oil prices fluctuate wildly along with will eventually get back to $100.

Hackett is usually also betting President Donald Trump will withdraw the Corporate Average Fuel Efficiency (CAFE) standards in which Mulally signed up for in 2012. They require automakers to double fuel efficiency to 54.5 miles per gallon by 2025.

The demise of CAFE standards, administered by National Highway Traffic Safety Administration (NHTSA) under the 1975 law, is usually anything yet a sure bet. Furthermore, President Trump may be unhappy about the factory closures along with massive layoffs Hackett has triggered, especially if foreign manufacturers capture Ford’s sales.

However, the biggest winner coming from Ford’s move may be GM’s Barra. In four years at the helm, she has committed GM to a full line of automobiles along with trucks, positioning the company to grab the share Ford abandons.

With its 50-50 joint venture with China’s SAIC, GM is usually currently selling more cars in China than the item does from the U.S., as China accounts for more than one-third of GM’s global sales. from the future GM will likely import Chinese-made cars into America, giving the item a large cost advantage over domestic-made cars.

The stock market has recognized GM’s strategies are paying off, pushing its stock up 23 percent from the past two years as Ford’s declined 15 percent.

Ford may survive for a long time as a producer of trucks along with SUVs, yet the item will no longer be the great American automobile company Henry Ford created along with Alan Mulally restored. Playing to short-term shareholder demands rarely results in long-term success.

On the different hand, Hackett may be betting when he moves on, Ford’s strategic dilemmas will rest which has a future CEO.

Commentary by Bill George, a senior fellow at Harvard Business School, former Chairman & CEO of Medtronic, along with the author of “Discover Your True North.” Follow him on Twitter @Bill_George.

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