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What Could Have Triggered the Big Leadership Changes at Ford?

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Leadership changes at Ford

As we saw in Part 1 of this series, Ford Motor (F) has named Jim Hackett, previously head of Ford Smart Mobility, as the new CEO (chief executive officer), effective May 22, 2017. In this part, we’ll look at the key factors that may have triggered the big leadership change.

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Volume versus profitability

In 2015, General Motors (GM), the largest US automaker, decided to cut its fleet sales to rental car companies and focus more on retail vehicle sales in order to boost profitability.

In the auto industry, fleet sales can be defined as wholesale vehicles (IYK) for customers such as rental car companies, government departments, and other private companies that use commercial vehicles. While fleet sales help automakers increase their revenues and market shares due to larger volumes, it tends to yield lower profit margins than retail sales. That’s why GM’s decision to cut fleet sales started paying off, which boosted its profit margins last year.

Unlike GM’s move to cut fleet sales, Ford’s management seemingly continued to give equal importance to its retail and fleet sales. Highlighting the positive effect of fleet sales, Ford’s then-president and CEO Mark Fields said during the 1Q16 earnings call, “There’s just absolutely no change to our approach in fleet. Fleet is good business for us, including rental, commercial, and government sales. We understand these customers real well.”

Ford’s decision to continue focusing on fleet sales kept hurting its margins last year. Its direct peers, GM and Fiat Chrysler Automobiles (FCAU), managed to boost their profitabilities by slashing their fleet sales.

Early warnings

During its 2Q16 earnings release, Ford highlighted the risks and challenges it could face while attempting to achieve its fiscal 2016 guidance. Back then, Ford’s management predicted a possible downturn in US auto sales. Notably, that was when GM denied any possibility of a near-term weakness in US auto sales, citing strong fundamental data tracked by the company.

These early warnings from Ford could also be the primary reason its stock underperformed its peers (FXD), including GM, FCAU, and Toyota Motor (TM), last year.

Next, let’s see what key challenges Hackett could face initially at Ford.

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