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Ford Sinking

You can’t say they couldn’t see it coming – Ford have experienced 11 straight years of falling market share, and now they’ve gone and made a loss of nearly $13 billion in a single year. When are they going to wake up and smell the coffee?

One of their workers interviewed on the global satellite TV network, BBC World on their World Business Report program blamed the decline on Americans not buying enough American products. Well, he put his finger right on the button there, didn’t he?

The real question though is slightly deeper than this. Why are Americans not buying so many American products? Because they don’t want what American producers are producing, that’s why!

But wait a minute, that’s not completely true, is it? After all, both Honda and Toyota have plants manufacturing cars in the US, and their market share has been growing for years. They may not be American owned, but they sure are American producers, employing American workers. They just don’t make SUVs is all. But they do concentrate on great design, modern engineering, and careful manufacturing.

You can see there’s a certain lazy attraction to building SUVs though. The cars cost so much that you can afford to miss a few economies here and there. In fact, not only can you hide a whole heap of bad practices in the manufacture of an SUV, you also get to make a huge profit on them too. After all, they don’t include much in the way of the latest technology, many of them use engines based on decades old designs – with a few electronic gizmos here and there perhaps, but the concepts are generally dated.

But what of “the opposition” from Asia and Europe? Why do their cars sell increasingly well? Could it be because they’re just plain better?

They generally give much better fuel economy, even when they are a performance model. They spew out far fewer greenhouse gasses and so contribute much less to global warming. If you sit in one, they feel more “together” and certainly don’t look like they’re made of cheap and nasty plastics. And they feel sophisticated and sexy. Can’t say that about the average SUV.

Some of you may think that I’m being unfair to Ford, after all they are laying off 45,000 employees and closing a load of factories. Some of you may say the employees “work their butts off” but I don’t blame the workers. No, I blame the managers who laid out the company’s strategy for the last 11 years, then moved on with their multi-million dollar payoffs before the mess was found, brushed under the carpet or buried deep in accountancy reports no-one ever read.

It was once said that in a democracy you get the politicians you deserve (think about who your leader is, then ask if you voted last time you had the opportunity, then think again); it can also be said that shareholders get the managers they deserve. Most shareholders these days are big institutions. They have the habit of not voting at company meetings, or if they do, they never vote against the board. Since they usually (as a group) make up the majority of the shares in circulation, this means that the managers can virtually do what they want, pay themselves what they want, and only need from time to time to have their financial inducements reviewed by committees made up of their peers.

It’s an incestuous thing too. The lead manager of company A has his salary and severance package
adjudicated by a committee – made up of the board members from Companies B, C and D, some of whom sit as non-executive Directors on each others’ companies.

So if this is such a bad thing, why don’t the banks and other investors kick up a fuss? Are you kidding? Most big banks who act as investors – but really use your money to support their habits – also have huge Merchant Banking arms who make hundreds of millions per deal when they arrange Mergers and Acquisitions. And they get paid whether these deals go ahead or not. Hundreds of millions of Dollars, Pounds, Euros. They like to have compliant managers in place who will be more likely to give them some nice juicy business. So in the end the managers are paid not for making the company successful, but as an indirect reward for maintaining the incestuous circle.

But Ford is a little bit different. After all, it’s a family company as well as a major corporation, and more than one family member sits on the board. I think Bill Ford had the right idea when he wanted to reduce the overall fuel consumption of the Ford light truck division (which also included SUVs) but somewhere he was sabotaged. That’s the problem with big institutions or companies, they develop a mind of their own, a kind of mental inertia that shuts out progress, and strives to maintain the status quo. Unions don’t always help here either. And then the US Health System puts yet another tent peg in the basement of the tower of progress.

As a European, I’m used to a complete seperation between health services and the workplace, but America isn’t like that. In the land of the free, people work to maintain their health benefits. When they go to work, they are thinking “Health Protection, Health Protection, Health Protection. Health. Protection.” I don’t know if this impacts productivity, but it sure would take my mind off my job.

But back to Ford. Why have Ford made no real changes in the last 8 years? I’m letting them off the first 3 years because you can’t change a car company overnight. Well, you can if you use a Mercury night, and Ford do after all own Mercury. Mercury (the planet) has a day length measured in Earth months…

In Europe, Ford has a great range of vehicles, the Ford Focus being one of the best ever cars in its class. Why didn’t Ford take the ideas and experiences of its long time profitable European operations and inject them into the US? Is there a wall of middle manager inertia stopping anything different from getting through? Of course, Ford also owns Jaguar, Land Rover, and Volvo – none of which made much money when they stood on their own. Whatever, European ideas and ways of working might have helped Ford if they had been implemented five years ago.

Even if they did ignore the Europeans though, why did they not even remember their own recent history from the last oil crisis in the 1970s? Then it was the time of the giant Caddys, Oldsmobiles and Buicks. And Fords of course. They did between 8 and 12 mpg if you were lucky. Which isn’t very attractive in a crisis, so when Honda moved in with their Civic, their timing couldn’t have been better. Customers were looking for a new type of car, and imports came from countries where smaller cars were the norm. Do people at Ford have such short memories? In a country such as the US with low fuel taxes, any increase in the world rice of oil was always going to have more impact on car buyers than it would in countries with higher fuel taxes.

Of course, when you supply vehicles to the US military, or when you operate in a country in which the US military buys so many vehicles, the needs of one BIG customer can affect the mindset of some designers and engineers. The military wants “Big, Tough!” and for them something “svelte and sleek” just isn’t macho enough.

So when Corporate America decided on which party to bankroll, they gave more money to the Republicans than they did to the Democrats because they wanted to keep fuel prices down. So they went and got an oil man into power! Clever – all he’s interested in is a high oil price – which the conflict in Iraq duly delivered. And this killed off the SUV.

But you can’t say they couldn’t have seen it coming. This twister was visible on the horizon for years.

A man got elected to be CEO of a major company. On changeover day, his predecessor gave him three sealed envelopes labelled 1, 2, and 3 and told him to open them whenever there was a big crisis.

To begin with things went well. But after about 6 months a crisis arose that the new guy couldn’t handle so he opened envelope number 1. The note inside simply said “Blame the last guy!”

The new guy thought that was a good idea, so blamed it all on the last guy and the markets became happy again. Things went well for about a year, and they had another crisis, so the new guy opened envelope number 2. The note inside said “Reorganise” – so he did. The markets loved it and gave him more time again. Another year later, a further crisis arose, so he opened envelope Number 3.

Inside this, the note simply said “Write out 3 envelopes…”

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4 comments on “Ford Sinking

  1. very insightful read, thankyou.

  2. Thanks for stopping by. If you’re a chess player you’ll recognise that many things happen as the result of a chain of different, and sometimes seemingly unconnected events. I like it when I see how they link together.

  3. […] Unless this money is spent on things the US economy can provide, the money goes overseas – mostly to China and Japan and the rest of the Far East, but also a lot goes to Europe and some to Latin America. And it all stems from the debts ordinary Americans have been taking on for years. Not just on houses, but also cars – for years the US auto industry failed to change the models it sold, concentrating instead on making it easier to buy things people wouldn’t otherwise have bought through wilder and wilder financing schemes that provided the manufacturers with some small means to make the enormous losses they would otherwise suffer seem slightly more respectable – to begin with. But that’s another story. […]

  4. […] for one thing. As I wrote in 2007, Ford has been making losses for years and the others haven’t done so well either. While they didn’t change their strategies, […]

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