Ford's new CEO has a plan to reinvent the company — but it may not be enough to please Wall Street (F, TSLA, GM)

Ford CEO jim hackett

• Jim Hackett has to reset the overarching story of a 114-year-old American business.

• He intends to use a combination of design thinking and traditional managerial skills.

• So far, Wall Street hasn't been impressed by Ford.

On Tuesday at an investor conference in New York, Ford's new CEO, Jim Hackett, delivered what he called a "100 Day Deep Dive" into what he's learned about the destiny of the 114-year-old company since he took over from Mark Fields in May.

Ford is now a divided company: Hackett, who was at one time CEO of Steelcase, was hired by Ford's board under the direction of Bill Ford — the great-grandson of Henry Ford — because Ford's stock has lagged the markets and its competitors.

Tesla now has a larger market cap, despite being profitless and selling fewer cars in a year than Ford sells in a month in the US alone.

But Hacket's job is also to shift the Ford story, to one of a high-tech experiment in self-driving vehicles and ride-sharing, coupled with a push into services based on the data that customers generate when they travel. He's free to do this because Ford has experienced auto executives who can run the moneymaking car-and-truck business while Hackett labors on this narrative reset.

Hackett situated his message to the investment community in a somewhat negative light. Although Ford has been steadily profitable since the financial crisis and has compensated investors by returning $15 billion in dividends since 2012, Hackett said that the company's average 6% operating margin fell short of Ford's 8% target.

The CEO intellectual

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Hackett uses a leadership maneuver that's now relatively commonplace at traditional automakers as they enjoy prosperity amid a sales boom in the US. He keeps one foot in Ford's old-school business, the business of making and selling cars; and one foot in the future, which entails mobility services and big data. But he did it with his own unique style.

Hackett is something of a CEO intellectual, popular in Silicon Valley and a proponent of what's sometimes called "design thinking," a discipline that stresses looking at problems from many different points of view to develop more complete solutions. But the one-time University of Michigan football player and athletic director is no egghead.

Calling himself a "huge proponent of a healthy balance between thinking and doing," he said that although deep contemplation in the pursuit of good strategies is worth it, a CEO "can't enjoy endless hours walking in the desert, thinking about things."

Hackett had promised a strong direction for Ford after his 100-day review, and he delivered, but like anybody else running a huge global automaker that relies on sales of decades-old vehicles like the F-Series pickup truck to support the bottom line, he doesn't have the luxury of restyling Ford as a rapid-growth startup.

By the numbers, however, the industry has recognized that mobility services and connected vehicles, as well as strategic investments and acquisitions, could lead to a far better return on capital than building, selling, and financing cars. We're talking 10%-20% margins, versus an optimistic 10% for a mass-market automaker like Ford.

The profits will come ... maybe

Ford Hackett Present

We need to emphasize the could because, thus far, no company has devised a way to translate data into profits in a transportation context, although the Waymos and Apples of the world appear to have abandoned their goals of becoming actual carmakers and decided to concentrate on the software side of the equation. Only Tesla is trying to do both, and thus far, that business model has yielded zero profits.

Hackett's presentation combined cost-cutting blocking and tackling, the sort you'd expect from a seasoned CEO who is chasing an extra 2% operating margin, with the more exotic narrative revamp that Wall Street now craves. But his comments were tilted toward the future.

"When you’re a long-lived company that has had success over multiple decades the decision to change is not easy – culturally or operationally," he said. "Ultimately, though, we must accept the virtues that brought us success over the past century are really no guarantee of future success."

The leaders of big car companies usually don't attempt what Hackett is doing; rather, the function as capable managers of massive manufacturing enterprises while delegating the out-there stuff to lieutenants. General Motors, for example, has a superb manager in Mary Barra at the top who has delegated more adventurous initiatives to GM's President, Dan Ammann.

Ford has flipped this model. Hackett was in the futurist's role when Fields was CEO, overseeing Ford Smart Mobility. But the family-controlled company now thinks that the future has to be dragged into the present — and Hackett is the guy to do it.

GM's track record since exiting bankruptcy is better than Ford's, by Wall Street's standards, and the stock has enjoyed a recent surge. But GM has also lagged the Tesla-Uber-Waymo-Apple future. Where GM has succeeded on the conventional front is in making tough decisions about maximizing its return on investment, a theme that Hackett picked up on Tuesday.

The reality is simple, the future is complicated

Ford Hackett Present

The guts of this, for Ford, isn't complicated. Hackett said the carmaker will reduce costs by 50% through 2020 and shift away from low-margin passenger cars to high-margin SUVs and crossovers.

But he also said the company would intensify a planned rollout of electric powertrains, seek productive partnerships, and enhance its vehicles connectivity.

Just like every other global auto executive who isn't Elon Musk, Hackett has found himself trapped between storytelling and reality. Cost-cutting is nothing new for a modern CEO, especially of a manufacturing company. And a structural shift in car buying toward SUVs is almost certainly underway, a fortunate twist for the industry as SUVs profits can be much higher than for passenger cars.

But investors don't care about this. They see Ford and its competitors raking in cash, but they're convinced that the cyclical nature of the auto industry will obliterate the profits as soon as a sales downturn arrives, as companies use their margins and their cash to hold market share so that they can prosper again when sales recover.

"This is a tough business," Bill Ford once told me. "You have to fight for every sale."

As a practical matter, Hackett has zeroed in on leveraging the automobile as a node in a system of information. That was the most compelling insight to emerge from his comments on Tuesday. If that sounds technocratic, it is, but Hackett tempered the insight by insisting that the human factor is still essential. A result of his 1oo-day review? People love their cars.

The trick now for Ford will be to continue to sell cars customers love while finding ways to monetize that ardor. It's too early to know if Hackett can do it. But at least he's figured out that critical part of the story.

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