Profit to fall through 2017 on higher costs

By Christina Rogers 

Ford Motor Co. made its latest plea for investors to view the auto maker more like a Silicon Valley company, promising lofty returns on future ventures while warning near-term profit will be pinched by deep investment.

The Dearborn, Mich., car maker told investors that its new business services unit eventually will deliver 20% margins, two-and-a-half-times its core auto-making operation. It updated its plans for venturing into robo-taxis, electric cars and other transportation services like bike-sharing and shuttle vans.

"We've always thought about the 'thing' and how many 'things' were sold, " Chief Executive Mark Fields told investors gathered on Wednesday at its headquarters. "Now, we're opening up the aperture of the lens."

Ford's share price has declined under Mr. Fields, who took over in 2014 after former chief Alan Mulally spent nearly a decade unwinding earlier initiatives and getting Ford back to auto-making basics. The new chief's strategy has shifted to winning a technology race with rivals including General Motors Co. and Toyota Motor Corp.

The new strategy will be costly and risky. Capital spending will rise to 5.6% of revenue in the next two years, from 4.9% in 2016, as Ford steps up investment and acquisitions related to the new businesses. The No. 2 U.S. car maker also said profit will shrink in 2017 due to investments, then rebound in 2018 amid an expansion of its car and truck lineup and $3 billion in annual cost cuts achieved during a three-year span beginning this year.

It had warned in recent months that this year's financial results will be hurt by a safety recall, costs related to Brexit and a slowdown in the U.S. auto market.

Mr. Fields also is scrambling to catch up with Uber Technologies Inc., Alphabet Inc.'s Google, Tesla Motors Inc. and other nontraditional car companies ahead of Ford in electric-vehicle development, autonomous-vehicle testing and services allowing customers to share rides or cars.

The 113-year-old company this year has unveiled a flurry of partnerships and investments, reminiscent of the company's frenzy 15 years ago during the dot-com bubble to develop new ventures and acquire luxury brands. Those initiatives drained Ford's coffers and few panned out.

Mr. Fields sought to reassure wary investors Wednesday the company is in a strong position to weather a downturn and primed for growth. "We've given you clear evidence that Ford is a solid investment with an attractive upside," Mr. Fields said.

The stock was off nearly 2% at $12.14 at 4 pm. in trading on Wednesday.

Ford didn't put a timetable on its lofty 20% margin target for new initiatives, which compares with a forecast of an 8% margin in its auto business.

The company thinks autonomous vehicles will account for up 20% of total vehicle sales by the end of the next decade, and its first deployments will be in urban areas, such as New York City and Metro Detroit.

Ford plans to roll out in 2021 its fully autonomous car with no steering wheel or pedals, selling about 100,000 a year for commercial purposes only. A personal-use driverless car will be available in dealerships around the middle of next decade, Mr. Fields said.

Tests of these types of vehicles indicate auto engineers still have a long way to go in making autonomous vehicles behave in a way that reflects real-world driving patterns.

Ford's recent string of announcements, which include the purchase of a van-shuttle service in San Francisco and taking a stake in laser-sensor maker Velodyne Inc., have done little to soften Wall Street concerns about a cool-down in the U.S. market. Ford's stock is down 11% since the start of 2016 despite the success of the F-150 pickup truck and the coming launch of F-series heavy-duty trucks, which are among the most profitable vehicles sold in the world.

Ford says its operating cash flow will remain positive through 2018 and the company expects financial results to improve in troubled Russia and South America as restructuring efforts take hold there.

Write to Christina Rogers at christina.rogers@wsj.com

 

(END) Dow Jones Newswires

September 15, 2016 02:48 ET (06:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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