A Better Idea?

There really are no sacred cows.

Model T Roadster, 1910. Source: Wikimedia

That’s what I thought when I read that Ford was pretty much abandoning auto production in the US. Actually, that’s not quite accurate. My first thought was, “Is this really happening? Is this ‘fake news’? Did some random feed take over my search engine?”

But it’s true: Ford will stop producing most sedans by 2022 – the Fiesta, Fusion, Taurus, and crossover C-Max. They didn’t announce plans for the Lincoln Continental or MKZ, but since those models share production platforms with the Ford lineup, it’s likely that they’ll see the end of the road, too. Only the iconic Ford Mustang and an imported crossover version of the Ford Focus will be spared. Wall Street analysts approved of the move: the shares were up 2½% yesterday, about twice as much as the general market. The company hopes the changes will help them improve their profit margin from 5% to 8%.

The company needed to do something. They survived the Financial Crisis, but the shares haven’t moved meaningfully in over three decades. Consumer tastes have shifted towards bigger, safer vehicles, and new technology is dramatically altering how we will get where we want to go – electric and hybrid vehicles, autonomous driving, ride sharing, and so on. When Ford hired a new CEO last year, he promised to shake things up. Well, this is shaking things up.

Ford market price, 1988-2018. Source: Bloomberg

This is the kind of bold move investors expect from managers. Too often, CEOs run a company as if it’s their personal fiefdom or some sort of social enterprise. That’s fine if it’s their money, but when a corporation is publicly traded, management has a fiduciary duty to investors to maximize its long-term financial value. Sometimes that means acting as a caretaker, but often it requires making big, hairy, audacious decisions. When the times change, managers need to change with them.

Because it’s not their capital. If they can’t manage the firm’s assets profitably, someone else should.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-04-27T06:55:26+00:00April 27th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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