Investors ask Ford about wisdom of train station, scooter purchases

Phoebe Wall Howard | Detroit Free Press

Show Caption Hide Caption Detroit train station transforms into haunted house Trick-or-treaters flock to Michigan Central Station in Detroit's Corktown neighborhood as Ford Motor Co. put on a haunted house for Corktown families.

Ford views its purchase and renovation of the Michigan Central Train station as a good investment made affordable because of "community support," a top company executive told investors in response to a question about the carmaker's financial priorities at Barclays Global Automotive Conference in New York.

"We can do it pretty efficiently because of the support we're getting from the community," said Joe Hinrichs, Ford executive vice president and president of global operations. In August, Ford said it planned to spend nearly $740 million on renovations and would seek more than $238 million in "tax or other incentives" to support the project.

He said the train station acquisition, announced in June, is about "looking to the future" and where the next generation of workers want to work.



"It's not only a good use of capital but it's the right thing to do," Hinrichs said. "We're already seeing a lot of people wanting to be in the Corktown area. For a lot of reasons, it makes sense for the future of Ford — attracting and keeping talent."

The Dearborn-based automaker has talked about creating a tech hub where as many as 5,000 people could work, adding to the 200 people it already has in Corktown.

Barclays investors in the audience asked about the train station as well as Ford's recent acquisition of Spin electric scooters for more than $40 million.

Hinrichs responded, "It's an important part of mobility strategy."

He faced a skeptical crowd from the start. An informal survey indicated about one in four audience members held Ford stock and, the moderator noted, audience opinion of Ford stock "tilted toward the negative."Hinrichs began his talk by saying, "We’ll see if we can influence a little bit of that bias."



The presentation ranged from how Ford is assessing which vehicles to sell in which parts of the world to how best to reduce manufacturing costs.

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After a 25-minute presentation, investors told Hinrichs they wanted more detail.

He said the current redesign effort by Ford is the most fundamental he has seen in his 18 years with the company. Yet the first investor who asked a question said it was "a very good presentation" but a listener "would have thought" Ford would have done "all of this for the past 10 years already. What is the reason it took so long?"

Hinrichs responded, "Just recognize that I presented at a high level intentionally. Details are competitive. We don't want to give away our secrets. ... You're right, this is part of manufacturing and Auto 101. Like any business, there's an opportunity to see where, over time, you haven't stayed as fit or competitive as you want to be."

Another audience member told Hinrichs he gave "very little detail in terms of how exactly it's going to play out."

Hinrichs acknowledged the feedback and responded, “We have the details in our mind. … We're not ready to talk about them.”

An audience member noted that Ford is "significantly underperforming" its competitors in South America, Europe and China.

"Our business model needs to be restructured in South America," Hinrichs said, noting that the company must navigate governments, labor agreements, customers and supply networks carefully or change risks higher costs.

As for Europe, Hinrichs said, "while the total business is not acceptable," the commercial vehicle business is strong. "We'll have to let that grow and deal with the rest of the business."

He noted that a number of countries aren't selling the volume that justifies the product line, and those pipelines are being reassessed now. And Ford China has a new management team.

Hinrichs presented a road map for tightening business costs while looking at income returned on investment, allocating labor resources and targeting inventory opportunities.

"Fitness is about about being competitive and being able to compete," he said. "We have a number of initiatives going on."

For example, fewer markets internationally will get the new version of the popular Explorer SUV because they don't sell enough to justify shipping from the Chicago assembly plant. Cost and complexity isn't worth making that trip, Hinrichs said.

A look in the mirror

And while the current Explorer SUV has 139 side mirror options, those will be reduced to about 25 mirror options in the future without impacting overall quality, Hinrichs said.

"There's tremendous value throughout the system in doing this," he said. "We have to decide what markets to play in, products to offer, how to compete ..."

Hinrichs worked to persuade a group that has been critical of the automaker, as competitors have revealed more detail about cost-cutting plans.

"Ford is walking the line between sharing enough to instill confidence without giving away specifics that would advantage the competition," said Stephanie Brinley, principal analyst at IHS Markit, who listened to the speech. "Yes, some of the actions are essentially basic to the business, and should not be new to the process. More important: It’s about execution. It will take time to see if Ford’s execution is strong enough, consistent enough and smartly applied enough to improve the business."

Jon Gabrielsen, an independent market economist who advises manufacturers and suppliers, listened to the speech and said, "Rarely have I heard so many tired old buzz words that told us so little.”

Ford is touting saving $1.5 billion on new manufacturing equipment by reusing current equipment, he noted. "But that is only tiny fraction of new equipment spending in the multiyear period he cited so that is not making much difference, even though I applaud it.”

Only time will tell whether financial analysts are being fair to Ford during this time of transition.

“Investors came into the conference desperate for details of Ford’s restructuring plans and all they got was a best practices fundamentals lecture," Gabrielsen said. "I hope they also got a T-shirt.”

Contact Phoebe Wall Howard: phoward@freepress.com or 313-222-6512. Follow her on Twitter @phoebesaid