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Ford Announces Major Cuts, But Will They Work?

October 8, 2017
105 Shares 2,392 Views

According to Reuters:

Ford Motor Co (F.N) plans to slash $14 billion in costs over the next five years, Chief Executive Officer Jim Hackett told investors on Tuesday, adding that the No. 2 U.S. automaker would shift capital investment away from sedans and internal combustion engines to develop more trucks and electric and hybrid cars.

While Ford has been developing hybrid and electric cars for some time, the move comes just as a massive drive towards electrification spread throughout the automotive industry. The slashes, on the other hand, may help boost Ford’s bottom line in the coming years.

The move can be perceived as a drastic attempt to close the gap to GM, who has made some savvy partnerships, award winning cars and has announced its own plan to go electric.

In 2016, BNL Finance wrote that:

Investors are betting on the future, and General Motors has strategically followed the market’s lead with its own investments. Ultimately, that’s what causes General Motors stock to more than double as its multiple rises from a measly 6x forward earnings.

There prediction proved correct as GM’s stock has vastly outperformed Ford’s over the past year. BNL Finance thinks that this gap will only widen:

We believe the separation between Ford stock and GM stock will only widen, as General Motors stock continues to soar higher and eventually double from prices in December of last year and Ford moves marginally higher if the market continues to rise.

It appears that Ford is constantly a step behind their main competitors. We still do not know what kind of costs will be cut but the prospect of being forced to look inwards to generate more capital is a little concerning.

Ford also appears to be behind in making strategic partnerships. Reuters says that they are pursuing partnerships with Lyft (who already work with GM) and companies in the far east, but this is being done a year later than GM.

Ford will need to really impress investors in the coming years if it hopes to displace GM. Investors should weigh the potential of both companies before committing to any investment.

To read Reuters’ article on Ford’s new cuts, click here.

To read BNL Finance’s article on GM vs Ford, click here.

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