Navigant Research Blog

Ford’s Big Management Shuffle Is About Changing Perceptions

— May 23, 2017

It is often harder to be a century-old company with a record of profitability than it is to be a young one with potential. This sums up the difference between legacy automakers like Ford and Tesla. With only two profitable quarters in its 14-year history, Tesla’s most recent resulted from strategic timing of paying bills and delivering cars. Meanwhile, Ford—despite periods of losses over its 114-year history—has generated immense profits, including records in the past 2 years. Nonetheless, Tesla is the darling of Wall St., while now former Ford CEO Mark Fields and communications VP Ray Day lost their jobs over the weekend.

In the 3 years since Fields succeeded Alan Mulally, the company’s stock price has dropped more than 35% despite record profits. Pre-tax 2017 profits are projected at $9 billion, which is more than Tesla’s total 2016 revenue of $7 billion. Yet, Tesla’s market cap recently topped that of both Ford and General Motors (GM). Clearly, the markets are placing their bets on the perception of where these companies are going in the coming years rather than on the fundamentals of each business.

Fields has been on point in Ford’s effort to be perceived as a forward-thinking technology company since his 2007 CES debut with Microsoft founder Bill Gates to announce SYNC. Even with repeated Las Vegas keynotes by Fields and Mulally and countless investments in developing automated driving and mobility services, investors perceive Ford and other companies that manufacture and sell physical objects as laggards compared to software startups.

Ford isn’t alone in this perception battle. Most automakers are making the pilgrimage to CES to woo the tech community. While few have been hit as hard as Ford, none of the incumbents are getting the love shown to Tesla.

In our Navigant Research Leaderboard Report: Automated Driving, Ford, GM, Renault-Nissan, and Daimler scored highest and ahead of several technology companies. Waymo is arguably somewhat ahead on the pure technology front, but automakers have necessary pieces such as manufacturing, service, distribution, and support infrastructure to make viable mobility businesses. Additionally, automakers have a proven ability to deliver physical products—not just the components and software that control them.

Ford’s leadership team, including Executive Chairman Bill Ford, EVP Joe Hinrichs, CTO Raj Nair, and many others, all supported the direction the company was heading under Fields. However, investors didn’t seem to believe in it.

During a press conference with new CEO Jim Hackett, Ford and Hackett both emphasized that the overall strategy of transformation into a mobility services company is moving full steam ahead. Hackett, who comes to the role from being chairman of Ford Smart Mobility LLC, aims to reinforce the strategy and focus on executing the plans. The elevation of Marcy Klevorn from CIO to EVP and the newly created role of President, Mobility highlights this ongoing commitment.

While Hackett’s success or failure won’t be evident for several years, Ford still needs to change investor and public perceptions to boost its stock price and the sales of vehicles it has today. That challenging near-term task falls to Mark Truby, who moves over from Ford of Europe to replace longtime PR chief Ray Day. Day and his team have had successes on the product communications front, but changing the overall perception of the company among investors who have favored high flying tech stocks has been elusive. Whether Truby or anyone else can succeed will be crucial.

 

Preludes to Premium Mobility Services

— May 22, 2017

Moving toward a world where individual vehicle ownership gives way to automated mobility services, automakers and service providers run the risk that their differentiated products will become commodities. In an industry that already runs relatively thin margins on top of high capital costs, the thought of becoming a commodity is a nightmare scenario. That is why companies like Ford and General Motors (GM) are experimenting with models that could feature different price points and margins.

Differentiation Necessary

If you use one of today’s basic ride-hailing services, it doesn’t matter if you use Lyft, Uber, Gett, or one of the numerous small services that operate regionally. Using luxury tiers like Uber Black gets users a premium vehicle, but otherwise the service is essentially the same and the prices are usually close. In order to charge a premium price that can generate the profits needed to sustain a business, companies will have to find ways to differentiate.

In a world where the car you ride in becomes random, the overall customer experience of the service will become crucial. That may include being able to specify what type of vehicle you want, guaranteed shorter wait times, access to added services like picking up the dry cleaning or groceries, and more.

In January 2017, GM’s Cadillac division launched Book, a service that enables customers to pay a flat monthly fee and get access to any of the vehicles in the brand’s model lineup. A subscriber may opt to spend the week commuting in an XT5 crossover, switch to an ATS-V performance coupe for a weekend jaunt in the country, or get an Escalade for a family road trip. Cadillac takes care of insurance, detailing, and maintenance.

At the New York Auto Show in April 2017, Lincoln announced its Chauffeur service. As the name implies, Lincoln provides its customers with access to a professional driver when owners cannot or don’t want to drive—such as on a special date night or to pick up the kids from an event. Lincoln screens the drivers and they arrive at the customer’s location on request to drive the customer’s car. Lincoln Chauffeur debuted in Miami and is now expanding to San Diego.

An Automated Future

Hypothetically, 5 to 10 years from now when both of these brands (and others) are offering a range of automated vehicles, it’s easy to imagine a scenario where services evolve to take advantage of that automation. The Cadillac of your choice appears at your doorstep on demand; for certain models like the high performance V series, GM can offer the option for the customer to drive if they choose while others may be automated only. Similarly, Lincoln Chauffeur could be utilized with automation for vehicles that customers buy, lease, or subscribe to on a weekly, monthly, or annual basis. Tesla CEO Elon Musk has also articulated a vision where his customers could make their vehicles available for short-term rentals when not being used.

These and other varieties of services will mean dramatic changes for the automotive retail business, as well the automakers and customers. The choice of whether to lease or buy gets expanded into additional types of payment plans, including by the mile, hour, month, and more. The possibilities will be limitless for affluent customers. For example, a customer may not need to decide what color car they want in their garage; they can order one coordinated to their outfit for the evening. No doubt there will be many more experiments from automakers over the next several years as they seek to navigate their way through a changing transportation landscape.

 

Increasing Collaboration between Tech and Automakers Is Better for Everyone

— May 19, 2017

Over the past several years, there has been an ongoing narrative that a battle has sprung up between Silicon Valley and the auto industry. The tech industry hype machine wants the world to believe that venture capital-backed startups are going to appear with some magic technology that disrupts and destroys the century-old incumbents. The reality is likely to turn out quite differently, with some of the brightest minds in the valley coming up with cool ideas that become a key part of the transportation ecosystem.

Tech Has Saved the Automobile Industry Before

The fact that the auto industry has remained vibrant over the past 50 years can in large part be traced to innovations that have emerged from the San Francisco Bay Area, particularly the silicon microprocessor that gave the region its nickname. At the onset of environmental regulation at the end of the 1960s, most of the functional aspects of cars were mechanically controlled, and these vehicles consumed more fuel and spewed more pollution than they do today.

As engineers struggled to meet the new regulatory requirements, the industry entered what became known to car enthusiasts like myself as the malaise era. Attempts to better control engines through mechanical means like vacuum lines led to many terrible engines with weak output, awful drivability, and barely improved emissions and efficiency.

Silicon Valley saved the auto industry from being suffocated by regulations. As early microprocessors and sensors were applied to engine and transmission management as well as new safety systems like anti-lock brakes, it became clear that computers in the car would be the key to enhanced driving. By the mid-1980s, electronic controls were enabling engineers to extract more power while using less fuel and cleaning up emissions. As fuel economy regulations stopped climbing, car companies offered customers improved performance and capability without making them spend more at the pump.

After earning my degree in mechanical engineering, I spent the next 17 years working on improving vehicles through  more sophisticated software running on a series of cheaper, yet more powerful slivers of silicon. Today’s most sophisticated vehicles utilize anywhere from 50 to 100 onboard computers to manage everything from lights that follow the angle of the steering wheel to automatically maneuvering a truck to connect a trailer.

Looking Forward to More Industry Collaboration

Silicon Valley has been a key enabler of the modern vehicle for decades. As we shift toward a world where most of the driving is done by software instead of people, the tech and auto industries must continue to collaborate more closely. The auto industry has developed an immense base of knowledge in building complex pieces of hardware at high volume and with high degrees of reliability and durability. Those machines come in a huge variety of configurations to meet virtually every possible transportation need.

Meanwhile, the tech industry has an unrivaled set of capabilities in developing software and electronics and driving down costs while improving performance. There are great minds on both sides focused on how to make mobility safer, cheaper, and more universally accessible. The Navigant Research Leaderboard Report: Automated Driving scored automakers and tech companies on their likelihood of success in commercializing this technology.

Almost everyone recognizes that transportation will change in the coming decades. The collaboration between the tech and auto industries has yielded incredible results for nearly half a century. New partnerships are going to form on the way to fully automated driving. There’s no need to spin those relationships into a competition when greater collaboration will likely yield much better results for everyone moving forward.

 

Success in Automated Vehicles Depends on Tech, Services, and Manufacturing

— April 3, 2017

An old axiom in motorsports goes: “to finish first, first you must finish.” This means you can have the fastest car on the track and qualify on the pole position, but if you don’t have the preparation or team to back you up, the quality of the car is meaningless. In the race to make automated driving a successful commercial reality, hype may get companies all the media attention, but a fully realized strategy combined with the ability to execute are the keys to success. This is why Ford, General Motors (GM), the Renault-Nissan Alliance, and Daimler are the leaders in the latest Navigant Research Leaderboard Report: Automated Driving Systems.

Outside observers would not be faulted for believing that companies in Silicon Valley were about to roll over the entire automotive industry and take over personal mobility in the coming months based on news coverage. However, as many veterans of the technology industry have become painfully aware of, the reality is that building vehicles to safely transport the world’s population is far more difficult than just writing an app and publishing it to an online store.

Horse Before the Cart

Assembling a suite of sensors and writing the basic software to control a vehicle are actually the easy parts. Before that package can become a real product, you need a vehicle. Google developed its automated driving system in 2009 by hiring many of the top brains from Stanford, Carnegie Mellon, and several automakers that had previously created winning vehicles in the DARPA Grand Challenge program between 2004 and 2007. Then Google went to local Toyota and Lexus dealers and bought vehicles one or two at a time. Companies like Cruise Automation and Uber followed similar paths. In order to commercialize a system, they will need to invest billions more to develop and manufacture vehicles or find an automaker partner willing to supply cars.

Uber is reported to have lost more than $3 billion in 2016 without capital investment in vehicles or manufacturing. The world’s major automakers already have the engineering and manufacturing infrastructure in place, and many of them have been working on autonomous technology for far longer than Silicon Valley. Major automakers understand the intricacies of developing, validating, and certifying vehicles for profitable production.

At Navigant Research, we believe the leading automakers are learning what it takes to develop automated vehicles faster than new entrants can learn how to build cars. Companies like Ford, GM, Nissan, and Daimler also understand the regulatory and product liability hurdles faced by bringing automation to the world’s roads. These companies have heavily invested in controlling and understanding the key technologies required to make vehicles and automated driving system work seamlessly.

Just Around the Corner

The leading companies in this field are also rapidly developing their own in-house mobility services so that they can provide consumer access to automated driving systems while retaining control of vehicle manufacturing. This will help to ensure that the vehicles are properly maintained and updated—something that is key to safe and proper use within the early years of deployment.

Technology companies like Waymo and nuTonomy, as well as suppliers like Delphi and ZF, will have an important role to play in the new mobility ecosystem. But for now, automakers lead in the automated driving system race.

 

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