The new CEO of Ford Motor Company (NYSE:F), Jim Farley, is committed to rolling out economical cars for everyone. He said the main urgency is to reduce costs, improve quality, and restructure underperforming businesses to turnaround the automotive operations.
A break to the rising prices of cars
Farley will introduce several operational changes and introduce affordable cars for the communities that include North America. He intends to soothe the ears of several people who are complaining about the rising costs of cars in the recent period. In its portfolio, Ford has seven vehicles and each with a starting price below $30,000. However, the MSRP of the Ford Ecosport is below $20,000. The company is embracing new technology and planning to introduce a more economical and compact Ford Maverick Pickup.
Challenges ahead for Farley
Additional challenges for Farley, who took over the charge from outgoing CEO of Ford – Jim Hackett, are improving the margins, driving Ford out of the coronavirus impact, and ensure a smooth transition to electric vehicles.
The operating profit margins for Ford in North America are set at 10%. However, it posted average profit margins at 7.5% in the last three years. In 2019, Ford posted total operating profit margins of just 4.2%.
Tesla Inc (NASDAQ:TSLA), a pioneer in the electric vehicles, improved its profit margins to 5.2% in the last 12 months from less than 1% in 2019. The operating profit margins of General Motors Company (NYSE:GM) are 5.4%. However, the profit margins of Ford and General Motors are dwindled because of lower deliveries amid the ongoing COVID-19 pandemic.
The redesigned Ford Bronco, introducing innovative products, and lowering the costs, would improve the margins to some extent. According to Dan Levy, an analyst at Credit Suisse, Ford needs to safeguard its truck franchise. The automaker maintains a market share of 60% in the light-duty and premium pickup truck segment. Ford incurs huge costs in introducing all-electric F-150s and hybrid vehicles. EVs dent the profit of legacy automakers. Farley’s task is to balance profitability and share and maintain the existing customer base for its truck business.
Ford plans to spend over $11 billion in the coming years to introduce more EV models. The company is preparing to introduce an all-electric F-150 in 2022.