Ford shakes up management after giving a dreadful outlook

Ford announced Friday it will replace the president of its auto unit, three days after it announced a disappointing earnings outlook and financial results, sinking its stock.

The company replaced Joe Hinrichs, a 19-year Ford veteran who previously worked at General Motors. Jim Farley will assume the role of chief operating officer of the company, reporting to CEO Jim Hackett. He previously served as president of new businesses, technology and strategy.

“Jim Farley is the right person to take on this important new role,” Hackett said, adding that it’s important that Ford accelerate its move to electric and autonomous driving vehicles.

The changes take effect March 1.The company termed Hinrichs’ departure as a retirement, although he is 53 years old.

“I thank Joe for his tremendous leadership over the past two decades,” Hackett said. “Joe was instrumental to Ford’s ability to survive the Great Recession a decade ago without bankruptcy or taxpayer bailout.”

The company was stung twhen it reported a larger-than-expected loss in the fourth quarter, essentially wiping out its profit for the entire year. It also said that its earnings before interest and taxes in the first quarter of this year would be $1.1 billion lower than the $2.4 billion it earned a year ago.

Hackett admitted that the company’s results were short of what Ford had promised.

“Our operational execution — which we usually do very well — wasn’t nearly good enough,” he said. “We recognize, take accountability for and have made changes because of this.”

Among the issues facing Ford has been the troubled re-launch of the Explorer SUV, one of its best-selling vehicles. Quality and production problems caused year-over-year sales of the model to decline nearly 15% in the fourth quarter. There also were widespread reports of shortages of the vehicle at dealers.

Ford has also reported higher warranty cost in the wake of that launch, which are expected to drag down earnings through at least the first quarter of 2020.

Hackett said that Hinrichs is not to blame for the problem with the launch of the Explorer. “We share that together. This is not tied to that at all,” he told reporters during a press call Friday.

Ford faces a number of similar challenges this year, including a new version of it best-selling and most-profitable vehicle, the F-150 pickup; the re-launch of the Bronco brand; and the debut of the Mustang Mach-E, an SUV that will be the only all-electric vehicle in Ford’s lineup. Ford has already sold out the first edition of the Mach-E.

Hinrichs was the point person when the F-150 was changed from a steel to aluminum body in a 2014 redesign. That launch was considered a success, especially as it involved a radical change to key vehicle.

Questions were raised during the press call of the risks to Ford of losing Hinrichs before the upcoming crucial launches.

“No question Joe had mastery on the industrial side of the business,” Hackett said. But, he added, “we have a very deep bench. I’m really confident we won’t miss a beat. “

Hackett insisted that this move is part of a broader effort to try to push Ford more quickly into the next generation of vehicles. “This is something I started to work on more than a year ago, to see how a company like Ford can straddle the two eras,” he said.

The company is in the midst of an aggressive $11 billion restructuring plan to shed money-losing units, mostly overseas, and shift to the electric and self-driving vehicles of the future. That plan has raised concerns among investors and some analysts, especially since Ford hasn’t spelled the details of its transformation. In September Moody’s downgraded Ford’s credit rating to junk bond status.

Shares of Ford fell 9.5% on Wednesday following Tuesday’s after-the-bell finacial results. It lost another 1% on Thursday, and were down another 1% in early trading Friday on news of the executive shake-up.

So the pressure is now on Hackett to prove himself, and soon, to Ford’s shareholders.

Hackett was a relative newcomer at the company when he got the top job three years ago. A struggling stock price led to the ouster of his predecessor, company veteran Mark Fields. In the nearly three years Fields had the job, Ford stock fell 37%, and now it’s down an additional 25% under Hackett.

Upstart electric car maker Tesla, a fraction of Ford’s size, is worth four times as much.

The 64-year old Hackett said Friday he intends to stay on as Ford CEO to oversee its transformation, but he cautioned, “I’m not going to speak for the board.”

With his promotion to COO Friday, Farley is clearly positioned as Hackett’s likely successor. Hackett may not have much time left to fix the problems dogging the company.