Ford Motor Company COO Jim Farley has purchased $1 million of stock in the company he works for as a sign of faith that the Blue Oval can and will recover. You might recall Farley from his recent promotion, one resulting from a March management shakeup that forced Ford’s former head of automotive Joe Hinrichs out of the company. That situation ruffled a few feathers, but it’s ancient history now, considering what landed on Ford’s plate later in the month.
The automaker went into the coronavirus pandemic in the midst of a comprehensive and costly restructuring campaign. Government-mandated lockdowns soon stymied the economy, negatively influencing Ford’s share price. Plenty of automakers find themselves in similar situations, creating an impetus to further walk back mobility claims they were all betting on — or, more accurately, getting Wall Street to bet on.
Truth be told, it was probably a good time to buy. Farley purchased 194,950 shares when the per-share price hovered just above $5 on April 30th. Regulatory filings indicate this increases his direct share ownership by 31 percent to 828,922. As the likely successor to CEO Jim Hackett, it was probably also a good idea for Farley to invest in his (probable) future.
Meanwhile, any legitimate risk will likely be undermined by the United States government, which bailed Ford out a decade earlier and probably would do the same today. In February, Farley even noted how similar the industry of today looks like the one from the last big recession.
However, it remains a sizable investment for one man — even one with a compensation package that totaled $8.36 million last year, according to Automotive News. Some risks also persist. Q1 returned the $632 million operating loss Ford predicted, but the automaker warns that worse is yet to come. For Q2, the automaker predicts an EBIT loss in excess of $5 billion. The damage will be dictated by the severity of continued lockdown orders and how well the economy manages to rebound. Ford will also have to reexamine its restructuring plan to gauge which investments are working and which are not — items the manufacturer would have probably preferred to see addressed before the start of 2020.
From Automotive News:
Farley’s challenges have only grown since. With North American factories shut since mid-March — and no restart dates scheduled — Ford is forecasting a $5 billion loss in the second quarter, following a $2 billion operating deficit in the first three months of the year. It burned through $8 billion in the first quarter, suspended its dividend, had its credit cut to junk and sold $8 billion in junk bonds.
Farley last week outlined how the company plans to resume production with safety protocols that include mandatory face masks, temperature checks, social distancing and closed common areas such as cafeterias. But he gave no timeline for reopening.
“We want to restart as soon as we can and do it safely,” Farley told reporters. “We’ve gone through so many things as a company for over 100 years, but this is really unprecedented.”
It’s also put Ford and other automakers in one hell of a pickle. They’ve been dumping a fortune into tech startups and developing their own high-tech vehicle programs while simultaneously eliminating small, affordable cars from their lineups. Customers may opt for thriftier models if the economy tanks. Likewise, a sudden surplus of oil could negatively impact the already small take rate of electric vehicles as financial concerns further stymie their development. This is already happening at Ford and elsewhere.
But let’s not end on such a sour note.
For what it’s worth, Ford says it’s ready to resume operations and is waiting on a green light from Michigan’s Gov. Whitmer. The company has enacted extensive new health measures at factories and other work sites to ensure safety in an era where that’s all anybody thinks about anymore. Ultimately, Whitmer decided to issue three new executive orders Thursday night that extends Michigan’s state of emergency through May 28th… though the state’s legislature claims she doesn’t even have such powers (and plans to a lawsuit over the extensions). As politicians and regular folks debate the legality of shutting down normal society, Ford is digging in its heels to explode out of the gate.