Chairman Bill Ford said last week that Ford Motor Company’s business model must change to match the way consumers and cities are changing the future of transportation … even if it “costs the company sales.”
Uh oh. Taken on its face, the chairman’s words sound just a bit like those of Jacques Nasser, Ford’s CEO from 1998 to 2001. Nasser spoke of making Ford the solution for all things automotive, both goods and services, from selling cars to renting them, financing them, fixing them, and accessorizing them, and locking customers into long term contracts that would give them a new car on a regular cycle and loaners when they traveled.
Bill Ford has long been a student of Silicon Valley. During his tenure at Ford, Mulally kept his eyes on Apple and Google, and closely watched how fast-growing companies like Uber and Lyft sought to change the way consumers, especially young people yet to enter the car market, think about personal mobility and whether owning, financing, and insuring a car is how they want to spend their money.
“If you imagine a future of transportation as a service, that requires us playing in a lot of areas we don’t play in today,” Ford said at the Web Summit 2015 in Dublin, Ireland. “It’s going to happen anyway, and I’d like it to happen with us. Our business model is going to have to change.”
Ride sharing, car sharing, and paging shared fleet cars from smartphones is what old-economy companies like Ford and General Motors see on the horizon from Google and Apple, two brands that have enormous credibility with young people. If those companies can make car sharing cool, reliable, and convenient, not to mention more affordable than owning a car, it will happen.
“The company that can stitch that together and make people’s lives easier will emerge as a winner,” Ford said. “That’s why the company is hiring programmers and electronics engineers and why it has opened a Silicon Valley lab to arrange partnerships with startups.”
It’s hard to know how people will respond to the automotive projects from Google and Apple once they become clear. But Ford is one of several carmakers dabbling in new thinking. For example, Ford is loaning SUVs equipped with medical diagnostic equipment to be used in rural parts of India in order to transmit health information of pregnant women to hospitals far away. Ford has programs like this, aiding developing areas in Africa and South America, to make it stand out as the good-guy brand as these markets mature for greater car ownership or car sharing.
Some investors tremble when Bill Ford says he plans to execute plans that may cost the company sales. Any suggestion that management is not trying to maximize the sales of profit-rich F-Series trucks can turn an “accumulate” order on Wall Street to a “sell” order. Ford has had enough trouble keeping up with the Dow Jones lately. In the last two years, Ford shares are down 7 percent while the Dow Jones Industrial Average is up 14 percent.
The difference between Nasser and Bill Ford, though, is that while Nasser was trying to foist his own vision for the future on what people would want and how they would want it, Henry Ford’s great grandson is saying that the company is watching closely and is studying consumer trends and not just what people say they might do in the future when asked in surveys. Young people in the U.S. increasingly say they don’t want to own cars and would rather live in cities with good mass transit. Let’s see how that works for them when the cost of living in cities like New York, San Francisco, Los Angeles, Chicago, and so on prices them out. When they end up in the suburbs paying off student loans, they will need a car.
Still, the predictions are there. More new automaker car-sharing companies will launch in the U.S. in the next three to five years, according to Anil Valsan, global lead analyst for automotive and transportation at EY (formerly Ernst & Young). Plus, public transportation companies are increasingly joining carmakers to provide mobility in cities — offering more buses, car sharing, and bike sharing. Rental car companies Hertz, Enterprise, and Avis already offer car sharing in some cities for short-term rentals.
In Europe and Asia, it is a different story, of course. Cities are more interconnected by rail, and “mega-cities” are planning for fewer cars, better mass transit than we have in the U.S., and living options that don’t freeze out lower and middle income families from the urban centers.
Ford is on the right track to be cozying up to Apple and Google and studying how people actually use Uber, Lyft, and myriad start-up car sharing schemes popping up all over the country. It may be many years before each new car or truck sold or leased in the U.S. belongs to three or four families or businesses, but Bill Ford is on the right track in making sure that if and when that occurs, Ford gets its healthy share of the new shared-car market.