Bob Lutz, in case you didn’t know, is a living legend in the automotive world. In his heyday, he was a steak-first, sizzle-second, beans-thirdi product strategist for a variety of car manufacturers ranging from GM to BMW to Ford and Chrysler across a nearly fifty-year career. But time is forever unkind, and Mr. Lutz, despite aging as gracefully as any former marine could, has somewhat haplessly attached his name to a fair few failures in recent years (ahem, Fisker) as only old men overcome by the blinding pace of interconnected complexity could. Still, the gleam of Lutz’ golden years shine brightly enough to read his wise old musings now and again, and to consider their context, hits, and misses. Let’s therefore set the table, say grace, and dig into his latest : Bob Lutz on Why Ford Ousted Mark Fields.
They were frustrated with reduced earnings, but more so with a stock price stuck in low two digits.iv Mark was a talented Ford lifer: bright, experienced, and personally charming, with an outstanding record of achievement in every assignment he held.v Blessed with a good feel for product, he reestablished Ford’s lead in full-size pickups,vi outmaneuvered GM by introducing Transit vans to North America, oversaw a nascent turnaround of Lincoln, and produced a newly styled Mustang, which is cleaning the Camaro’s clock where it counts: with customers. He learned the “One Ford” mantra from Mulally (admittedly, a hard act for even the best to follow).vii
But none of that is enough in an era where Wall Street uses the peripateticviii Elon Musk as the standard by which automotive CEOs are measured.ix Great new cars are no longer enough, nor is the pell-mell shedding of unprofitable operations (as GM has tried, with no measurable impact on its stock).x Face it: Tesla is exciting.xi Multibillion-dollar lithium-ion gigafactory! Tunnels under Los Angeles! (Earthquakes, anyone?) Manned flights to Mars! Now, that’s the stuff the newly minted Harvard MBA analysts understand. Sizzle and aroma.xii The steak can’t be far away. Okay, so Tesla is hopelessly unprofitable, the cars’ reliability unproven,xiii compared with those built by the dreary “legacy” automakers. None of that matters: Musk, the ultimate pitchman, draws an irresistible vision of the transportation future. Tesla’s stock defies gravity and all conventional business logic. Ford shareholders, holding $11 shares, naturally became envious.
The legacy automotive CEOs, trained to under promise and over deliver, warned by generations of corporate counsel to avoid getting crosswise with the Securities and Exchange Commissionxiv by making irresponsible statements that could mislead investors, do their best to adapt to the fast-changing environment. They buy ride-share companies, invest in digital mapping, tout upcoming electric, autonomous cars. But it doesn’t move the stock price.
It’s sad, in a way. Exercising all the judgment and caution of someone entrusted with billions of dollars of shareholders’ money is no longer enough. The old saying “ultimately, the fundamentals will prevail” is still true, but shareholders don’t want to wait for “ultimately.” Today’s automotive CEO has to be part sound leader, part P. T. Barnum ringmaster. He or she needs to be a vocal personality in the mold of the unforgotten Lee Iacocca.xv
Time to shed some of the caution and misgivings,xvi time to display 1000-mile-range electric concept cars (“No firm production plans, but we’re definitely considering it”). Time to say, “Let Musk tunnel. We’re investing in autonomous quadcopters.”xvii Poor Mark Fields, a good legacy CEO, was no longer a fit in a world where promise and hype outclass perseverance and financial performance. Best of luck to his successor.
Ol’ Lutzy might be old but still has some wisdom to impart.
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- Farts fourth ? ↩
- Mulally was the CEO at Boeing before taking the helm at Ford in 2006, right as the rug was about to be pulled out from under the Big Three with the Financial Crisis. While Ford likes to trumped the fact that it was the only of the soi-disant “Big Three” not to go bankrupt in 2008/09 and not take USG bailoutbucks at the same time, Ford still guzzled a disproportionate share of “Green Energy” “Loans” from Bahamas – exactly like Elon The Terrible – and still only skirted Chapter 7 because Mulally sold JLR to the Indians, Aston to the Arabs, Volvo (ultimately) to the Chinese, and mortgaged everything else The House of Henry had to the hilt. It was a unusually brave, ineluctably elegant, and remarkably successful strategy, but Mulally couldn’t stay with the company forever and he was absconded with by USG.Google in 2014, leaving his successors at Ford to defraud investors as only A Country Of Laws And Not Of Men could. Le sigh. ↩
- This “gaggle of Ford family members” is a bigger problem than even critics might realise. It’s not that nepotism is evil because reasons hurrdurr, it’s that family-managed businesses fundamentally struggle to attract and retain top talent. The issue is one of probabilities, and not just for prospective talent who want to climb the ladder of success as far as their abilities may take them and are deterred by their non-“in” bloodline, but also in terms of the number of children needed to even have a hope of hell of replicating the tenacity and intelligence of the company founder. The Ottoman Empire, for all of its tarnished reputation as a pale shadow of the Romans/Byzantines (at least by mouthbreathing mainstreamers), understood the inheritance problem better than most, to which no small amount of its 600-year existence can be attributed. What the Sultans understood was that having a pathway open to the highest office was utterly essential for both continuity and public morale. The mother of every Sultan was therefore a slavegirl chosen seemingly at random (even though random is obviously a scam, sheep want to be shorn!). Certainly some products were more capable than others but all were of a diversified stock from the peripheries of the Empire. All a girl like Roxelana had to do was be young, beautiful, politically ambitious, be fortunate enough to find her way into the Sultan’s harim, and then give it her best shot. Reasonable, no ? Everyone at the time certainly thought so, in no small part because the Ottomans kicked a lot of ass and took a lot names for those first two centuries. So even though Roxie fucked up the whole game plan by giving Suleyman five children instead of the usual one child – thereby currying excessive favour with the Sultan, securing for herself the position of Queen in a previousless queenless empire, and limiting the number of Suley’s potential successors from thousands to single digits – you can’t tell me that the OG Ottoman Model is a more “unfair” or capricious model than Britain’s Got Talent, X-Factor, Big Brother or whatever the hell else besides. Ain’t none of Simon’s hussies replacing the hottie Melania. Anyways, back to the point, giving a limited number of heirs undue preference over more talented contenders can only lead to decline. It’s a failure to properly render the fat, so to speak, which spells doom with a capital D. Then as always. ↩
- For a better understanding of why a sustained stock price in the low two digits is such a point of contention for stock holders, the Burlington case study is particularly apt :
For an understanding of how the to-invest-or-not-to-invest dilemma plays out in a commodity business, it is instructive to look at Burlington Industries, by far the largest U.S. textile company both 21 years ago and now. In 1964 Burlington had sales of $1.2 billion against our $50 million. It had strengths in both distribution and production that we could never hope to match and also, of course, had an earnings record far superior to ours. Its stock sold at 60 at the end of 1964; ours was 13.
Burlington made a decision to stick to the textile business, and in 1985 had sales of about $2.8 billion. During the 1964-85 period, the company made capital expenditures of about $3 billion, far more than any other U.S. textile company and more than $200-per-share on that $60 stock. A very large part of the expenditures, I am sure, was devoted to cost improvement and expansion. Given Burlington’s basic commitment to stay in textiles, I would also surmise that the company’s capital decisions were quite rational.
Nevertheless, Burlington has lost sales volume in real dollars and has far lower returns on sales and equity now than 20 years ago. Split 2-for-1 in 1965, the stock now sells at 34-on an adjusted basis, just a little over its $60 price in 1964. Meanwhile, the CPI has more than tripled. Therefore, each share commands about one-third the purchasing power it did at the end of 1964. Regular dividends have been paid but they, too, have shrunk significantly in purchasing power.
via Trilema. Framed thusly, we see that Ford is an excellent car company, but that the fiat investing world has decreasing amounts of patience for and interest in companies so narrowly focused. It’s not that specialisation is evil or anything nonsensical like that, merely that a narrower focus means fewer funnels to pipe Yellenbucks into, and that’s the very nearly entirety of the name of the game at the moment. He who pipes most, wins. In a very distantly second place is the consideration that USG.Transportation needs to cover any and all possible bases relating to meat mobility as it aims to enforce its star topology wherever possible. So if Fields/Ford can’t keep up with the times, better options like Elon The Terrible can and will be promoted. It’s a vicious world out there, as you may be starting to notice. ↩
- If you’re familiar with the Peter Principle (for which I take no credit), then you’ll realise how much Lutz is damning Fields with faint praise. “He was an incredible Formula 3 driver, but ya, he totally got p0wned in F1″ is pretty much how this reads. Fields couldn’t hack it with the big boys. He tried. He failed. He will be forgotten exactly like Ed Whitacre and the rest of ‘em. But what else was there to do ? ↩
- I wasn’t aware that Ford ever lost its lead in full-size pick-ups, regardless of who was manning the ship, but sure, let’s pretend like Fields had something to do with “reestablishing” it. Did Fields maintain the lead ? Sure, quite possibly. But “reestablishing” implies that it was unestablished at some point, which I dun see from here. ↩
- By definition, and with an intelligently broad context that Lutz willfully elides only to save Fields’ feelings, “the best” can follow whoever came before them. Clearly, calling Fields “the best” is therefore a highly relative assessment only valid within the narrow confines of the existing Ford employee base, which makes it like saying that your mother is your favourite of all the women who gave birth to you. So what ? ↩
- Musk is… peripatetic ? Like, he walks a lot ? Or he’s a disciple of the Golden Mean School of Greek Philosophy ? Either way, how do you figure ? Peripheral, perhaps, but I tell you I dun see peripatetic. ↩
- This is deeply unfortunate for automotive CEOs but entirely unavoidable in the face of the secular headwinds facing the industry. No one needs cars that badly anymore and selling pizzazz is sort of all that’s left. As electric cars become an inevitability and the manufacturing of their sub-components and assemblies moves from West to East, taking with them the jobs of not just manufacturers but repair mechanics too, “branding” is sort of what’s left and this is exactly why all the “AI,” “Quantum Computing,” and “Level 5 Autonomy” fuss is all about. After all, “the science is settled” on everything else and all there is left to do is dream of colonising distant planets from the comfort of your little (and I do mean little) bedroom, so why not shoot for the moon ? If you miss, won’t you land among the stars ? ↩
- GM didn’t try to do shit, certainly not in terms of shucking off unprofitable operations. All GM has done in the last decade since it went bankrupt is suck down dole like the catamite it is. That’s it’s… job. Just like it is for Bombardier and the rest of the PR “We Make Things” faces of the various and variously crumbling Soviet Empires. All GM did with its “restructuring” was try to offload liability for making flaming pieces of shit. ↩
- It’s true, if you’re mentally 10-years-old, Tesla is more exciting than female nipples through a wet t-shirt! Granted, this level of neoteny is a daily reality for 97.6% of penis-burdened Soviet citizens, but that doesn’t make it any more objectively true than the “racism” of the Confederate Flag. Alas, advanced age is ever so indistinguishable from early age, diapers and all, and Lutz is no exception to the rule. ↩
- Those dumb enough to attend Soviet-Harvard in the first place – and I say that in all seriousness as I really do think very little of anyone who’s graduated there in the last 35 years – can but be dazzled by stotting. It’s sort of self-selecting, no ? ↩
- Even Tesla’s delivery schedules are a disaster on wheels. Not that fanbois care. And given the interest rate environment, what else are fiat “investors” other than that ? ↩
- The SEC is for all intents and purposes a branding agency. They have no authority and nothing of import to offer. Not since 2014 or so. ↩
- Hell, Oprah would make a better Ford CEO than a lifer like Fields. “YOU get a car and YOU get a car!” would be some kinda marketing campaign. ↩
- It’s a grab-what-you-can world out there in fiatlandia. Get yours. ↩
- Mmm no. Sorry Lutzy, but the sane reaction to an industry awash in derpitudinous scammers is to hire some wicked PR (even from NK), publish your interactions with the scammers on your blog so that you have a permanent record of your being right and their being wrong, and watch as however many bright, reflective, and independent minds are left in this world flock to you like so many turtle doves. The only problem with this strategy ? It only works in one place and nowhere else : the distributed universe of The Republic. Maaaaybe it stretches to also work at the scale of Pagani or Singer, but it’s in no way an option for the likes of a behemoth like Ford. Ford is TBTF, which means that Lutz actually has it. It’s either out-Barnum Barnum or let him eat your lunch. Tertium non datur. Fuck it, I hate when old guys end up being right! ↩