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Ford cuts loose from cars after years of missing margin goal

[SOUTHFIELD, Michigan] Ford Motor Co, the more than century-old company that was first to make cars for the masses, is calling off its pursuit of everyman sedan buyers.

The company responsible for putting the world on wheels with Henry Ford's assembly line will pivot away from being a full-line automaker, shrinking its passenger-car lineup and shifting only to low-volume, high-margin models.

The reason? Years of coming up short on a long-held profit-margin target. Earnings disappointments cost former Chief Executive Officer Mark Fields his job in May, and his replacement Jim Hackett has since laid out plans to reorient the company around lucrative sport utility vehicles and pickups, plus play catch-up on the trends that are sweeping the auto industry: the rise of electric, autonomous, connected and shared vehicles.

"Let's be clear: We are not satisfied with our performance," Chief Financial Officer Bob Shanks told analysts Tuesday. "For the past seven months, we have undergone a rigorous assessment to ensure we are fit as a business and are making the choices that will create the Ford of tomorrow." Ford shares plunged as much as 6.3 percent, the steepest intraday drop since July 2016, and traded down 5.8 percent as of 10.10 am in New York. The stock rose just 3 per cent in 2017, trailing Tesla Inc.'s 46 per cent surge and General Motors Co's 18 per cent jump.

Before delivering a presentation at the Deutsche Bank Auto Industry Conference, Shanks warned that adjusted profit will fall this year to US$1.45 to US$1.70 a share, down from about US$1.78 last year. While Wall Street had been expecting a drop from 2017, the low end of the company's guidance is worse than what analysts were anticipating.

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"It appears that nothing is sacred at Ford," Joe Spak, an analyst at RBC Capital Markets, wrote Wednesday in a report to clients.

Ford's automotive business earned just a 5 per cent profit margin last year, less than its average since 2010 of about 6 per cent, according to Shanks. The company hasn't achieved its 8 per cent goal in any year since the global recession, he said.

The automaker flagged its expectation for weaker earnings two days after Executive Chairman Bill Ford said the company founded by his grandfather is going "all in" on electric cars. Ford kicked off this week's Detroit auto show by pledging to invest US$11 billion to bring 40 electrified vehicles to market by 2022.

Mr Hackett, 62, last year took over an automaker that lacks a model to compete with cars like GM's Chevrolet Bolt or Tesla's Model S. On Tuesday, Mr Hackett rejected the notion that Ford is behind.

"Ford is going to aim ahead to where it has to be," he said at the conference Automotive News World Congress in Detroit. "Because it has to be ahead in order for people to believe our strategy isn't about catching up to somebody else." Executives did, however, acknowledge that Ford has to change course. That will include cutting car lines that no longer sell well.


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