Data could be what Ford sells next as it looks for new revenue
As Ford Motor Co continues a global reorganisation that is certain to include significant job reductions, one way forward could lie in Ford Credit and the consumer data it collects.
More than US$1 in US$3 in profit is coming not from car or truck sales but the finance entity that makes loans to more than 5,000 car dealers and four million customers, mostly in the United States and Canada.
That's up from US$1 in US$4 in 2017, according to regulatory documents.
Potential clues to the future path of Ford can be provided partly by Facebook, which has illustrated to shareholders the value of using customers' personal information to earn billions. Advertisers buy not the customer information itself but access to the consumer based on data about their lifestyles.
Last week, Ford announced the purchase of the electric scooter company Spin, an acquisition that brings with it a new trove of data about how people travel. The value of the company may be less in the hardware than the tracking that goes along with use of the scooters. When do people travel? What are key travel routes? What days of week see the most use?
A November 8 news release announcing the scooter purchase explicitly noted that the carmaker would share user data with partner cities.
Data mining is a highly lucrative revenue stream.
General Motors recently tracked the habits of 90,000 drivers in Chicago and Los Angeles who agreed to have their car-radio listening habits tracked to assess the potential relationship between what they listen to and what they buy.
Ford CEO Jim Hackett provided a glimpse into what sounds like a potentially massive data-mining plan. His remarks were made during a Freakonomics Radio interview for a podcast released November 8.
"We have 100 million people in vehicles today that are sitting in Ford blue-oval vehicles. That's the case for monetising opportunity versus an upstart who maybe has, I don't know, what, they got 120, or 200,000 vehicles in place now. And so, just compare the two stacks: Which one would you like to have the data from?" Hackett said, according to the podcast transcript.
"The issue in the vehicle, see, is: We already know and have data on our customers. By the way, we protect this securely; they trust us," Hackett said. "We know what people make. How do we know that? It's because they borrow money from us. And when you ask somebody what they make, we know where they work, you know. We know if they're married. We know how long they've lived in their house because these are all on the credit applications. We've never ever been challenged on how we use that. And that's the leverage we got here with the data."
Ford Credit has provided financing since 1959 to customers to buy or lease Ford and Lincoln vehicles. The company also finances dealer vehicle inventory and capital loans for dealership improvements, and other products and services for customers and dealers.
The cash flow, which rarely gets much media attention, is staggering by any objective measure.
So far in 2018, Ford Credit has accounted for 35 per cent of Ford profits, or nearly US$2 billion of $5.5 billion in total profit, according to company documents filed with the US Securities and Exchange Commission. That's up from last year, when Ford Credit generated 24 per cent of Ford profit, or US$2.3 billion of US$9.6 billion total.
But the financial picture is changing.
"Automakers will lose money on electric cars for years to come. None of them knows exactly how they're going to make money on autonomous cars," said John McElroy, a veteran industry observer and host of Autoline.tv. "But they could make a fortune monetising data. They won't need engineers, factories or dealers to do it. It's almost pure profit."
While Wall Street analysts note that Ford Credit just reported its best earnings quarter in seven years, Garrett Nelson of CFRA Research expressed concern about the strength and direction of the Dearborn-based company.
"Its international operations continue to lose money across the board, with the exception of the Middle East and Africa," Nelson said. "While year-over-year comparisons may begin to improve in the next few quarters, we think Ford faces significant operational and cost headwinds from tariffs and slowing demand across several markets, and we continue to have a low degree of confidence in management's ability to successfully engineer a turnaround."
Analysing what's currently making money and how to increase those margins and find new sources of cash are top priorities for a global carmaker seeing major financial loss in markets outside the United States and Canada.
"Ford is shrinking, based on sheer sales," said Jon Gabrielsen, an independent market economist who advises automakers and suppliers. "Over the last 10 years, all of Ford's business outside the US and Canada has steadily declined to the point that all that will ever be sufficiently profitable is in the US-Canada. Indeed, many regions are haemorrhaging.
"And in these two countries, Ford profits are driven entirely by pickup trucks, SUVs and vans. Its exiting cars could result in the loss of sales of 10 to 20 per cent."
BILLIONS IN RESEARCH
That may help explain why Ford is having wide-ranging talks with Volkswagen. Executives from each have indicated that collaboration could save the companies billions of dollars in research and development costs and help each in the development of driverless and electric vehicles.
VW and Ford are working with BMW and Daimler to develop a rapid electric-vehicle charging network across Europe. Emissions standards continue to increase worldwide, with the major markets of China and California driving significant growth.
"In Europe, Ford has lost US$973 million in the last five years - indicating that, no matter what they have tried, they failed to turn it around despite being at the peak of the cycle. Things will get far worse in the next downturn," said Gabrielsen, who gets his data from Ford's SEC filings. "In South America, Ford has lost US$3.9 billion in the last five years."
Bob Shanks, Ford chief financial officer, reported big losses in Europe, Asia and South America. He told financial analysts after quarterly meetings this year:
"Clearly, our European business requires a major redesign. "Moving forward, we're focused on getting our China business back on track.
"We're only going to allocate capital to new investment opportunities going forward that generate the appropriate returns on capital. In the process, we will either move the low-performing parts of the business through fitness ... or we will dispose of them."
But industry analysts have asked why change is taking so long.
In the past decade, Ford has lagged in Mexico, while Europe is "unsalvageable" and South America is a "dumpster fire", Gabrielsen said. As for China, he said, "it's do or die time; that must be fixed because it's a horrible tragedy to forfeit that market."
In October, Shanks and Hackett told investors that Ford must be fundamentally redesigned. They promised to announce details as things unfold.