Ford's mobility push driven by profit motive

DETROIT -- Why is Ford Motor Co. so interested in becoming a mobility provider?

That's easy. Its executives see a day in the not-too-distant future when Ford will earn far bigger profit margins from helping customers get around in vehicles they don't own than from selling them cars and trucks.

Ford projects returns of at least 20 percent from those new ventures vs. single digits for its 113-year-old automotive business.

"It's not about moving from an old business to a new business. It's moving to a bigger business," CEO Mark Fields said.

But getting to that point won't be cheap. Ford said its rapidly growing investments in mobility services will reduce earnings in 2017. It is intensifying cost-cutting efforts to offset most of the new spending, which covers a broad swath now but will become more focused as the company begins to separate promising paths from dead ends.

"We are going to try a lot of different things, but obviously, at the end of the day, we have to build business models around them that work," Bill Ford, the automaker's executive chairman, said last week. "The one thing we cannot be is wed to a model and put a stake in the ground and then that's it. We also can't be kids in candy stores, just grabbing everything that we see coming along."

Thus far, Ford has been more reluctant to make big investments in mobility -- the industry's catch-all term for helping consumers get around without selling them a vehicle -- than rivals such as General Motors and Toyota Motor Corp. Yet Fields has continually stressed the need to "disrupt" itself before outside threats force the issue.

Presentations Ford gave to analysts and investors last week showed mobility spending rising significantly in 2017, along with a corresponding, though unspecified, dip in profits.

Fields told investors that Ford's focus on "emerging opportunities" makes the company "a solid investment with an attractive upside." Ford shares have fallen 12 percent since July 28, when executives warned that its 2016 financial targets were at risk.

At the same time, Ford has announced plans to launch a high-volume autonomous vehicle for fleet use by 2021, its acquisition of a crowd-sourced shuttle service called Chariot and the launch of a bike-sharing program in San Francisco. Fields told investors that, while the mobility ventures Ford is getting involved in won't pay off immediately, it does expect the investments to produce returns before too long.

"It's not a week, and it's not 10 years," Fields said. "There has got to be a path to profitability in a reasonable time frame that we can see."

Whether the emerging businesses generate enough revenue to outweigh Ford's core-business profits in actual dollars remains to be seen, but Fields said the shift means that the number of miles its vehicles travel will be just as important as the number of vehicles it sells. That's because Ford anticipates being able to collect revenue from ride-sharing or ride-hailing customers based on each trip rather than getting a one-time payment upfront, as with a vehicle purchase.

"This is very different thinking for us," he said. "For years we have always thought about the thing and how many of the thing we sold. We've opened up the aperture of the lens to think about the usage of the products."

Ford said it expects its profits to decline in 2017 before rising again the following year. That outlook might make Ford shares less attractive at the moment, but analyst David Whiston of Morningstar said he's glad to see the company managing for long-term success.

"We think management is doing the right thing by investing for a future focused on selling vehicles as well as selling miles, even if it means some losses for the next few years," Whiston wrote in a report after Ford's Investor Day gathering. "The world is moving to more electrified and autonomous vehicles, and Ford needs to remain competitive."

Even before Ford's mobility ventures begin to pay off financially, they will start generating data to help guide the company. Jim Hackett, chairman of the new Ford Smart Mobility subsidiary, said bike-sharing is not expected to generate significant profits, for example.

"The opportunity's not bikes. That's not why Ford's in it. The opportunity is data," Hackett said. "We really don't think that's a business in the sense of the bikes."

Ford is far from alone as it moves into autonomous vehicles and mobility services. It estimated that 5 percent of U.S. vehicles sold in 2025 would be autonomous and that 20 percent would be five years later.

But while Ford doesn't plan to put self-driving cars on the road until early next decade, Uber began using cars with a lower level of autonomy to ferry passengers in Pittsburgh last week.

GM, which invested $500 million in Lyft last winter, plans a fleet of self-driving Chevrolet Bolts for the ride-hailing service within several years.

Fields said his company hasn't decided yet whether to approach ride-sharing or ride-hailing with a partner, such as Uber, or on its own. That and many more questions remain to be answered in the years ahead.

"Never before have I seen such an opportunity to transform our business when our business is on a solid footing," Fields said. "Usually when we've had to do it, our backs were up against the hot pipes and we were in crisis."