Ford Motor Company (F) posted a 1.5% gain on Monday after reporting that it would eliminate bureaucracy in its ranks.
The company is planning to cut some of its 70,000 person-strong salaried workforce, mainly in white collar areas. Morgan Stanley analyst Adam Jonas estimated that as many as 25,000 employees could soon be getting pink slips.
Shares of the Dearborn, Michigan-based automaker have fallen 27% year to date, hovering near their lowest level since 2009, according to FactSet data. The rebound in the share price Monday will help stave off a fall below the $9 threshold for now.
The move to reorganize the business was reported by the Detroit Free Press on Friday, noting that the company will target cuts to its "white collar" workforce specifically.
"You've heard (CEO) Jim Hackett talk about fitness and how we need to be more responsive, innovative, agile. Given that, it's really important when you consider how we modernize the workforce, skills and capabilities we need," Ford group vice president and chief human resources office told the paper. "This is designed to help us become more fit as a business."
Layoff Leader
The job cuts are a familiar modus operandi for Ford CEO James Hackett, who was brought on to steward the company in May 2017.
Ford Chairman Bill Ford Jr. was reported to have hired Hackett to supplant the short-lived tenure of Mark Fields in order to help cut costs and make the business more efficient.
"The clock speed at which our competitors are working requires us to make decisions at a faster pace," Reuters reported the chairman saying at the time. The company reduced 1,400 positions shortly after that report.
Hackett built his reputation through workforce reduction and restructuring while at the Grand Rapid, Michigan-based furniture company Steelcase (SCS) .
During his 20-year tenure atop the largest office furniture maker in the United States, Hackett oversaw a turnaround for Steelcase that helped the struggling company stay afloat and grow into the new millennium.
As Ford reports declining sales figures yet again, with sales falling 11.2% in September according to a company release, the "clock time" on Hackett's turnaround will need to tick a bit faster.
On Track to Turnaround
"It's been slow coming, but there is a gap between how the company can restructure itself and what the market is giving them credit for," Jefferies Financial analyst Philippe Houchois told Real Money in an interview. "There are still a few areas of optimization that Ford can target."
He cited geographic focus as slowdowns in China and Europe drag on earnings, and positioning itself toward specialty and non-retail vehicles as a positive for the company.
"It's important to note that they are not necessarily just pulling out of certain segments," he explained. "They are repositioning in non-retail with specialty vehicles like station wagons and even police cars to revive the business."
He explained that the car segment was not profitable for the company amid declining sales figures and was a wise area for divestment. Staff cuts targeting white collar workers in car design should help the company come out positively from the refocus, he added.
Houchois said that while the recovery under CEO Jim Hackett might take time to develop, he remains confident in its long-term prospects. He set a price target of $13 and a buy rating on the stock.
Tariff Trouble
To be sure, tariffs cast a pall on the turnaround as the company has already reported a $1 billion toll on profits from the government crackdown.
The Trump administration's threat to impose up to 25% tariffs on imported vehicles and auto parts, on top of already steep steel and aluminum tariffs, are threatening America's largest auto employer.
The imposition of $200 billion in trade barriers that have notably impacted the auto industry have helped push Ford's stock to a -27% decline year to date and competitors like General Motors Company (GM) to a 17% drop in the same period.
As the White House threatens to levy even more tariffs on the industry by February 2019, the escalating trade war is looking as though it will temper Ford CEO Hackett's turnaround plan.
Kristin Dziczek, Vice President of Industry, Labor & Economics at the Center for Automotive Research told Real Money that it is hard to quantify the exact impact of recent or upcoming tariffs on specific automakers aside from their public statements.
She said that given Ford is disclosing its toll has been around $1 billion, she estimates automakers are likely taking a hit in the hundreds of dollars per car. She added that this can mean thousands of dollars out of the paychecks of the profit-sharing paychecks for unionized workers.
On the bright side, she said that the recent signing of USMCA should provide some relief.
"USMCA is a big win for GM, Ford, and other U.S. automakers with significant presences in Canada and Mexico," she explained.
Dziczek added that the caveat made for these companies provides a precedent for the Trump administration to provide exemptions to major trade partners like Japan.
"I think the administration is holding off for now to use as a negotiating tactic when they see an opportunity," she said. As such, automakers like Ford will likely have some time to adjust before more serious tariffs come into play on auto parts specifically.
Risk and Reward?
Traders were not forgiving to the company, even amid today's gain.
"Ford is a classic cyclical company," Real Money contributor James "Rev Shark" DePorre wrote Monday. "Problem is that there are concerns that the cycle is turning down and that the slowdown is not yet reflected in estimates. Ford may look cheap with this low PE but that is always the case with cyclicals as the cycle turns."
He warned that investors should be careful "bottom fishing" for Ford shares.
The company's perceived secular catalysts in things like autonomous driving are years off, meaning that short-term investing offers little value for the risk.
"If you have a very long-term time frame, Ford may be a value," he concluded. "It's dead money currently."
