Ford executive says Smart Mobility unit guards against downturn
DETROIT -- The head of Ford Motor Co.’s newly created Smart Mobility subsidiary says its investments and expansion into ride-sharing and other services will help the automaker guard against the next economic downturn.
“The demand for rides doesn’t drop during a recession,” Jim Hackett, chairman of Ford Smart Mobility, told Automotive News on Monday. “People can put off buying a car during a recession, but they won’t put off some of the other services we can sell.”
Ford last year acquired Chariot, a Silicon Valley-based on-demand shuttle service that has since expanded to Texas and will grow to eight global cities this year. Ford also invested heavily in a bicycle-sharing service and is collaborating with a group of mayors to help solve urban congestion problems.
CEO Mark Fields has said Ford can earn up to 20 per cent profit margins off these new mobility services, more than double what it makes off its core business selling new cars and trucks.
“They’re higher margin, lower capital and counter-cyclical,” Hackett said. “That can be really attractive.”
Ford last year said it had plans in place to survive a downturn scenario where sales plummeted 30 per cent in a single year. Executives noted that Ford could break even if sales dropped to 11 million vehicles by shedding shifts and canceling overtimes at plants across the country.
But Hackett said mobility services can help the automaker continue to make money in such instances.
“This is a non-recessionary business we’re dealing with,” Hackett said of car-sharing services. “The (car ownership) side will always be the larger percentage of the business, but (car sharing) is going to be a significant contributor to profit such that it eases the effects of recessions. It isn’t operating at that scale yet, but we have plans to get it there fairly fast.”
While Hackett declined to offer specifics, he said that Ford Smart Mobility is likely to make more acquisitions, similar to the purchase of Chariot.
“We try to take a long view,” he said. “That gives us a platform to make any kind of plays we need. When Henry Ford started in 1903, he started with one vehicle, and now there’s six platforms and 60 vehicles. We’re out there with one platform; there’s a lot more to come in our future.”
Hackett said there’s been strong cooperation from executive chairman Bill Ford, Fields and Ford’s board of directors. The subsidiary was formed in March, and has moved quickly to add staff -- including CEO Raj Rao, former executive at 3M -- and decide in which services it wants to invest in.
Hackett said the subsidiary has been “surprisingly inexpensive to the company,” noting it doesn’t “have to spend a lot of money to prove we’re really serious.”
Still, if Hackett’s team presents a good business case, Ford’s board of directors has been more than happy to listen.
“There’s no shortage of money for great ideas,” he said.