Notoriously, the Ford Model T came in any colour you wanted – as long as it was black. Until recently, for many analysts, Ford Motor Company’s IR came in just one hue: bleak. But there’s more than repainting involved in the current transformation of the company’s IR. And while new car models come coated in many different colours nowadays, chances are that they have been test-driven by Wall Street analysts on the way to market. Getting analysts behind the wheel is just one step in venerable Ford’s new IR strategy.
Mel Stephens, head of Ford’s investor and financial media relations department, says proudly, ‘We consider ourselves a leading candidate for the most improved investor relations at a large US company. We’ve observed what the best do, and made significant strides forward.’
In the old days, Ford’s chairman and indeed the whole corporate personality was more conservative and self-satisfied, and this was reflected in its IR. However, since Alex Trotman became chairman in 1994, ‘Ford’s new management team has a very bold plan – to be the world’s leading auto company. And they know they need an active communications line to go along with it,’ explains Stephens.
So, the company’s IR department has been re-engineered along with the production lines to explain the ‘transformation’ from a multinational to ‘maybe the first globally integrated company in the world,’ Stephens says of the $40 bn auto giant. ‘We now think globally, act locally.’
As IR director Mike Holland explains, ‘Now the Escort in the US is different from the one in Europe. But by harmonizing the vehicle platforms, engines and components, we can make tremendous cost savings, while still being able to vary the size, weight and even ride characteristics of the vehicles for local taste.’ As a first step, the product cycles of the European and US plants have now been combined into a single worldwide integrated cycle plan.
The new plan allows 50 percent more product derivatives for $11 bn less investment. ‘Wall Street seems to like it,’ Stephens reports, and it’s hardly surprising. If it works completely, Ford will be the world’s leading auto company, and, ‘At a minimum, we should improve our profit margins.’
Even without such a global challenge, an auto-IR operation has to drive in top gear just to stay in the same place. Stephens denies knowing what crisis management is, remarking that crisis is normal background business in a grossly competitive industry with little growth in major markets, compounded by overcapacity breeding even fiercer competitiveness. ‘So our plan isn’t just to keep ourselves even, but, recognizing what our competitors are doing, to make sure we’re one of those that comes out stronger in the end,’ he boasts.
Ford began with a phone survey of Fortune 100 companies to see how they handled their IR; and with Robert Goizueta, chairman of Coca-Cola, on Ford’s board, the beverage company was used as a benchmark. ‘We also observed that Coca-Cola was rated number one by Investor Relations magazine last year,’ Stephens observes.
Ford’s research led it to what Stephens calls New Model IR, which involves combining the investor and financial media relations functions. Just as a major theme of Ford’s industrial reformation has been global integration of models and production cycles, so re-engineering the IR effort has been to harmonize the message going out to the financial community, whether directly to investors and analysts, or indirectly through the media. ‘For example, we know that key journalists like to speak to analysts to flesh out their stories,’ he explains. ‘Messages to the investor community need to be consistent, coordinated and building on themselves, so we brought the team together to war-game and strategize.’
‘We haven’t found another company where IR reports directly to both the chief of communications and the CFO,’ Stephens adds. ‘The aim is short lines of communication with no lengthy reviews in between so we can get our messages out quickly and with credibility, both inside and outside.’
The war-gamers and strategists are New York-based Jim Cain for financial media relations, along with Dearborn, Michigan-based Steve Harper, shareholder relations; Mike Holland, investor relations; Joel Pitcoff, market analysis; and Chris Vinyard, financial news. Pitcoff is responsible for analyzing and recording the company’s sales results, and Ford suspects that it’s unique to have such a specialist on the IR team.
Most of the team are Ford veterans, and Stephens himself has a finance background in addition to a keen interest in communications. Together they describe themselves as ‘more proactive, more open, and really taking extraordinary measures to explain the big changes.’
‘It’s not about hyping the stock price, but communicating that when we’ve finished the transformation, we can get a higher valuation of the company in the market and a higher multiple than our competitors,’ says Stephens. He suggests that many analysts value Ford’s separate components and calculate that when totalled, the result is the second largest auto company in the world – for free.
To reveal and realize this hidden value, the new IR section has gone the extra mile to link up with the investor community, inviting analysts into company recesses that would normally be considered closed. ‘It’s two-way,’ Stephens says. ‘As an analyst, it’s quite a feather in your cap to come and talk to the Ford board. And it’s quite an eye opener for the Ford board as well.’
Part of the strategy has been to bring in analysts to talk to senior management groups so they can hear what the Street says about them. ‘That’s been a very effective tool,’ says Holland with satisfaction.
That doesn’t mean that management has to agree with everything the analysts say in these group sessions. ‘Of course we and management often don’t concur with analysts, but it’s very important to know how investors view management, the company, and our plan. It can be very motivating for the chairman to come back from a meeting with twelve angry investors and tell everyone, Look, I told you we had to meet these targets. They’re absolutely counting on it.’
Deep Dive is one of the proactive tactics that the new and integrated IR department has devised, and it’s not some ‘-rated video; it is complete immersion IR for analysts and media. Programs include taking investors to Dearborn to meet the managers, see the new car designs and review future plans, including Ride & Drive events for the analysts. ‘Not only do they get to see the new vehicles, and drive them, they get to meet with the key executives who are responsible for them. It begins to make this whole IR plan take flesh,’ Holland enthuses.
The crucial point of Deep Dive is to get to the ‘key influentials’, as Holland describes the opinion formers among the financial community and the media. ‘They write reports and stories so the message we tell a small, intimate group gets spread to a much larger group. If I say things are changing at Ford, that doesn’t tell anybody much. But if I tell you how and why, and what the pay-off is, there’s the story for investors.’
This year, for the first time ever, analysts were invited to dealer introduction shows. These are usually closed events designed to show dealers the year’s new product lines and marketing campaigns. The message is that Ford is open: the analysts are getting the same message as the dealers, and can cross-check with them on the efficacy of the company’s plans.
Extending their field, late last year Ford invited analysts to the Paris Auto Show for the unveiling of the Mondeo and breakfast with CFO John Devine. Following on that success, the Frankfurt and Tokyo motor shows will take Ford’s message into the heartland of the global competition.
This full-frontal approach to analysts was not just based on Ford’s survey of how other companies carried out their IR. The new group did baseline market research, speaking to analysts and investors, to find out what they thought of the auto business in general and of Ford in particular, and to find out what they wanted in terms of IR. Not usually reluctant to share their views, the analysts were generous with suggestions. An obvious one, quickly implemented, was making the chairman more available.
Part of Jim Cain’s job in New York is making sure senior officials are available for meetings with investors and analysts whenever they are in the city. ‘Some of our competitors have their entire IR staff in New York, but that way we’d lose touch with the company. Having Jim there is very important, allowing us to keep contact and arrange events there,’ explains Stephens.
Another suggestion was that the IR team should talk directly to the stockbrokers who regularly interface with holders of Ford stock. As a result, Ford has begun with successful forums in the southeastern US, and will extend this idea to the west coast. Apart from using the brokers to communicate with a large number of individual holders, Ford’s annual meeting is a big affair which keeps getting bigger. Last year a new car model, the Expedition, was introduced at the annual meeting in the same way that it was unveiled for analysts and the media. ‘The message at the annual meeting was written by us, and it’s the same one we’re telling Fidelity and the large institutional holders,’ says Stephens.
In fact, Ford’s investors are more diverse than those of rival car markers, and that makes Stephens happy. Despite the company’s roots, employees and management now hold twice as much stock as the 7 per cent held by the Ford family. Since the company was floated 40 years ago, institutions have staked out half of the stock, while individuals, attracted by the household name, hold some 28 per cent. Only around 5 per cent of the shares are held overseas.
Admitting currently ‘unacceptable’ earnings results, Ford’s IR department is engaged in pointing out the ‘tremendous upside potential’ of its transformation. ‘We know that for investors to be patient, they have to know the details of our plan, and assess whether the management team is committed and credible,’ Stephens says.
As additional reassurance for investors, management’s incentives depend on meeting business targets: ‘If we deliver on all the targets, then hopefully we’ll deliver on the stock prices.’ But just in case, senior executives have to own at least the equivalent of one year’s salary in Ford stock.
So how is this car stock racing? Quite well, Stephens reports. ‘When I took this job in 1995, the stock was at about $25 a share. My personal objective is to reverse the digits,’ he declares. By May 1996, shortly after the Deep Dive presentation, it soared to an all time high of $37.50. ‘Since then there have been changes in the industry as well as in Ford that have brought the price down. But if we’re still within just four bucks of our all-time high at a time when we are just below our earnings objective, then there’s promise for the future,’ adds Stephens.
Reengineering at Ford does not involve splitting the business, although it sold 20 per cent of one of its financial services companies, and sold another outright. Stephens explains that this served to establish a real market value for the spun-off company while strengthening Ford’s balance sheet. Still, nothing is ruled out for further down the road. ‘Every option is open in the future, when the businesses are running at peak. Then we will have lots of options. When businesses are in trouble, then you only have limited options.’
‘Investors and analysts recognise that we have tremendous value,’ Stephens concludes. ‘But we can’t create shareholder value out of financial engineering alone. We have to ensure that the basic business that we’re in is healthy, viable and growing. Then anything we do on top of that can really create additional value.’
What the Analysts Say
The analysts surveyed all recognize big improvements in Ford’s IR, but show various degrees of skepticism about the transformation.
One analyst anonymously observes, ‘Ford has shown a lot of improvement, which makes analysts feel better. But it’s only moved from a failure to a C.’
Delving deeper, the analyst says, ‘If you have a good product, even a Harvard MBA could sell it. But the stock price won’t be altered by IR. Go back 20 years ago and Ford was excellent, GM was bad. But Ford deteriorated, and if you went to a meeting in Dearborn they’d just read the accounts. Getting even public information out of them was like pulling teeth. They weren’t bad people; they just had bad direction.’
Now, he adds, ‘There has been an improvement, like with the Ride & Drive program, but it’s not as good as Chrysler’s. Ford wouldn’t let us take the off-road vehicles off-road! I think the guys in the IR department are good, but they are still nowhere near as good as Chrysler.’
Judy Anderson, Scudder, Stevens & Clark
Anderson happily endorses Mel Stephens’ work: ‘They do a good job. Jack Devine called him in to fix up Ford’s IR, and he’s done it.’ Quibbling, she protests the exclusion of buy-siders from the Deep Dive program but praises Stephens for answering questions well, holding good analyst meetings and providing all desired information. ‘It’s like night and day – access to management compared with before,’ she says. Anderson says that Ford’s investor relations department is also very effective in conveying management’s views, including what Alex Trotman has to say. ‘But the content is controlled. And in the end, no matter how good the IR, the company has to deliver results.’
While approving the Ride & Drive program, Anderson says it would waste time. ‘Six hours is too much, even to drive a new Jaguar,’ she complains, while admitting that for dedicated auto enthusiasts, the time spent would pose no problem: ‘The company is doing the right thing.’
Ron Glantz, Dean Witter
Glantz also approves of Ford’s new IR direction: ‘There’s certainly been a big improvement at Ford, for the first time in years,’ he says. ‘They’ve begun allowing analysts to test drive, meet management and see how they’re trying to deal with the cost problems.’
When asked how effective the IR team has been in conveying Ford’s message of transformation, Glantz replies firmly, ‘We’re not going to believe it until we see the results.’
