Mulally Replacement Uncertainty Will Keep Investors Nervous on Future

+8.62%
Upside
14.23
Market
15.46
Trefis
F: Ford Motor logo
F
Ford Motor

It has recently been reported that Ford (NYSE:F) is in search for a new CEO to replace Alan Mulally, who has been leading the company since 2006 and successfully navigated the company through the automotive industry crisis of 2008-09 without asking for government bailout, which General Motors (NYSE:GM) needed. [1] Mulally, credited for Ford’s turnaround over the last 5 years, could be retiring from Ford within two years, leaving big shoes for the incoming CEO to fill. News of Mulally’s departure will likely put pressure on the stock as management uncertainty increases. Ford mainly competes with General Motors, Toyota(NYSE:TM), and Honda (NYSE:HMC).

Our price estimate of $14 for Ford’s stock is around 30% above the current market price.

See our complete analysis for Ford stock here.

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Mulally’s legacy at Ford

Alan Mulally was instrumental in cutting flab after leading “The Way Forward” restructuring plan at Ford to turn-around its massive losses and declining market share. [2] He shed non-performing brands – Jaguar, Land Rover, Aston Martin, Volvo and Mercury from the company’s portfolio, preferring instead to focus on Ford and Lincoln brand. [3] Also he was able to negotiate better terms with the worker’s union and led the One Ford initiative.

Under the One Ford plan, the company aims to build common global platforms to develop new models for different markets. With a global platform, Ford can accrue massive cost savings through the use of common sets of vehicles parts and spares to make vehicles. This will help reduce costs in terms of engineering time, parts and services, as well as tools and machinery. By 2014, Ford aims to produce at least 80 percent of the vehicles sold globally under the Ford brand off 13 core platforms. These cost savings will not only boost Ford’s margins but also enable the automaker to drive sales through competitively pricing its vehicles.

Even though we don’t think that Alan Mulally’s initiatives will be shelved by the succeeding CEO, markets will wait with bated breath as the search progresses to gauge if the successor can continue the recovery that Mulally has successfully started.

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Notes:
  1. Ford Starts Search for Next CEO []
  2. Ford’s “Way Forward” Plan []
  3. Ford Confirms Rumors It Will Shut Down Mercury []