About a week ago, General Motors (GM) CEO Dan Akerson castigated the auto industry for not being ready for what many think will be a gas crisis this summer. Now Ford (F) CEO Alan Mulally has offered the opposite point of view: He thinks Ford is quite ready to ride out higher prices at the pump, thank you very much. So who's right?
If you're only talking about Ford, then Mulally is. Sort of. It is much more of a car company than it was three years ago, and its cars are of the fuel-efficient flavor. However, Ford's most important vehicle is still the F-150 pickup truck, hardly a gas sipper (although in its turbocharged V6 version, not a gas hog, either). On balance, Ford is probably the most diversified carmaker right now, in terms of product. If gas prices spike, it can still make money. And if gas prices don't, it can continue making money, as it has for a while now.
A sneaky response to Akerson?
Akerson got plenty of headlines when he said that carmakers hadn't learned enough from the 2008 crisis. But you could argue that he was offering his criticisms for political reasons: he wants the markets to price a gas crunch into GM's stock value now, so that if one does arrive, the price won't drop -- and if it doesn't the stock can get a nice bump. Akerson's main job at the moment is to support GM's post-IPO market capitalization, currently at about $50 billion.
Mulally may have interpreted Akerson's comment as an affront, especially because Ford remains GM's domestic competitor and has a better small- and medium-sized vehicle roster (the two carmakers are about even on trucks and SUVs, and GM has a clear lead in luxury due to Ford's neglect of Lincoln and GM's support of Cadillac).
I wouldn't suggest this if Mulally hadn't made some comments about incentives at the same time he was predicting Ford's ability to weather gas prices above $4 a gallon. Here's what he said, as reported by BusinessWeek:
In the past the industry built too many vehicles compared with demand and then was forced to offer generous incentives to sell them, he said, adding "it's very destructive business-wise and it's one of the main reasons that the automobile industry in the United States got into trouble in the past."GM could be reverting to its old ways
Last month, there was talk of a price war in the auto industry, based on GM's aggressive use of incentives to build market share. Price wars are stupid and a complete waste of resources that are misused to chase a point or two of share in the hyper-competitive U.S. market. But GM, which has waged them to secure share in the past, appears to be falling back on its old playbook.
Mulally might not have been able to resist the dig. Unfortunately, it now cuts a bit deeper at GM headquarters because the company's CFO, Chris Liddell, who came from Microsoft (MSFT) and has been seen as remaking the New General finances for the better, is leaving after just over a year on the job. He's being succeeded by the rather young (38) Dan Ammann.
Mulally is on the sidelines for this one
I think it's possible that GM is spending to bolster U.S. market share because it senses real weakness at Toyota (TM), which just announced a leadership shakeup. It's also possible that Akerson figures Ammann may be somewhat more debt friendly than Liddell, who famously wanted to get GM into a zero-leverage position. GM may need to borrow money to expand in China, where it now believes its future growth will lie.
In any case, Mulally is something of a spectator here, as Ford's U.S. share, at under 17 percent, probably wouldn't challenge GM even if a gas crunch hits.