Ford Motor Company (NYSE:F) said earlier this year that it will move production of the next-generation Focus compact, due in about two years, overseas — mostly to China. Now we know the price tag for that move: $248 million.
Ford said this past week that it took one-time charges totaling $248 million against its second-quarter earnings to cover the costs of its decision to move production of the next-generation Focus out of North America.
Now, we should keep that in perspective: That’s likely just a fraction of what Ford will save by making the upcoming all-new Focus in China. But here’s why the decision to move the Focus cost Ford so much money.
Why Ford is moving the Focus to an overseas factory
First, some backstory. The current Focus is built in Michigan, but we’ve known for about two years that the next Focus would be built somewhere other than the United States. (That Michigan factory isn’t closing. In fact, it might get busier: It’ll build the new Ranger pickup and Bronco SUV instead.)
Ford had originally hinted that the next Focus would be built in Mexico, possibly in its existing factory in Hermosillo, where the Fusion sedan is made — and possibly in a new factory it planned to build in the Mexican state of San Luis Potosi.
But then two things happened: First, the market for small sedans in the U.S. began to shrink, with more buyers favoring SUVs instead. Second, Donald Trump got elected as president of the United States — on a platform that promised to strongly encourage (to put it mildly) U.S. companies to build in the United States.
The upshot: Early this year, Ford canceled that planned factory in San Luis Potosi and said that it would move some products originally intended for Mexico back to its U.S. factories.
But those products don’t include the next Focus: Ford said last month that the upcoming all-new Focus will be built in China instead. Why? Because U.S. sales of the Focus have been declining for years, and it doesn’t make sense for Ford to commit a high-cost factory to making it for North America (or South America, as it turns out).
Why that decision cost Ford $248 million
So why did all of that lead Ford to take a $248 million charge? I asked Ford’s chief financial officer, Bob Shanks, to explain:
We made announcements [earlier this year] around not building the Focus in Mexico, at Hermosillo. Instead, it’ll be coming primarily from China, where we have our biggest global footprint for Focus production in the world. Some will come from Europe as well, but a little bit later than the initial job one. We had already done some work on the next-generation Focus in Hermosillo, so this [one-time charge] is a recognition that while we can reuse some of the tools and some of the other things that we had started to invest in there, some of what we did we can’t or won’t reuse. This is just the write-offs of that.
And there’s a little bit of that also in South America, because we have decided we’re not going to invest in South America for local production of the next-generation Focus.
Long story short: Ford had begun ordering new tooling or doing some work at the Hermosillo factory to build the Focus, and some of that work and tooling is now being written off, as is a small amount of work that had been done in South America. Those write-offs are the reason for Ford’s $248 million second-quarter charge.
A few years back I was having a conversation with some people on how whenever you decide to invest in something for the long term you should always think ahead on what would be the best choice in the long run while having persistence to follow through with it. The scenario was if you were given a choice to receive one million dollars in one month or a penny doubled every day for 30 days which one would you choose? When I first heard this, I knew that the penny doubled everyday must have been the better choice to go with as it was a little obvious to me that it had to be a trick question of some sort. But how much better would it be was not something that I knew immediately. So to demonstrate this, it was actually written out with all the calculations and it turned out to something like this:
Day 1: $.01
Day 2: $.02
Day 3: $.04
Day 4: $.08
Day 5: $.16
Day 6: $.32
Day 7: $.64
Day 8: $1.28
Day 9: $2.56
Day 10: $5.12
Day 11: $10.24
Day 12: $20.48
Day 13: $40.96
Day 14: $81.92
Day 15: $163.84
Day 16: $327.68
Day 17: $655.36
Day 18: $1,310.72
Day 19: $2,621.44
Day 20: $5,242.88
Day 21: $10,485.76
Day 22: $20,971.52
Day 23: $41,943.04
Day 24: $83,886.08
Day 25: $167,772.16
Day 26: $335,544.32
Day 27: $671,088.64
Day 28: $1,342,177.28
Day 29: $2,684,354.56
Day 30: $5,368,709.12
Quite a big difference once you look at it as you would be getting over 5 million dollars with the penny doubled everyday for 30 days route. The funny thing when I look at this is how it is almost like starting a business and trying to make a profit. In the beginning you struggle a lot to get things going and afterwards once it reaches to a point it just takes off smoothly. How does that analogy go again? It is something like starting a business is like a rocket ship taking off into space. You spend 80% of your fuel during take off and once it reaches a certain point it flies smoothly with minimal consumption.
A new non-profit organization, the Center for American Entrepreneurship, launched yesterday. (written June 25, 2017)
While there are lots of non-profits supporting entrepreneurship, CAE is organized around the idea of engaging and educating policymakers in Washington and at state and local levels across the nation, regarding the critical importance of entrepreneurs and startups to innovation.
I met the John Dearie founder and CEO of CAE, a year ago. He came to Boulder, met with me for lunch, and gave me a copy of his book Where The Jobs Are, which I promptly read and felt was on the money. I knew a number of people on the board of CAE, which was just getting started, and Amy and I made a quick financial contribution to the organization.
I then watched over the past year as John, as a founder, put CAE together. I helped where I could and watched John live the entrepreneurial life as he founded a new organization. Several of our conversations were self-reflective, especially around the challenges of getting investors attention to provide seed financing for a new organization.
Ultimately John was successful and CAE has launched. Instead of a board role, I’ve agreed to be on the Advisory Council, as I’m trying to fit into a role of having an impact by helping the CEOs of the non-profits I’m involved in, rather than having a broad governing role that being a member of the board entails.
If you want to get connected to CAE or are in the DC area and want to engage around the issues of entrepreneurs and innovation, email me and I’ll connect you with John. If you want to support CAE, please consider making a donation.
rather than defining leadership either as a position of authority or a personal set of characteristics, we should define leadership as an activity.
1. Leadership is not measured by authority.
leadership is the process of influencing others to accomplish the goal.
2. Leadership is not pioneering.
Entrepreneurs who pioneer an innovation, create a movement or fundamentally change an industry may be wonderful at creating new theories, concepts or products, but it hardly qualifies them to be the person to lead the implementation and expansion.
Leadership by definition means causing action with others, so achievements and success in the absence of a consistent following of loyal followers is not leading — it is luck.
the only important and common capability of great leaders is the ability to understand motivations. By being self-aware of what drives you as well as what drives those around you, great leaders learn to leverage motivations to make their vision that of their followers and eventually act together toward a goal. (Interesting…)
No entrepreneur embodies this better than Steve Jobs, who famously was abrasive, demanding and difficult to work with. What made Jobs a great leader was his understanding of his own motivations, aspirations and dreams, and by actively and regularly surrounding himself with individuals who shared his vision and passion (and forcing out those who did not), he was able to lead his team at Apple to great achievements despite a leadership style that most would shun.
Taking on the actions of a leader is not easy. Because leaders lead, they are often the first to fail, a frightening fact that for many can be difficult to overcome. As well, because leaders are always leading, entrepreneurs need a healthy dose of physical and mental stamina.
At least entrepreneurs can stop measuring their leadership ability against other successful entrepreneurs or a Myers-Briggs personality test. If you want to be a great leader, all it takes is action — so get going. (AMEN! & Hallelujah! Somebody said it! For if your heart fails at all the bs out there ) certified bs as well), then that is the very thing you NEED to work on- Your Self Esteem, try an Attitude Adjustment Program (AAP)-have a board on Pinterest named just that (as an example) under Romans 8:12 Mother Ministry).
Whatever it is you don’t know, don’t have, do not be afraid to fail to learn it/acquire it! 😀
In Yeshua’s name Amen! 😀
(quotes from the article)
Curiosity may have killed the cat, but at least it didn’t die dumb.
Remember, everything is all fun and games until somebody loses an eye. That’s an eloquent way of saying, that, while the concept of “not doing it for the money” is great, there comes a time when the electric bill needs to be paid — and they don’t accept smiles.