From the moment The Blue Oval formed Ford Pro – its dedicated commercial entity – years ago, its mission was quite clear – to generate massive amounts of profit for the company by focusing on fleet customers. Aside from simply selling vehicles to those customers, Ford Pro also offers a full suite of products that support them, as well as software designed to help fleets manage their business more easily while cutting operating costs at the same time. Thus far, Ford Pro continues to generate large amounts of profits for the automaker as well, which is precisely why Blue Oval CEO Jim Farley wants investors to pay more attention to it versus Tesla, as he stated during the company’s Q4 earnings call.
“It is, like, if you’re looking for the future of the automotive industry, stop looking at FSD and Tesla,” Farley said. “Look at Ford Pro. It’s got 0.5 million subscribers with a 50 percent gross margin. They spend 20 minutes looking at the data every day and they’re in the plumbing business. They’re not in the car business. They – only 10 percent that do business with us or after sales, and we make 35 percent margin when we sell a part. And we’re about to go to full prognostics in all of our vehicles. It’s like John Deere seven years ago.”
“And we have multiyear order banks and we’re at excess – we’re at max capacity in all the vehicle lines. And it’s happening here and Europe. And in Europe, we’re launching a brand new one-ton Transit, which is equivalent to Super Duty in the U.S. And the vehicle that was doing great before was 10 years old and now we doubled our scale – purchasing scale, manufacturing scale – all of that, we doubled it by doing all of Volkswagen’s vans in Europe. So, we basically took our Turkey site and made it twice as big and now we can negotiate twice as much scale with the suppliers. That’s all coming online now. So, yeah, I mean, it’s Pro. Look at all the other stuff. Let’s say it nets out. Pro, you have a lot of upside.”
Thus far, Ford’s connected vehicle services have struck a chord not only with commercial customers, but also traditional retail buyers as well. In fact, the automaker’s hands-free highway driver assist feature – BlueCruise – is enjoying gross margins of more than 70 percent, which plays well into its plan to expand those types of features moving forward.
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Comment
Taking a page out of IBM’s book… Smart of Ford and Farley to diversify into services. Hardware has fixed costs that increase with volume and deployment Software (SaS) generates huge profitability as once development costs are amortized, the ongoing changes and development are relatively small compared to the revenue generated.