Ford Pro is automaker's most powerful weapon — and it's no longer a secret

You don't hear panic in the voice of John Lawler, chief financial officer of Ford Motor Co.

Just the opposite, actually.

Despite the vast uncertainty gripping the automotive industry as it works through a dynamic landscape, evolving from traditional internal combustion engines toward electric motors, Lawler is forecasting strong profitability from operations this year.

The single most powerful weapon in the automaker's arsenal: Ford Pro, a unit within Ford that caters to small businesses, large companies and government. In fact, the unit is so successful it made the company $3 billion during the first three months of this year. That's how much the Ford Pro made during all of 2022, Lawler told investors during the first quarter earnings call on April 24.

"Ford Pro is kicking butt," Adam Jonas, head of automotive research at Morgan Stanley, said at the time. "This business is incredible. People would die to have this business ... It's not a secret anymore."

As of Tuesday, the market value of Ford overall was $48.51 billion. Lawler predicts that in 2024 the company will see adjusted earnings before interest and taxes of $10 billion to $12 billion, and "tracking toward the high end of this range, and that would be a record for Ford." Ford said its record EBIT was $11.6 billion for 2015.

Ford and its crosstown competitor General Motors have beat Wall Street expectations as they weather erratic consumer demand for electric vehicles by offering alternatives. Ford is seeing a spike in consumer demand for hybrid vehicles, which are powered by a traditional gasoline engine and one or more electric motors that use energy stored in batteries.

Tesla, an all-electric carmaker and longtime darling of Wall Street, reported its net income dropped 55% during the first quarter. CEO Elon Musk doesn't have a diversified portfolio to help offset fickle consumer trends.

Creating a multibillion-dollar niche

Not only does Ford Pro offer a mix of vehicles that includes internal combustion engines, hybrids and electric vehicles for its business clients, but those clients schedule big purchases that aren't affected by changing consumer moods and political winds.

Ford Pro is struggling to meet demand, CEO Jim Farley said during the earnings call.

"The demand on Pro is fundamentally different than retail. There's no doubt about it," Farley said. "Our retail customers are not refleeting. They're not doing roadwork and 5G infrastructure build-out. I mean, these are all fundamental drivers. The ambulance market in the U.S., the average ambulance is 15 years old. I mean, they've been waiting for (Ford) Transits for a long time. We're now increasing our capacity, which is great. But I mean, we're oversubscribed on the new Super Duty, 2-to-1. So I wish I could say we got that right. We didn't, but we are expanding capacity."

Dan Levy, a Wall Street analyst at Barclays, said during a Barclays conference in February, "People generally know when they think of Ford Pro, they just think of it as a fleet business."

But another reason Ford Pro is so valuable to because it involves not just the sales of trucks, vans and SUVs, but also ongoing technology services designed specifically for commercial customers.

"Ford Pro is a nearly $60 billion business within Ford that serves commercial customers with a one-stop shop of work-ready vehicles, service, software, charging and financing solutions that makes running a fleet simpler and more productive," Navin Kumar, Ford Pro chief financial officer, told Barclays.

Last year, Ford Pro generated more than $7 billion in earnings before interest and taxes. The all-new Super Duty played a key role. Yet the UAW strike, which disrupted the launch of the highly profitable Super Duty, cost Ford roughly $1 billion in profit, Kumar said.

"But in '24, you got full production," he said, and that's not all.

Ford Pro sells the idea and reality of productivity and uptime, terms that may sound like buzzy business school jargon until you think about what it means to everyday business owners to not take their vehicles out of service for repair or maintenance.

"It's a services ecosystem, vehicle, software and physical service, Kumar said.

Part of the momentum comes from software, with more than 560,000 paid subscribers with rapid growth with every passing month. Remote service repairs cater to Ford Pro 40% of the time now, Farley told analysts.

Commercial clients deliver high profit margins, fast growth

High profit margins and fast growth are key trends at Ford Pro, based on financial documents submitted to federal regulators.

"Capital investment from state and local governments has been up $75 billion last year due to, you know, the investment in infrastructure," Kumar said. "We expect that to continue."

By the end of 2026, Ford is expecting nearly 20% of its earnings before interest and taxes to come from service parts, services and software, Kumar told analysts. Ford is adding more than 3,000 dedicated commercial service bays as well as longer hours of service and technicians supporting the business. Technology allows Ford to alert commercial customers when oil changes, tire rotations and other services are needed so that they may be scheduled during down time and at the work site, again saving those customers money.

These clients are also working with Ford to learn how to adapt to electric vehicle use and charging.

The Ford Pro infusion of cash inoculates Ford as competitors including GM try to find money to pay for huge costs associated with electrification. Ford Blue, which focuses on traditional internal combustion engine vehicles, is expected to generate $6 billion to $7 billion in adjusted earnings. Meanwhile, Ford Model e is expected to see a loss of about $5 billion this year on the EV business. But Ford Pro is tracked to generate $8 billion to $9 billion in adjusted earnings, according to executives statements to industry analysts.

Ford is the only automaker to separate its business units so that Wall Street can clearly track what's making money and what's losing money. The press noted that Ford's electric vehicle unit lost $1.3 billion during the first quarter, averaging to $132,000 for each of the 10,000 EVs sold. That formula, however, is overly simplistic because research and development costs are folded into the bottom line.

Still, costs are significant — and brutal. Ford is cutting its production costs, but big savings aren't realized, Lawler said. "On Mach-E, we've taken over $5,000 of cost out, but the revenue keeps dropping faster than we're able to take out the cost."

In February, Ford cut the price of its 2023 Mustang Mach-E by up to $8,100 and offered interest-free financing.

Ford is working to develop a profitable electric vehicle in the $25,000 to $30,000 price, Farley said.

Revealing that launch delays are part of the strategy

Wall Street analysts will need to accept that the way Ford is disclosing its business operations now, with more transparency, challenges will be highlighted and addressed in real time, which is no cause for panic, Farley said. For example, he explained that the automaker's slowdown of the F-150 launch, designed to reduce problems that lead to recalls and warranty costs, left Ford with 60,000 unsold 2024 F-150 pickups held for quality review.

Ford pushed back the "OK to buy date" three to six weeks, which hurt the first quarter, but the pain is temporary, Farley said.

"We avoided about 12 recalls on F-150," he said. "I'd like to be specific here. Normally, after a launch, we're seen about, in the last five years, about a 70% spike in our defects. The industry average is about 20%."

Ford Pro is less cyclical with strong loyalty, Lawler told Bank of America. "About 15% of the commercial vehicles reach their useful life every year. So they're tools that wear out."

Companies small and large use information provided by Ford computer systems that provides real-time information to keep everything running with few surprises.

"We will have predictive maintenance," Lawler said. "We will be able to, at a point in the future, guarantee uptime because we will be able to read all the systems on the vehicle and know if something's going to fail or if something's wearing out, wiper blades, tires, brakes ... Get ahead of it and work with them to have the right time to service that vehicles so they're not of the road and they don't lose any business."

Tesla saw itself as a tech company, and Ford moved into software

Ford Pro launched in spring 2021. Dave Prusinski, Ford Pro chief revenue officer, said he was hired with the idea of changing the value of technology in vehicles much the way a cellphone now does more than simply make calls.

"The vehicle is connected, and we can find a problem — the need for an oil change or standard maintenance," Prusinski told the Free Press. "It used to be a vehicle was running around on the road and you didn't know. We get that data, and now you know. We can have a part ready at a dealership. In a previous world, you'd take a vehicle in to be diagnosed, order a part, have it delivered and then get the work done. What now takes hours once took days, and cost thousands of dollars a day. Hometown (HVAC) said it lost $12,000 to $22,000 a day every time a vehicle is off the road."

Ford works with tiny micro fleets of just a handful of cars, all the way up to Enterprise rental of more than 1,000 vehicles, he said. "What's novel is bringing these solutions to small business. Now they have advantages that the larger fleets had in the past."

"Ford Pro is like a fast-growing software company," Prusinski said. "We’re very close to our customers, working with them. That benefit is, we’re seeing increase in the share of vehicles using our parts, services and solutions ... With Lightning in 2024, we saw 40% (of commercial customers) are coming back buying model year 2024."

A fleet of five vehicles owned by an electrical company can see business plummet 20% if just one truck goes into the shop, and Ford Pro works to keep the small fleets running as much as the really big fleets such as the U.S. Postal Service with 9,250 E-Transit vans.

"We've leveling the playing field for the average Joe, really," Prusinski said.

'Huge iceberg of opportunity'

John Murphy, senior North American automotive equity research analyst at Bank of America, said during his company's summit on March 26 that "Ford has got its act in gear and doing as much as it possibly can."

He said Ford has "this huge iceberg of opportunity that is massive underneath" that is starting to be captured by Ford Pro, which hasn't "really scratched the surface."

As for Lawler's forecast of $12 billion in adjusted earnings this year, Murphy said, "I know you have to invest for the future, but those kinds of numbers in the core business are the kinds of numbers that, I've been doing this for 25 years, nobody would even dream could possibly ever happen."

Contact Phoebe Wall Howard: 313-222-6512 orphoward@freepress.com.Follow her on X, the site formerly known as Twitter, @phoebesaid. Read more on Ford and sign up for our autos newsletter.

This article originally appeared on Detroit Free Press: Ford Pro commercial business has strong profits