Ford May Not Need Fed Bailout

LCT Staff
Posted on November 24, 2008

DETROIT - Last week's hearings on Capital Hill lumped Detroit's automakers together as desperate enterprises so troubled that they must submit business plans to Congress to prove they are worth saving with emergency loans.

But ever so subtly, Ford Motor Co. is separating itself from its crosstown rivals, General Motors Corp. and Chrysler LLC.

Still a troubled company that is hemorrhaging money - nearly $24 billion during the past three years - and losing market share, Ford is regarded as the healthiest of the three companies, as UAW President Ron Gettelfinger last week told Congress. The automaker also is making strides in fuel economy and the safety and quality ratings of its vehicles, and its new F-150 pickup - a company profit leader - is expected to do well after sales rebound from the toughest market in 25 years.

Chief Executive Officer Alan Mulally told Senate and House committees he wasn't even sure that Ford, which had $19 billion in cash at the end of September, would need federal assistance.

"I think we can make it through this recession, if it doesn't get worse," Mulally said. "We believe we have sufficient liquidity to make it through this slowdown."

Mulally, who left Boeing Co. to become Ford's CEO in September 2006, said the automaker joined in the request for aid only because it might need the money if the economy worsens and because a collapse of GM or Chrysler could take down parts suppliers, which would ultimately seize up operations for Ford, too

Sales down, but quality up

Despite Ford's precarious position, as the company waits for the political and economic climate to shake out, automotive analysts and Ford dealers also told the Free Press there are signs that the company's condition could improve in the near term.

While Ford's sales are down 18.6% through October compared to the same period a year ago, the company is making gains in key areas.

For much of the year, the Ford Focus compact car, which averages 27 miles per gallon and comes with optional cutting-edge Sync telecommunications and entertainment technology, climbed the sales charts. So far this year, the vehicle built in Wayne is up 20.5%.

Now Ford's perennial breadwinner, the F-150, has been revamped and is earning rave reviews, a promising sign that could help Ford pull ahead of its sluggish crosstown rivals. The F-150 is part of Ford's best-selling F-Series lineup, which still makes up about one-fourth of the company's sales and a disproportionate amount of the company's profits.

Ford has made documented gains in safety, quality and fuel economy that it needs to have sink into the public consciousness, bolstered by publications such as Consumer Reports. Ford's Fusion midsize car was even selected for the cover of the magazine's best cars issue.

"Everybody is aware that Ford's quality has gone up," said Terry Kidd, who owns Kidd Ford Lincoln Mercury outside of Nashville, Tenn.

As Mulally sat in front of Congress, flanked by his needier counterparts at GM and Ford, he repeatedly tried to emphasize the unique position of Ford and the "clear vision" it has for the future.

As the executives were collectively grilled and flogged for their companies' past failures, Mulally repeatedly emphasized: "We're in a little different position."

Might not need loans

Financially, Mulally told Congress that Ford does not intend to tap the federal loans if it doesn't have to. Shortly after Mulally became CEO, the company mortgaged its assets, from the F-150 brand to the blue oval logo, to ensure a line of credit for its turnaround. That has put it in a better liquidity position than GM and Chrysler.

"If the economy starts to go down, we would have to access that money, too," Mulally told a House committee. "How much we would access would be dependent on how far the economy and the industry degrades."

Passing on the federal loans might prevent the company's shareholders from having their stock further diluted if the company is forced to give the government stock warrants in exchange for the loans.

Shares of Ford closed Friday at $1.43. Just four years ago, Ford shares traded in the mid-teens and paid dividends of 10 cents every quarter.

The stockholders, of course, include the Ford family.

While the family would still retain its 40% supervoting power through its Class B shares if stock warrants were issued, the family has already seen the value of its shares plummet.

What's more, Ford stopped paying dividends in September 2006 -- when Mulally was hired and the company revised its Way Forward turnaround plan for the second time.

If Ford could make it through this downturn without federal money, it could escape jumping through all the hoops that Congress is setting up as an obstacle course to receive loans.

Faint praise from lawmakers

While most members of Congress seemed content to lump Detroit in one basket and bash them together, a few lawmakers had almost-kind words for Ford.

While criticizing Detroit's boardrooms for being "famously devoid of vision," Sen. Chris Dodd, the Connecticut Democrat who chairs the U.S. Senate Committee on Banking, Housing and Urban Affairs, added: "Clearly there have been exceptions. Ford was arguably ahead of the market when ... they saw a big future in the fuel-efficient and alternative energy vehicles."

Sen. Bob Corker, R-Tenn., who was particularly critical, also noted the distinction.

"My sense is that Ford has done a better job and is in a slightly stronger position," he said. "GM has made some changes, but is spiraling downward, and I know it's a private company and results aren't available, but Chrysler barely has a heartbeat.

"I wonder why we're talking to three companies. ... Seems to me that that premise to begin with is very flawed. Now obviously you all have been involved in a pact."

David Cole, chairman of the Center for Automotive Research, said all of Detroit's auto companies are in the emergency room and need help, but Ford just isn't as badly injured.

"They've tried to walk that fine line: We need it, but we don't need it that badly," Cole said.

Revamped F-150 gets raves

One of the biggest reasons to hold out hope for a strong Ford turnaround, dealers and automotive experts told the Free Press, is the launch of the 2009 F-150 pickup.

"I know Washington doesn't want to hear about pickup trucks," said Erich Merkle, a senior automotive analyst with Crowe Horwath in Grand Rapids. But, he said, "Ford is very well positioned in that pickup truck segment when it ultimately starts to rebound."

Already, dealers across the country told the Free Press that F-150 sales are off to a better start than expected.

"It's doing fantastic," said Jason Pittack, co-owner of Woodhouse Ford in Blair, Neb. His dealership is No. 1 in Ford pickup sales, with more than 2,500 sales annually.

"Farmers are having their best year in many years," he explained. "The people that need trucks, they're coming in and zapping them up."

For that reason, Pittack is one of several dealers who think Ford is going to do just fine.

"Regardless of what the press is saying, I think Ford is in a good position," he said.

Kidd said he's so confident in Ford that he's been gobbling up a lot of Ford stock, as well as that of key parts supplier Visteon.

"I feel great," Kidd said of Ford, noting that his truck sales have been strong since gas prices started dropping again. "I truly believe in it. ... I'm not looking for it to turn tomorrow, but in the long run. I think Ford is making tremendous strides."

Source: Detroit Free Press

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