Ford, GM Conference Calls: Same Problems, Different Outlook

Everyone's eye is on the automotive industry reports that came out last week. While the overall news is bad, there are differences in Ford and GM's outlook.

On Ford’s Q308 conference call, CEO Alan Mullaly seems relatively upbeat, speaking about awards and new cars and sales and improvements and updated models, etc. Things aren’t exactly rosy, they do talk a lot about raising liquidity, cutting headcount and an industry in crisis, but they appear to be in control.

Ford (F) is currently experiencing strong growth in Latin America, and expects European sales to remain profitable next year. Ford also raised cash last year when the slowdown began. Both Ford and GM (GM) are now focused on achieving greater fuel efficiency both because consumers want it, and governments will finance it.

On General Motors’ Q308 call CEO Rick Wagoner spends a good amount of time speaking about liquidity and finances. GM is deferring some new car launches and doesn't have the foreign market share that Ford seems to be leaning on currently. One analyst asked Ford’s CEO Mullaly why they don’t try to get by without government intervention, to which Ford answered that they don’t need government money, they’re only planning for the possibility of a deeper world economic crisis. That wouldn’t be a question on GM’s call.

Five quotes from both calls:

 

GM:

 

Impact of ForEx and commodities:

We had some significant hedging losses… We're seeing tremendous volatility in terms of commodity prices as well as FX rates… Mark-to-market [losses] were about $1.4 billion.

No more car leasing? 

Basically [we’ve] stopped leasing in the Canadian market and significantly curtailed leasing in the US market. And they've increased wholesale financing rates to compensate for costs of funding. 

Pensions: 

Our hourly pension plan was about $05 billion underfunded as of September 30th, and our salaried plan was overfunded. And so, on a combined basis, we're overfunded. 

Re-sizing: 

Q: It seems you have accepted that GM will be a smaller company at least in North America in the future… What size you see the company?

A: We expect US industry volumes to remain significantly below trend for several years. We are continuing to plan for over time gradually higher oil and energy cost environments.

Examples of how they’re cutting costs:

We're going to drain buffer stocks out of the system, because the risk of actually being short of a part when the industry is weak is a lot lower… We'll take all of our powertrain inventories down… Historically there is s substantial amount of finished vehicle stock in Europe… We'll take the risk that we'll lose the sales and we'll change that paradigm and we'll drain finished good stock out of the inventory system.

 

 

Ford is cutting jobs and raising liquidity, but it's position is good relative to GM, and it's got more options to fall back upon:

 

On fuel efficiency:

We are going to move very aggressively to comply… Government officials are shooting to have [technology and fuel efficiency incentive and pre-funding disbursements] done as early as the fourth quarter, which is terrific.

Raising cash, reducing liabilities:

[We] have already sold some asset-backed securities through the government’s bailout program… About $4.0 billion.

Job cuts:

[We’re] reducing North America’s salaried-personnel-related costs by an additional 10% by the end of January 2009, primarily through personnel reductions and attrition… The total planned Volvo personnel [cuts are] about 6,000 world-wide since June, equal to about 25% reduction.

Using U.S. government help:

We have registered to sell up to $16.0 billion of asset-backed commercial paper through the U.S. government’s commercial paper facility and through October 31 we have utilized about 25% of that. So that’s a key part of freeing up liquidity [and] for Ford Motor Credit to be able to make the loans that the customers really do need.

They have access to foreign government help:

Ford Credit expects to benefit from [global government-sponsored] programs both directly and indirectly in the U.S. and in Europe… Financial support for Mazda will come from a third party… The European Automotive Industry Association has requested [a direct loan] from the European Commission of €40.0 billion.

 

Comments

[PeteK:]

Judy,
You are not with homebuilders any more ?
Most people against bailout for automakers
due to UAW problems. You seem to ignore that.

2008 Nov 10 08:42 AM

[epeon:]

I was in best buy yesterday and I was talking to a relatively young salesman. We were talking about this and I asked him, "what kind of a car do you have?"

He said, " I have a Honda civic."

"Did you consider a domestic?"

He said, "I have a 2001 Mercury cougar. Can't keep it on the road. Still have it, but it is very unreliable. The Honda never fails."

"So", I said, "you basically won't even look at a domestic anymore?"

"Yeah, that's pretty much the way it is, I guess. I can't deal with the maintenance problems. Domestic cars are just awful."

As I walked away, the thought that occurred to me was this: here you have a best buy manager/salesman who is I would guess 30 and he is now never going to consider a domestic. Honda took care of him and they have a loyal customer. In the final analysis, all of this liquidity stuff is really just a symptom of the problem. You don't take care of your customer and they go away. No matter how much you try to convince them you now have the quality religion, a car is such a big, but infrequent purchase that customers just are not going to take the chance.

2008 Nov 10 08:52 AM

[Nextel Acce...:]

I like Ford longterm, if it can weather the storm for a couple years

2008 Nov 10 09:01 AM

[aaavoid:]

Epeon, did it occur to you that car salesman religion was probably Sebring back in 91? Toyota and Honda had a hard time convincing people that they can make European quality cars back in the early 90s. After the RX and ES series, people are sold, and now Lexus/ Infiniti is being perceived in the same league as BMW or Merc.

People change minds, depending how Ford executes, they can gain back their lost customers if they do it right. The key decision you have to make when buying all these beleaguered Big 3 stocks is, do you think they can execute? I believe of the 3, only Ford can.

2008 Nov 10 11:02 AM