Ford a Likely Survivor of the Auto Industry Crisis

It is no surprise that Chrysler, GM (GM) and Ford (F) – the former Big 3, now the “Barely Surviving 3”- keep reporting abysmal sales month after month, while mounting their losses into the billions. Their stocks are at levels not seen since the 1970’s, and speculation about their survival occupies many headlines across the media spectrum. If one were to bet on one of these three to make it out of this crisis alive, I would put my money on Ford. Here is why:

Alan Mulally is a respected and successful CEO, who took over the helm at Ford only a few years ago. Before that, he was at Boeing. He tends to lead from the front. His recent voluntary pay cut to $1 for all of 2009 is a testament to his commitment and leadership. On the other hand, Rick Nardelli has earned the reputation of being greedy from his days at Home Depot. He followed Mulally’s lead on not taking a salary in 2009, but I don’t think he had a choice, considering the golden parachute he got from Home Depot and the stir it caused. Rick Wagner has been the CEO of GM for a long time and during his tenure, things have gotten progressively worse. Kirk Kerkorian, the famous activist investor took his losses in GM and left because he didn’t see a bright future for GM. If the leadership of a company is strong, investors like Kirk Kerkorian stick around for a while.

Ford opted out (for now) of federal aid, while the others begged for it. This self-reliant attitude, while obviously a good PR move, is also one that does indeed demonstrate their commitment to get their house in order. While this may result in GM emerging from this crisis with a stronger balance sheet and Ford with more debt than ever, it also indicates that Ford is opting to distance itself from Detroit’s stereotype.

Ford is installing innovative, out of the box technology that makes it stand apart from its peers. For instance, they are rolling out a Ford Fusion hybrid, that has better fuel economy than others in its class. Additionally, features like computerized keys would prevent teens from breaking traffic laws.

Among the 6 top auto manufacturers, Ford was the only American car manufacturer that gained market share in Q4 of 2008. While the quarter was less than stellar with losses rising across the board, a gain in market share shows Ford getting one over its Detroit rivals.

So, if you were to make a speculative bet on one of the three automakers, I would bet on Ford over GM. It has some momentum behind it, and their post 2010 line-up of cars look strong.

Comments

[iambully:]

Mr. Kirkorian also took a stake and a loss in Ford in 2008. He stuck around even less time there than he did at GM. This aside, I too believe that Ford will be around and come out of this period stronger and more agile. They are still doing alright in Europe, they were first to react to retool their N. American factories in responce to gas price increases. They have positioned thier debt well to emerge in control as things recover, and things will recover. There is a great deal of demand that will be generated during this time as consumers eventually feel comfortable enough to buy cars again. This is a great time to be building goodwill and market share.

Feb 17 10:58 AM

[Cobra 1:]

I have been long on Ford since they started making moves with their CEO being ahead of the curve since his arrival. He saw the need to hoard cash in 2004 while GM was trying to keep the #1 sales goals. I also believe Clay Ford was doing a good job before he hired Mulally, he made a statement "we are going to downsize our company, when we emerge from our restructuring, we may not have the same market share, but, we will be profitable"! Now he was not able to pull the whole plan together, but, he had the right idea in 04 already. My hat goes off to Ford, keep up the good work, keep the line up growing and you will be fine in any environment!

Feb 17 11:01 AM

[Thrift Maven:]

Ford has those wonderful trucks - from 150's to the huge tow trucks - plus police cars and terrific small trucks for businesses and cars for the rental industry. Their styles are picking up. I am seeing more and more of their small trucks in our neighborhood. They are on the right page with alternative energy vehicles.

Years ago, Grandfather ran into Henry Ford while walking in Manhattan. Ford asked him if he would like to put $1,000 into a car manufacturing company he was starting. Coulda, shoulda. Ford is cheap today.

Feb 17 11:09 AM

[Jeff B.:]

I agree with the article. I'd put my bet on Ford & Mulally too. Nardelli is clueless, and if you listened to his absurd/dishonest comments during his sessions with Congress, he is either the dumbest guy in Detroit, or he thinks our Congress is even dumber than he is. GM & Chrysler have no vehicless that are market leaders in any segment. At least the Ford Fusion hybrid is a big step forward and it does some things better than the competition. The Focus (based on the Mazda 3) is a really boring car, but at least consumers seem to like it. With their big improvements in quality to go along with the above, I think Ford has a chance to make it. Chrysler is already dead. No one wants to admit that. GM still thinks it can cost-cut its way to salvation. Without the right product, it won't be able to do that. I drive an 09 Malibu as a company car -- arguably GM's best car. It is WAY better than past GM products I've driven, but it still is not up to par with Honda, Toyota, Nissan or Mazda in terms of interior materials, and drivetrain smoothness. A "B+" effort to be sure, but GM needs to hit them over the fence -- not get singles & doubles.

Feb 17 11:15 AM

[Wadhamite:]

I agree that Ford is strongest of the Detroit Three at the moment. I do wonder if that means strong enough to survive. I am a cautious optimist, seeing how Ford withstood two world wars and the Great Depression; but moving forward will be tough and Ford will need to make strategic and risky decisions at times. I'm hopeful they wil avoid government money and will prove that American capitalism ultimately will work.

Feb 17 11:16 AM

[Adam484:]

I think Ford is going to make it. Their cars are really top notch and their marketing presence is equally impressive. I am expecting a $10 share price 3 years from now. I think they could end up being the largest car manufacturer in the world again. Ford, Lincoln and Mercury are ALL doing great things right now. For the first time, I bought American, and I could not be happier with Mercury Milan. Go Big Blue!!!

Feb 17 11:29 AM

[TN734:]

I started watching Ford when a hockeymate, who runs the service dept at a local Ford dealer, told me "Business sucks! I had to lay off three mechanics - we're not getting any warrenty work!" That was in summer 2006, before Mullaly who arrived in September. It just seems that from a product point of view, all the news from Ford has been good. Its interesting to know also, that Bill Ford went payless from 2004 thru 2007, and when the board voted that he take a salary, starting in 2007, he defered payments until the company records a year of profits.
It is my opinion, from a product execution point of view, cash situation aside, Ford is arguably the best in the industry. For a nice interview of Mullaly, a little dated (from December 08) check this out -

wjr.com/Article.asp?id...

Feb 17 11:44 AM

[TB3:]

I agree that Ford is the strongest of the three (faint praise unfortunately) and that Mr Mulally is by far the best of the CEO's. However, as an investment, I wouldn't be putting my money in a company as laden with debt as Ford, at least not yet. Remember that debts need to be repaid, and with Ford's excessive overhead and very weak sales revenues, they are still burning through cash. Until I see a positive cash flow, equal to and better than their short term debt payments, I think I'll wait awhile.

Feb 17 11:45 AM

[31October:]

"GM & Chrysler have no vehicless that are market leaders in any segment."

CTS & CTS-V
Corvette, ZO6, ZR1
Malibu, Aura, Vue, HHR, Cobalt SS, G8

None are cars that I want (maybe ZR1, but it has nowhere for booster seats), but they are all high in segment reliabilty, performance, awards, and are profitable lines. Ford hybrids are better than Toyota's, but GM multi-modes declutch the fragile parts of the CVT, which indicates better longevity, heavier-duty capacity, and superior efficiency % gains.
1982 was a long time ago - GM has improved.

After it emerges from Chapter 11, GM could be a powerhouse company.

Feb 17 12:37 PM

[tempest:]

Who is Faisal Laljee? Quite the insider if he thinks the CEO's of Chrysler and GM are RICK Nardelli and Rick WAGNER. At least he got Alan Mulally's name right!!!

Feb 17 12:44 PM

[Tomas04:]

Oh come on! Ford is in a better position because they borrowed more money before the credit markers collapse. Take a look at their cash burn compared to GM and Chrysler. It is at least as bad if not worse. And to criticize Wagoner because GM has done bad in recent years is such a crock. Ford has not been doing stellar since the 90's either. In fact the problem with the Big 3 is the problem with this country right now, out of money and frozen credit markets.

Feb 17 12:51 PM

[wholesalecd:]

Yes, Ford is in a lucky position considering their debt but look at the 2010 car lineup. Ford has substantially more desirable cars coming out but I haven't seen really anything big from GM and Chrysler. Ford seems to be the most progressive of the three from their innovative offspring coming soon. I do see more valuable assets within Fords marketing campaign.Unless GM and Chrysler does a 180 turnaround I am not a buyer here.

Feb 17 01:43 PM

[Philip Obal:]

WHY did the executives WAIT so long before making ANY MAJOR changes? SOW (Same Old Ways) for TOO MANY years!!!

CROP (Consumer Reports Outstanding Products) year after year ... on high quality, low maintenance models .... IGNORED... by SOW .... since the CROP highlighted JAPANESE (Toyota, Honda, Mazda... ) cars as the ones that were more reliable!

So CROP on BIG 3 SOW executives... In another words, the WAKE UP call has sounded and our American BIG 3 SOW executives are ASLEEP AT THE WHEEL and have crashed... 2.5 crashes looks like!

Feb 17 04:24 PM

[jenny:]

Ford definitely seems to be the strongest of the three right now. Despite the positive PR from them opting it, it's saying something about the company-that they are possibly in a better situation than the other 2. While all three are down, F seems to be the least fluctuating and their sentiment is the highest (www.predictwallstreet....). I think investors are feeling more optimistic about F than GM, but that isn't really saying much either.

Feb 17 06:01 PM

[Gravity404:]

CHRYSLER IS PRIVATE, OWNED BY A FREAKIN' HEDGE FUND!

WHY ARE THEY GETTING MY MONEY??

Feb 17 06:08 PM

[PastTense:]

Could someone explain why China and other low cost Asian producers won't run all three of them out of business?

Feb 17 06:48 PM

[DHH:]

PastTense: because they have bigger fish to fry in their own backyards. Their attention won't be directed primarily to the crappy American market.

Feb 17 07:55 PM

[Lockstep In...:]

There is absolutely no analysis in this article that I could not get from NBC Nightly News. Give me numbers, give me cashflow analysis on a company with debt out it's ears and rated as junk, give me a look into product line that will drive growth through the downturn, give me insight into how they can turn the unions contracts into competitive advantages, or something. Instead, you gave me nothing.

Feb 18 01:47 AM

[Deweyp:]

I have to wonder how much research you put into this article Faisal. GM stock prices during the 70s was in the $80 neighborhood. A gain in market share when sales are down nearly 40% is less than significant. If sales continue to be in 10 million range for any length of time, then Ford will also go to Washington. As to product, Ford truly has some nice models out and is right in there with quality high mileage cars, but so does GM. The new F150 is really nice, but no better than the Silverado. That was a catch-up truck for Ford.

Feb 18 11:25 AM

[Zee4Money:]

If the stock is to risky then buy the debt. Bonds can be purchased with yields of 15-20% and maturities within a year. I agree that the stock is to risky until the bond yields return to a more normal level.

Full disclosure: I am long Ford notes due 1 Feb 2011


On Feb 17 11:45 AM TB3 wrote:

> I agree that Ford is the strongest of the three (faint praise unfortunately)
> and that Mr Mulally is by far the best of the CEO's. However, as
> an investment, I wouldn't be putting my money in a company as laden
> with debt as Ford, at least not yet. Remember that debts need to
> be repaid, and with Ford's excessive overhead and very weak sales
> revenues, they are still burning through cash. Until I see a positive
> cash flow, equal to and better than their short term debt payments,
> I think I'll wait awhile.

Feb 18 11:37 AM

[woolybooly:]

Over the years I've owned many different cars. I've never owned a Ford. As I look at the mess that our economy is in I'm really surprised by any of it. I also won't be surprised if Ford comes out on top in the future.
Strong lineup in all catergorys and the Fusion Hybrid specs.looks mighty interesting. I also share the opinion that they have gained respect by not hopping on the Goverment gravy train.

Feb 18 12:33 PM

[bbowen7:]

There are some simple questions here. There is a base line of demand that is currently being deferred - the opposite of what happened in the housing industry. When will it get back to normal, if not making up for the deferred demand? Do you think that the American public will give no preference to an American company - if it has good quality (and most are OK now), and if the energy efficiency factors are in line (and they will be)? And do you think that Larry Summers can better run a car company than Mulally?

Feb 18 01:25 PM

[Marky61:]

By polishing its brand and keeping its product line slim and nimble, Ford is easily outmanouvering the other Detroit makers. I think Ford's biggest strength is its operations elsewhere in the world. Ford of Europe has some very strong product and we're about to see some of it here (Fiesta, new Focus, new commercial van). Partner Mazda has some great stuff, too. Car and Driver raved about the 2010 Fusion Hybrid. Kudos for keeping the little Ranger in production (it was supposed to die last year). GM will restructure and emerge a much smaller company; Chrysler will be gone by the end of the year. That leaves Ford the big winner in all of this!

Feb 18 01:34 PM