Why Ford Will Make It 80 comments
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These are interesting times in the American automotive industry. Foreign or domestic, Asian or European, pretty much every automaker that sells new vehicles in the United States has been affected by the economic crisis in recent months. From the out-of-sight gasoline prices to the virtual disappearance of automotive financing, no dealer has been immune.
Yet, while General Motors (GM) and Chrysler LLC are receiving a lifeline of sorts in the form of loans from the American taxpayer, there is one domestic automaker who didn’t receive or seek a loan from the Federal Government – the Ford Motor Company (F).
Interesting – Ford, like General Motors has been a fixture in the American marketplace as a major industrial company for over 100 years. Also similar to General Motors, its workers are represented by the United Auto Workers (UAW) union and also like GM fields a wide ranging product line-up not just in the United States, but around the world.
So you may ask, why is Ford in somewhat better shape than General Motors during this major economic downturn? The answer begins with the following names: W. Edwards Deming, Phillip Caldwell, Harold Arthur “Red” Poling and Jacques Nasser.
To understand the Ford Motor Company of today, you must first take a journey back to its founding. Henry Ford’s family was Irish immigrants that came to America in 1832, settling in Dearborn, Michigan. After the invention of his Quadricycle in 1896, Ford would actually start three different automotive companies – two of which survive in some form to this day. (His 2nd automotive company became Cadillac which was the only GM division to be purchased for cash -- $4.5 million in 1909.)
The Ford Motor Company was organically global almost from its founding, usually choosing to introduce the Ford brand around the world as opposed to purchasing existing automotive makes. It only recently ventured into purchasing automotive companies during the last part of the previous century (Jaguar, Aston Martin, Volvo) and the beginning of this one (Land Rover). But the seeds of Ford’s current solid basis started back in the early 1980s when it was losing twice as much money as the Chrysler Corporation, which had received Federal loan guarantees.
Then Ford CEO Phillip Caldwell, the first non-Ford family member to head the company since its founding, orchestrated one of the most dramatically successful turnarounds in business history. Together with Harold “Red” Poling, executive vice president of North American Automotive Operations who implemented Caldwell’s aggressive cost cutting strategy, the duo “saved” the Ford Motor Company. But cutting costs alone doesn’t increase revenue. Ford had to address its reputation for building vehicles of subpar quality. For that, they turned to a well-known quality guru – W. Edwards Deming.
Dr. Deming is perhaps best known for his work in Japan, where from 1950 onward he taught top management and engineers methods for the management of quality. This teaching dramatically altered the economy of Japan. He is regarded as having had more impact upon Japanese manufacturing and business than any other individual not of Japanese heritage. In recognition of his contributions, the Union of Japanese Science and Engineering (JUSE) instituted the annual Deming Prizes for achievements in quality and dependability of product.
Ford brought Dr. Deming into the fold in the early 1980s. As a result, the automaker was able to increase production, plant utilization and vehicle quality dramatically without the addition of any new assembly plants.
The automaker detoured slightly under CEO Alex Trotman with an ill-advised reorganization and a second failed attempt at the development and sale of a “world car” (Ford Monteo / Contour / Mercury Mystique).
Jacques Nasser, who became Ford’s CEO in 1999, was probably most beneficial to the company by his departure in 2001. Although he tried to increase company value with a number of non-automotive acquisitions, he allowed the company to take its eye off of the core business of quality vehicle manufacturing. The naming of William Clay Ford, Jr. as CEO in 2001 allowed Ford to address the important corporate issues and get back to the basics of high-quality, high-value vehicle manufacturing.
As a result, the company sold most of its recent acquisitions – both automotive and non-automotive. This laser-focus has also allowed the company to position itself to weather the current storm as Ford saw the clouds forming as early as 2006. The company mortgaged its buildings and factories to raise cash. Although it claimed it needed $17 billion, it raised a total of $26 billion – just in case.
Disclosure: None.
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Contrast that with the Ford Taurus I bought used that eventually died at over 315,000 miles! I later bought a Toyota Celica which went to 200,000 miles.
Long live Ford! A good mechanic along with Ford can keep it going, but the same mechanic cannot keep a Toyota going if it is a piece of junk.
It looks to me like the "real" loss of value to the owners of $ 22.939 Billion. While it is very possible that the value of some of their assets may exceed the carrying value on the balance sheet, the conclusion that this company is on the ropes is inescapable, as presently reported.
Deals to get some of their liabilities reduced, such as with UAW pension and healthcare costs, are unavoidable. if the company is to survive.
i owned the audi for the 7 yrs that the extended warranty lasted & not a day longer.
i rarely drove it, it was the wife's car & it was her decision to keep it for as long as the warranty lasted.
for me the seats were uncomfortable & i didn't really like the handling (my car is an alfa, rear wheel drive, recaro seats).
> jack
u guys foirget so easy
models were a piece of junk.. The first year Escape was also a piece of junk. After 80,000 miles, the automatic transmission broke down, no more.
The 1986-7 taurus always leak oil on the garage floor. Just a mess.
That's why Ford must begin to build better quality cars in order to survive.
Ford should also send people to learn from the Service dept at Toyota dealerships. Toyota's Service is more than excellent. They treat people with respect. GM service is the worst. No manner, rude, and sometimes
don't care at all. Success is earned, not granted.
Still have my grandfather's old Ford Fairlane, antique now.
we were advised early on to change out the fluid & internal filter on a regular schedule & have done so, probably saving a lot of grief by so doing. presently @ 170k miles approx.
> jack
That said, I have read some excellent reviews of the Fusion and Focus models and I am considering getting one for my daughter. I would like to buy American this time around. However, before I plunk down $15K - $20k I need to be sure. Honda and Toyota don't need to convince me anymore but can Ford product convince me? We'll see.
I'd like to blame the Detroit 3, but probably every state in the union has some auto business. The real question is, whats wrong with American culture that we can't build anything any more?
By the way if the government wants to help, then help reduce health care costs.
A bad experience at ONE dealership is not a reason to trash a brand. I've owned Ford products exclusively since 1980 and found that not all Ford dealerships are created equal. When I had a Ford product that seemed to be a lemon at one Ford dealership, I took it to a second one that fixed the reoccurring problem(s) once and for all. I wouldn't think of switching brands based upon one dealership's treatment of me.
Second, I have read the nose-out-of-joint GM executive (negotiated six-speed transmission deal) and have this to offer him ... You forgot to mention the detail that the six-speed transmission was already in development at GM when Ford entered the equation and that both sides are appreciative for each other's contributions into this system. You also left out the detail that the reason Ford chose to locate its controllers on the outside was to give a better ability to tune the transmission for shifting quality. GM may have done theirs for "costs" but Ford did theirs for the experience of the consumer driving. I appreciate your contribution to the project but you obviously have a bias that is clear in your tone and comments. Any GM executive has no reason to have such a tone since your lunch is being handed to you every day on the sales floor.
Third, much has been discussed about Ford's cash burn - it is true that Ford has a high cash burn rate but the difference is they are using the money to develop new products, to retrofit truck plants, and to accelerate products to market. GM is RETRENCHING and still burning excessive cash merely standing still.
Fourth, GM has been unable and unwilling to offload underperforming brands. Plus GM paid $2 billion to get out of the deal with Fiat earlier in this century and paid $500 million to end the American Axle strike that GM allowed to fester. Furthermore, GM rushed the GMT-900 truck program to market and offered a product that was not innovative, looked much like the prior version, and was truly little changed. The most striking feature of this truck was the new song used to sell it - interestingly, GM took almost three years to be able to figure out a competitive advantage the truck had over the competition and to sell it to the public in its ads. By that time, Ford matched GM's fuel economy advantage.
GM has had the same manager in charge of the company for eight years and the same "product czar" for six - a man who personally took credit for developing the moribund Buick LaCrosse and Lucerne in his blog; he also oversaw the development of the Pontiac G6 which couldn't be brought to market with a full model line in its first year. With those two gentlemen having been in their offices over six years, GM has offered stale and underperforming products. These are the two men who clung to moribund brands, didn't forsee the change in market and economy (like Mulally did with the financing deal while credit markets were still lending), etc.
In the end, the reason Ford will more likely survive than GM is because its managers "get it" and have been willing to change since 2006. GM's management is still partying like its 1999 and unwilling to accept the situation that they themselves created.
The seminal article here was very weak - it failed to even offer a glimpse at the main reason Ford will "make it" - PRODUCT - 2010-2012 Ford products will give every Toyota and Honda model direct competition on quality, fuel economy, and price. I know Honda and Toyota owners will smirk, but the facts will bear this out. Already the quality gap has disappeared and price certainly has as well.
It is obvious that you are a GM fan and will go out of your way to paint them in some kind of positive light. But perhaps you need a dose of reality. Yes Ford has more total debt on their balance sheet but $65 billion of that is offset by receivables due to Ford Motor Credit. In case you haven't heard, GM sold off a majority stake in GMAC so the debt associated with the financing of vehicles is not included in the total debt number for them, nor are the receivables. Ford's net debt after receivables is $90 billionish as of the 4th quarter. The majority of that debt that is not secured by collateral (bonds) is trading at 30 cents on the dollar or less. Hence the reason Ford is trying to retire a portion of that debt at premium to it's current value. Pay $10 billion in cash and stock and get rid of $30 billion + in debt sounds like a pretty good deal for Ford. Not so good for the current shareholders that will see their stock holdings diluted. But it's moves like this that will keep Ford from taking the same path as GM and Chrysler. You might want to look at "cash flow from operations" for the last year. That is the true indicator of how strong a company is relative to competitors since that demonstrates whether or not you are bringing in more than is going out in whatever business you are in. You won't like what you see but you should go take a look anyway.
On Feb 27 12:18 PM Miken wrote:
> Mr. Chester
>
> I was on the team that negotiated the deal with Ford on the six speed.
> GM gave them the blueprints and Ford paid the money. That was the
> joint development.
>
> I am very aware that the transmission is being jointly produced.
> The Ford version is being produced at the Sterling plant and the
> GM version is being produced at their Warren, MI plant and in Ramos
> Arizpe, Mexico.
>
> The electronics are basically the same except that Ford chose to
> move the controller outside the transmission while GM stayed with
> their original design and kept the controller internally to save
> wiring costs as well as being able to calibrate the electronics to
> each particular transmission. Bosch is the supplier for both. Don't
> assume you know about this by reading Wikipedia.
>
> The software is somewhat different. I'm sure each company thinks
> they did the better job of calibrating the product.
You point out the obvious very well. The product introductions that Ford has coming this year could very well be game changers. The Fusion (hitting lots now) in both hybrid and conventional form will be the new benchmark for all mid-size sedans. It is best in class in every matrix one can judge a car. Except for one, interior room. And for those that need the space the Taurus (August) which will also be the new benchmark for full-size sedans should fill their needs very well.
A year from now the Fiesta will be hitting the market and if gas has any sort of a runup between now and then it could very well be a 10K per month seller along with the new Focus that will once again be best in class, if it is not already.
I certainly don't view Ford a buy right now due to the upcoming dilution that will take place with the conversion of debt into stock but the bottom will be shortly after the conversion takes place and the appreciation in value will start there and once Chrysler is put to sleep the U.S. auto market will become much more profitable for everyone. Especially the strongest player, Ford.
On Mar 02 11:28 AM Laser wrote:
> I've read many of the comments and would like to respond thus:<br/>
>
> A bad experience at ONE dealership is not a reason to trash a brand.
> I've owned Ford products exclusively since 1980 and found that not
> all Ford dealerships are created equal. When I had a Ford product
> that seemed to be a lemon at one Ford dealership, I took it to a
> second one that fixed the reoccurring problem(s) once and for all.
> I wouldn't think of switching brands based upon one dealership's
> treatment of me.
>
> Second, I have read the nose-out-of-joint GM executive (negotiated
> six-speed transmission deal) and have this to offer him ... You forgot
> to mention the detail that the six-speed transmission was already
> in development at GM when Ford entered the equation and that both
> sides are appreciative for each other's contributions into this system.
> You also left out the detail that the reason Ford chose to locate
> its controllers on the outside was to give a better ability to tune
> the transmission for shifting quality. GM may have done theirs for
> "costs" but Ford did theirs for the experience of the consumer driving.
> I appreciate your contribution to the project but you obviously have
> a bias that is clear in your tone and comments. Any GM executive
> has no reason to have such a tone since your lunch is being handed
> to you every day on the sales floor.
>
> Third, much has been discussed about Ford's cash burn - it is true
> that Ford has a high cash burn rate but the difference is they are
> using the money to develop new products, to retrofit truck plants,
> and to accelerate products to market. GM is RETRENCHING and still
> burning excessive cash merely standing still.
>
> Fourth, GM has been unable and unwilling to offload underperforming
> brands. Plus GM paid $2 billion to get out of the deal with Fiat
> earlier in this century and paid $500 million to end the American
> Axle strike that GM allowed to fester. Furthermore, GM rushed the
> GMT-900 truck program to market and offered a product that was not
> innovative, looked much like the prior version, and was truly little
> changed. The most striking feature of this truck was the new song
> used to sell it - interestingly, GM took almost three years to be
> able to figure out a competitive advantage the truck had over the
> competition and to sell it to the public in its ads. By that time,
> Ford matched GM's fuel economy advantage.
>
> GM has had the same manager in charge of the company for eight years
> and the same "product czar" for six - a man who personally took credit
> for developing the moribund Buick LaCrosse and Lucerne in his blog;
> he also oversaw the development of the Pontiac G6 which couldn't
> be brought to market with a full model line in its first year. With
> those two gentlemen having been in their offices over six years,
> GM has offered stale and underperforming products. These are the
> two men who clung to moribund brands, didn't forsee the change in
> market and economy (like Mulally did with the financing deal while
> credit markets were still lending), etc.
>
> In the end, the reason Ford will more likely survive than GM is because
> its managers "get it" and have been willing to change since 2006.
> GM's management is still partying like its 1999 and unwilling to
> accept the situation that they themselves created.
>
> The seminal article here was very weak - it failed to even offer
> a glimpse at the main reason Ford will "make it" - PRODUCT - 2010-2012
> Ford products will give every Toyota and Honda model direct competition
> on quality, fuel economy, and price. I know Honda and Toyota owners
> will smirk, but the facts will bear this out. Already the quality
> gap has disappeared and price certainly has as well.
On Mar 01 08:24 AM Andrew Gross wrote: A PROPOSITION TO SAVE OUR AUTO INDUSTRY:
1. Offer direct federal access to funds to franchised new vehicle...If traditional funding sources don't want to, or find they simply can't sufficiently underwrite this business...
*** So you want the TAXPAYER to make loans to people with bad credit? Oh, wait, didn't we just do that for the last ten years? How's that working out? ***
2. Accelerate Special Offers for Fleet Operators to cycle their vehicles...The offers could include everything from accelerated depreciation, cash incentives to guaranteed residual values.
*** You want individual taxpayers to subsidize the corporate taxpayers (oh, wait, accelerated depreciation exists - you must want to expense the whole thing - AND to have municipalities to spend more, as they approach local insolvency? That worked well for Orange County, why not the rest of us? ****
3. Auto Manufacturer and Parts Supplier Shareholders' Guaranteed Value Plan - The plan would...guarantee a certain "floor price" for qualified stock
*** You want to subsidize stock prices with something similar to CDS? Those worked GREAT. And stock prices should never be allowed to go up or down with conditions. ***
4. National US Auto Industry "Super Sale"
*** Need clarification: You want to continue the same thing that has existed since 2004? Or are you wanting the government to run the sale?
Wow. You could totalally run for Congress!
1. Since you are wanting to make loans to be defaulted on, make it to me.
2. Since you want to, just subsidize the depreciation on my car. I take payment on gold and yen.
3. Since you proposed it, underwrite all the prices on the collapsed stocks I own. It sure would take the uncertainty out... of how I tell my wife.
4. ROFL.
The North American Jap car's quality is not much better than the domestics (see all the Toyota recalls and CR's review for Honda's V6 transmission problems for the Acura & Accord) they have just been more successful in marketing so now their sh*t don't seem to smell for their passionate car owners.
The only reason the car companies arent making it, is because everyone is scared to spend money, Thats the Bottom line !
I never said anything about UAW, and unfortunely the legacy costs have to be reduced in order to keep manufacturing in NA (or history will repeat itself as the auto industry will follow the semiconductor & aviation business in leaving the country or consolidation).
You are confusing costs vs retail asking price, as the 3 have trained the consumer to expect reduced pricing ie market share in exchange for profit. I actually like Fords and my last one was a Contour, it was great but sales never materialized and Ford could not sell them except through discounting.
Honda & Toyota dealers ask for more $$ because they can and consumers will pay for it even USED! Yes everyone is worried but at this time, if you had to pay more for a vehicle with better reputation versus buying something that may be a ticking financial bomb?
I agree with the writer that Ford is the best positioned and the smartest thing was to hire a globally experienced manufacturing exec, even if he was not a traditional car guy.
On May 10 09:17 AM UnrealMach wrote:
> viewfromhere,Could you explain how the reduced wages of the UAW would
> help you in a purchase for a Domestic Car, You say UAW cars are too
> expensive because of there wages, I have never seen a Toyota, Honda,
> or any other Jap car any cheaper..Then UAWs, You honestly think If
> UAWs wages are even cut in Half , you think your gonna get the Car
> cheaper?
> The only reason the car companies arent making it, is because everyone
> is scared to spend money, Thats the Bottom line !
First, the numbers for Q1 '09 are out and Fords Q1 cash burn rate was a fraction of forecast. In Q2 Ford has thus far; 1.) Inked a very competitive wage contract with the UAW; 2.) Sealed a deal which converts VEBA payments from cash to stock; 3.) Very drastically reduced inventories; 4.) Become the ONLY vehicle manufacturer, domestic or transplant, to increase market share in '09; 5.) Pared daily operating costs by over 8M; 6.) Negotiated a stock for cash deal with bondholders which effectively settled 10B in short term debt for .40 on the dollar and will eliminate over 350M in short term debt service costs; 7.) Tendered a common stock offering which will raise approximately 2B in immediate cash.
In short, and in contrast to Miken's 10k filing numbers, Ford has taken very positive steps, during this quarter, which have drastically shifted Fords cash and liability numbers in a very positive direction.
In addition, Ford still retains assets, noteably Volvo, which could be used to generate further cash. No, Ford is certainly not "out of the woods", but it definately appears Ford will escape the burden of government control and ownership ... a fate which both GM and Chrysler have already fallen prey to. Ford will definately remain in control of their own destiny as they cut operating costs, increase cash and continue to adjust lower sales volumes toward a late '10 break even time line.
To be sure, both GM and Chrysler will emerge form the current mess much leaner and meaner players. However, Ford (Mulally) saw the current mess coming in late '06, put together a war chest
of 32B and began to change the error of their ways by revamping their entire product offering and converting Fords U.S. assembly plants for production of smaller, greener and more fuel efficient cars. Ford also began the lengthy process of ramping up Fords european Fiesta production for export to the U.S. The bottom line is Ford was 2 years ahead of the curve and doing something while both GM and Chrysler were still balls out for the train crossing.
Ford is taking two very planned and calculated gambles. First, that they can slow the cash burn rate and return to profitability before the cash runs out and second, that a herd of spoiled and very fickle American consumers will wake the hell up and buy vehicles that make sense in the 21st century. Forget about who made all of those gas guzzling SUV's and big V-8's. Who was it that bought them in such huge numbers?
Who 'ya gonna bet on? In November of '08, I bought Ford shares at
$1.26 ... today it closed at $5.49 and, within the past 10 days, has been as high as $6.50. I'm gambling too. And so are a whole bunch of other folks. At least I know Ford doesn't have to pay back to the government billions before I make a dime on my investment.
BTW - For those of you who are still living under the false belief that the Big 3 build only crap, then why is it that half (48%) of all vehicles sold in the U.S. are still built by GM, Ford or Chrysler? Do you really believe that one of every two new car buyers is so stupid
as to continue buying the crap Detroit has turned out in the past? Treat yourself and go test drive a Ford Fusion, Taurus, Chevrolet Malibu or a Cadillac CTS. The '09 Fusion and Malibu have run circles around Camry in every catagory and in every test I've seen published. It took a bit, but things have changed and the Big 3 have gotten the memo.