A Ford Turnaround?

Here’s a new analogy for y’all:

Ford (F) is to General Motors (GM) as The Jeffersons are to Sanford and Son.

While Chrysler and GM currently subsist on bridge loans from the government, Ford is Movin’ On Up as their latest quarterly results came in better than expected on multiple fronts…

From TheStreet.com:

Ford (F) beat the first-quarter estimates of analysts and reiterated that it remains on track to break even or earn a profit in 2011. The automaker said it lost $1.4 billion, or 60 cents a share. Analysts had estimated a loss of $1.23. Revenue fell 37% to $24.8 billion. Analysts had estimated $22 billion.

It's a sad state of affairs for the automakers when only losing $1.4 in a quarter is considered an upside surprise…only in Detroit, kids.

No one is throwing a party yet and 2011 profitability is a ways away. It's also worth noting that Ford always sees its next profitable year two or three years out. That said, there are some things that relatively-new CEO Alan Mulally has done differently than the folks at Chrysler or GM, including an auspicious earlier money-raise on more favorable terms than can be had now and the responsible shedding of several brands, including Range Rover and Jaguar to the Indians.

They also got serious and stayed serious in terms of cutting debt:

During the quarter, Ford reduced its debt obligations by $10.1 billion and reduced interest payments by more than $500 million.

And they reached agreements with the unions earlier than their peers, which obviously helps with manufacturing and health care costs.

Why is anyone surprised that Ford is doing better than GM? For starters, they reached outside the auto biz to bring in Mulally from Boeing (BA), where he was CEO of the Commercial Airplanes division. Boeing has a winning culture, a foreign concept for Detroit and in fact, according to some, Mulally was the key guy for the company’s aerospace beatdown of Airbus at the beginning of this century.

GM, by contrast, stuck with Rick Wagoner, a Detroit lifer who even has a last name that evokes an antiquated mode of transportation (coulda been worse - how about Rick Stagecoacher or Rick Charioteer).

Good for you, Ford. Keep cutting debt, putting your foot down with the unions and for Crom’s sake, make some cars that people want to buy once in a while!

Disclosure: I currently manage accounts that are long GM and F. My commentary above should not be construed as an invitation to buy or sell any securities.

Comments

[Buy and Hol...:]

I agree with the thesis. If you're going to play the US auto industry, buy Ford. Look, folks, GM is talking about bankruptcy openly. If they go into chapter 11, what happens to the stock?

At about five bucks a pop, buying Ford shares is like buying a call option on the survival of the company.

Apr 26 08:52 AM

[Dr. O:]

It would be nice to have one domestic auto company not under the thumb of the Government.

Apr 26 10:47 AM

[Gerald T. N...:]

Ford Motor Company sure made the right decision not to take Washington monies. Obama, Pelosi, Reid and Geinther would have put the company on a road to destruction. It's quite obvious what our government to doing to GM and Chrysler. Cannot see how they will ever recover. Washington cannot run Washington and for sure cannot run a business. The only thing I see is that Washington is pushing for more vehicles from Europe and Japan. That way American monies will continue to flow out of the United States. America wake up before it's too late. Buy only American. Ford has the product and for sure the quality. We don't have to apologize to other countries for the products we're manufacturing.
Ford keep on the path your taking. It's the right one.

Apr 26 11:09 AM

[richjoy403:]

Like Ford or hate Ford...no one is going to change anyone's mind here!

However, I do think we can all agree...(1) Ford, GM, and Chrysler were on the slow road to oblivion BEFORE the financial meltdown we are presently living. (2) Mulally had the foresight to borrow heavily when times were good, had recognized Ford's problems and had installed an action plan which put Ford on the right path before this meltdown. (3) With the possible exception of the Chinese, all the world's automakers are suffering losses presently. (4) No matter where Ford goes from here, Ford does deserve respect for declining Fed bailout monies. (5) Ford is likely to benefit from the backlash GM and Chrysler are suffering for taking taxpayer monies.

Apr 26 12:58 PM

[Marilyn T:]

I own a mazda which is made by Ford and Japan and its a great car. I took an interest in F stock when they didn't take bailout money. Hope a lot of you bought F at $2.00. After hours trade had it at $5.28 4/24/09. Hoping it will be a solid $10 in 2010. Good luck investing and buying a Ford vehicle.

Apr 26 01:04 PM

[Me XMan:]

Ford will have to file eventually just to keep up with GM.
Once GM is done with their BK, they will be a very profitable and very competitive company. Ford has no chance.

Apr 26 01:36 PM

[Grehen:]

Ford's blowing smoke.

Can you or Ford tell me where is their money from ($40Billions to keep the company alive)? How can they have such unbelievable amount money over night? Yesterday, they were asking for $300 millions Michigan tax incentives from state of mi, and Gov. Grandholm gave to them. Now all sudden, they are richest company in this economic crisis.

Did they cheat America, using Ford Fund charity money for business purposes? If so, they are criminals!

Apr 26 01:59 PM

[Grehen:]

Ford's source of money is questionable. Fed or IRS should launch investigation on their money. How can such a company on verge of sudden death have such unbelievable amount money overnight? Did they use Ford Fund Charity money for business purposes?


On Apr 25 09:43 AM Cobra 1 wrote:

> Its amazing that just the Fusion, Focus, and trucks are making Ford
> have the ability to build the Taurus, Escape, Escape hybrid (just
> the best selling compact SUV), Mustang, Explorer, not to mention
> Lincoln and Mercury. Just about enough to pay the bills with this
> economy.
>
> I don't know if you noticed, the transplants are not making enough
> to keep the lights on. So the fact that Ford is making almost enough
> with the 3 vehicles you mention to keep the lights on is quite a
> testament.
>
> What does GM have? 5 cars that are re branded to 9 different badges?
> I looked at a Saab drive by yesterday and chuckled as the car behind
> it was identical and it was a Chebby! When the Saturn came by and
> it was identical to the other two, it reinforced why GM is bankrupt!
>

Apr 26 02:00 PM

[Donald Johnson:]

I continue to wonder how F, GM and Chrysler would be doing if Barney Frank, Greenspan and other politicians hadn't created the housing bubble that had to burst sooner or later? Can they be blamed for the financial crisis? How? What's the government's responsibility in terms of bailing out an industry that is in trouble not only because of its legacy costs but also because the politicians killed the markets for cars?

Looking to the future, if GM and Chrysler file for Chapter 11, what will that do to Ford's ability to make cars, given its dependence on the same suppliers serving F and Chrysler? And what will it do to total demand for cars/light trucks as well as demand for F's products?

How much does F's biz have to improve over the next 6, 12 and 24 months for it to turn profitable?

Apr 26 04:11 PM

[William Cowie:]

Look at Ford's balance sheet, though. They loaded up on debt when (a) it was available and (b) terms were good. But for that, they would have been in the same boat as the other two.

All automakers are suffering, even Toyota. The market has turned Darwinian, only those will cash will survive. In the future, Ford's debt will hurt it, but at least it will have a future. GM, on the other hand has a wild card chance: if it can clear bankruptcy (i.e. if the market turns up in time) they will actually have a leaner balance sheet. That's the beauty of a well executed bankruptcy (and there are many companies that have accomplished that).

It's too early to tell which of GM or Ford will emerge in the best shape. But kudos for Ford to have gotten hold of the cash it needs to ride out the storm before the storm hit.

Apr 26 06:43 PM

[Ames Tiedeman:]

Ford has a long way to go. The new Taurus is going to have to gains some momentum for real profits to come to Ford. The small cars Ford is going to bring from Europe to America appear promising. Nothing is certain. Profits will probably not be realized before 2011.

Apr 26 08:52 PM

[ramram:]

Ford is better managed and made the tougher decisions to right size quicker than GM. The real brilliance, our good fortune, is they leveraged the farm and borrowed every penny they could in 2005 -- to make sure they could survive a long restructuring. This is why Ford has a pile of cash.

Apr 26 09:39 PM

[bartpr:]

once chrysler and gm downsize their line to only the oncs that are their volume leaders their fixed cost will decrease enough to survive, i hope. trouble is, nobody outside of detrit seems to care if they live or die. the dummys dont realize all their communities will stand to lose
from the death of either. ford seems to have the right product mix at present to make it.

will chrysler ever be able to lift its quality. maybe its their internal
parts supply that is some of the problem. when i worked there
in the 70's any part coming out of a internal supply had to be used.
no improvement were made where service warranty cost were less than product fixes.

gm had its years of bad engines to lifve with. people dont forget
the junk they built. i hope they do. my next will be a gm. they have made great strides in quality. i live in detroit so have a vested interest in the town.

the uaw still bothers me with their bloated legasy costs. pensions
now in particular. gm will not survive with these continued costs excesses. sorry uaw, give up your big pensions or die.

Apr 27 07:33 AM

[Joshua Morg...:]

hey, my clients own GM common incidentally...i dont recommend every stock that gets transferred in to my firm from another brokerage...i have to make those disclosures if I have an account under my wing that is long or short, whether or not I advised the position.

thanks for reading.

JB


On Apr 25 02:25 PM DonFurio wrote:

> They still have a lot of fixed costs, and I have to question why
> you or your clients hold GM common, however you are dead on about
> Alan M. and the debt conversion.

Apr 27 09:16 AM

[Joshua Morg...:]

the difference being, Toyota doesn't lose money in perpetuity


On Apr 25 03:21 PM Mister Jimmy wrote:

> "Only in Detroit", states the author? Get your facts straight. Virtually
> every auto maker in the world is losing money right now, with Toyota
> in particular suffering huge losses due to aggressive over-expansion.

Apr 27 09:17 AM

[Leftfield:]

How about Rick Oxcart?

Apr 27 11:55 AM

[DonFurio:]

They loaded up on debt a few years ago when the terms were much more favorable. There were a lot of people that critized them at the time, but they made the right move to at least give themselves a fighting chance. As the author correctly notes, they have converted some of this debt to equity as well, which increases their chance for a turn-around without gov't money. I'm not sure why you chose to make such potentially damaging statements without having your facts right.

On Apr 26 01:59 PM Grehen wrote:

> Ford's blowing smoke.
>
> Can you or Ford tell me where is their money from ($40Billions to
> keep the company alive)? How can they have such unbelievable amount
> money over night? Yesterday, they were asking for $300 millions Michigan
> tax incentives from state of mi, and Gov. Grandholm gave to them.
> Now all sudden, they are richest company in this economic crisis.
>
>
> Did they cheat America, using Ford Fund charity money for business
> purposes? If so, they are criminals!
>

Apr 27 01:55 PM

[User 387439:]

I have to take issue with more of your clueless overstatements Cobra 1:
---> " I looked at a Saab drive by yesterday and chuckled as the car behind it was identical and it was a Chebby! When the Saturn came by and it was identical to the other two, it reinforced why GM is bankrupt!" <

The Saab and Saturn are worlds apart. Yes a similar platform, but roof line, rear end, sll the suspension, drive train, interior, seating, etc entirely different. Ford Fusion = Mazda 6, Ford Focus = Mazda 3, Ford Escape = Mazda Tribute ( or whatever it's now called), and on and on. And GM isn't bankrupt, stil selling cars and trucks, still proceeding. You GM bashers are like all the rest of the Toyota Republicans.
You must be looking through some thick glasses to only see what you want to. .. or else you need a new prescription.

Apr 27 10:46 PM

[bobbobwhite:]

How is this for a great idea to save the Detroit auto industry???

Outsource all auto production to China, which can make the cars for far less cost, and everyone knows the fabulous reputation of Chinese quality. Yes, an obvious joke, but Chinese quality might be better than Detroit's from what I've seen lately(a 3 year old Ford with side mirrors cracked and falling off), and surely would be much cheaper, including shipping. And, the best part, no unions!

Apr 28 12:43 PM

[11togo:]

Ford will be a survivor.
New product, leadership, union cooperation,and good quality vehicles, will be the recipe for long term success.
My 1999 Ford has 189,000 miles with ZERO major repairs.

Apr 28 10:35 PM