The company's track record "doesn't inspire a lot of confidence."
Sarah A. Webster - Detroit Free Press - Dec. 4, 2006
It will take more then Kermit to deliver Ford from its financial woes.
Ninety-three years ago this month, Henry Ford introduced the first continuous moving assembly line in the industry in Highland Park, churning out cars every 2 1/2 minutes.
The innovation helped the Ford Motor Co. meet demand for its blockbuster Model T and made the company an American icon.
Last week, the Dearborn-based automaker laid out drastic steps it is taking to rescue the now-struggling Ford and give hope to the notion that it might someday be great again.
Ford insiders said last week's developments are critical steps toward a four-point plan laid out by CEO Alan Mulally.
Wall Street analysts question whether the moves are sufficient even for survival, given the company's projection that it will go through $17 billion through 2009. These industry watchers say Ford hasn't won their confidence that it is truly remaking the company or that it could absorb unforeseen economic shocks.
Mulally's strategy is broader than the company's Way Forward restructuring plan for North American operations, which was first outlined in January and revised in September. That plan aims to make the division for the United States, Canada and Mexico profitable again by cutting 44,000 hourly and salaried jobs, closing 16 plants by 2012 and freshening up 70% of the Ford, Lincoln and Mercury vehicle lineups.
Details of Mulally's plan -- first outlined privately to Wall Street brokerages Oct. 24 -- are becoming clear as the company takes steps such as last week's announcement that it has lined up $18 billion in credit:
- Align the infrastructure to create and build vehicles in numbers to match demand, a target that keeps moving downward as consumers shift to other brands. Ford's U.S. sales fell 9.7% in November, compared with the same month in 2005, bringing the year-to-date share loss to 7.6%.
- Accelerate product development by reducing the complex systems Ford uses around the world to design, engineer and manufacture vehicles.
- Ensure access to enough money to execute plans.
- Provide leadership and get the Ford team working together worldwide.
Although Mulally has been on the job just over two months, it's clear this strategy is firmly in action.
Last week, the company publicly moved on Mulally's objectives. Ford:
- Announced that 38,000 hourly workers had preliminarily accepted buyouts, which will cut by nearly half the union workforce that Ford built up in the last century.
- Hosted a two-day private event at Cobo Arena to show more than 15,000 of its employees and retirees the automaker's future product lineup through 2010, which has not been revealed to the public.
- Divulged the unprecedented $18-billion financing package, which uses the company's assets as collateral, including trademarks such as the Blue Oval. It's a high-stakes deal that raises the prospect that the Ford family might someday lose control of the company if it defaults on its agreements, and lenders seize them to recover.
Time might be running out
Several experts said the big financing package was a critical move that wards off the threat of bankruptcy for two to three years.
Even so, they said, Ford doesn't have a lot of time to get its plan right, and it doesn't have much room for error, especially if the economy stumbles.
Ford's financing deal will bring total available cash to $38 billion by the end of this year as the company faces burning through $17 billion of that during the next three years. The automaker says that, after it completes other deals, such as the sale of Aston Martin, it should end 2009 with $25 billion in cash, about the same amount it had at the end of 2005.
That cash-burn revelation, made in a regulatory filing Wednesday, has led to renewed cries from Wall Street that Ford's restructuring plans -- despite the painful changes they already mean for metro Detroit and its workforce -- are, quite simply, not enough.
Analysts caution investors
No automotive analysts surveyed by Bloomberg recommend buying Ford stock, despite its restructuring plans. Eight recommend holding the shares, and an equal number recommend selling them. Last week, several analysts downgraded their estimated earnings for Ford in 2007 and 2008, predicting a few more years of billion-dollar losses.
"They're going to fail themselves and their investors if they don't restructure at an equal or even greater pace," Ronald Tadross, an automotive analyst with Banc of America, said in an interview.
Tadross, who recommends that investors hold their current Ford stock, said it will be "very easy" for Ford to miss its slim 2009 profit projection, especially given Ford's decade-long decline in market share. Through November, Ford's market share fell to 16.5%, down from 17.4% during the same period a year ago.
Tadross and other analysts said that every point of market share Ford loses puts the company's turnaround off target by $1 billion in operating profit.
He also expressed concerns that the company's plans so far are focused on matching capacity and demand but not on reorganizing the company for a bright future. Ford, he said, should set public targets for sharing vehicle parts and platforms, reducing purchasing costs or repairing the resale values of Ford's vehicles, among other objectives.
"Anybody can close some plants and fire some people," Tadross said. "Right-sizing is almost self-defeating if you don't fix the business. ... I hope they're not under any illusions that they've communicated a restructuring plan to us, because they haven't."
Ford spokesman Oscar Suris disagreed with that, saying Mulally has laid out the right priorities to move the business forward.
"When you think about the four priorities he's laid out, right-sizing is just one piece of it," he said. "There's more to come. ... This is a product-led turnaround, as we demonstrated to our employees."
But most other analysts interviewed by the Free Press last week said there is a need for a more transparent restructuring plan.
Jonathan Steinmetz, an automotive analyst with Morgan Stanley, laid out his own path for Ford's recovery in a note to investors last week and in an interview with the Free Press. His plan includes cutting persistent losses in such areas as the Jaguar and Mercury brands, cutting purchasing costs and introducing profitable products.
"So much more is necessary," he said. "You can't keep burning money at that rate."
Still, Steinmetz rates Ford a hold for investors. He said Ford has not yet lost the ability to create vehicles that capture consumers' imagination or dollars, although he conceded that the company's track record "doesn't inspire a lot of confidence."
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