TrainTrac
Well-Known Member
The article was too long to post in its entirety here, so I just posted an excerpt speaking specifically about FoMoCo. You can read the full article at the link below.
Why Ford Will be the Last U.S. Automaker Standing
By Martin Hutchinson
Contributing Writer
Money Morning
Chrysler LLC has already been forced into Chapter 11 bankruptcy and - armed with $11 billion in government aide - is being reorganized by the Obama administration with help from Italys Fiat SpA (OTC ADR: FIATY).
General Motors Corp. (NYSE: GM) is inching towards a similar fate as it struggles to turn its business around with $27 billion in government aid.
For investors, there is only one moral to this sorry tale: Of Detroits so-called Big Three, the only one worth looking at is Ford Motor Co. (NYSE: F).
When Ford refused to take government aid back in December, it looked an eccentric decision. Everyone knew Ford was losing billions, too, and the fact that it had raised huge amounts of debt in 2006 to give itself a fighting fund only seemed likely to delay the inevitable bankruptcy or federal cash infusion. Five months later, after the conditions attached to the GM and Chrysler cash injections have become clear, Fords decision is much more comprehensible - and perhaps even shrewd.
The question is: Can it make the decision stick?
Fords results for the first quarter of 2009 were significantly better than those of GM. It lost only $1.8 billion; more importantly, its cash outflow was only $3.2 billion - despite capital spending that was $300 million greater than depreciation. With $21 billion in cash, Ford can survive for at least a year at that rate without any danger of running out of cash.
Given that I rather expect a U-shaped recession, with a very slow recovery (even though we are currently nearing the bottom), if all other things were equal that might not be quite good enough. Running out of cash in June 2010 - before sales have picked up - does not give you any measurable strategic advantage over running out of cash in June 2009, as GM is about to do. Presumably, the unpleasant features of a government/UAW takeover would be just as unpleasant next year as they are today; after all, the same guys will still be in control, politically speaking.
However, there is one very important variable. That is the bankruptcy/takeover of GM and Chrysler. I think consumers will only be moderately concerned about service, warranty, or replacement-parts issues with a bankrupt automaker, and only the silliest ideologues would resist buying GM and Chrysler products just because the government and the UAW control the companies.
But if you combine the effects on product line and quality of government/UAW ownership with a good Ford advertising campaign, you may see a different picture. In the year to date, the big three domestic manufacturers had 44.4% of the U.S. market. Since the product characteristics of U.S. automobiles differ from those of imported automobiles, its likely that the market share of U.S. automobiles is unlikely to be eroded quickly, provided manufacturers are still making the products that those consumers prefer. However, if the government is mandating product lines at GM and Chrysler, it will push those companies increasingly towards smaller cars, and otherwise away from the characteristics preferred by domestic-automobile consumers.
Because Ford is able to operate much more freely, it is likely that the company will be able to pick up market share from GM and Chrysler in the domestic-auto market. In the last year, Ford has already increased its share of the U.S. auto market to 32.8% from 30.7%, even as the Big Threes share of the U.S. auto market as a whole has continued declining from 49% to 44%. After the GM and Chrysler restructuring, when Ford has become established as the only privately controlled domestic-automobile manufacturer, its market share may pick up considerably.
In other words, when I replace my ancient Buick about two years from now, its more likely to be with a Lincoln than with another Buick or a Toyota. Im a lousy automobile consumer (buy used, and keep them too long), but Ill bet in this respect there are lots of new car buyers who think like me.
If there are, Ford will pick up market share from GM and Chrysler, even if domestic brands overall continue to see their market share ebb. That will reduce Fords losses, and when the automobile market does rebound, the company that created the original automobile assembly line will move to a position of substantial profitability. For the first time since Henry Ford kept the Model T in production too long in the 1920s, Ford may become the dominant U.S.-controlled automobile manufacturer.
Given its losses and all the uncertainty surrounding the sector and the overall economy, I wouldnt put a lot of money into Ford shares. But at $6 to $7 per share, it might be worth a speculative flutter.
[Editor's Note: Ford Motor Co. (NYSE: F) late yesterday (Monday) announced plans to sell 300 million common shares, and said it would use the proceeds from the offering for "general corporate purposes, and to make a contribution to a fund that pays for healthcare for its retirees. Ford Chief Executive Alan R. Mulally took advantage of that opportunity to say that Ford's management and employees are making "strong progress on our transformation plan - gaining retail market share with great new products, improving quality, reducing costs and positioning Ford for a return to profitability." Citigroup Inc. (NYSE: C), Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM) and Morgan Stanley (NYSE: MS) are acting as joint managers for the stock offering.]
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