Ford Death Watch 39: Bah Humbug

It’s beginning to look a lot like Christmas; at least in Dearborn. Ford has reinstated merit raises for their white collar workers. Bonuses for its blue collared brigade are under consideration. Ford’s global manufacturing guru Joe Heinrichs figures “it’s important to reward people for doing the right thing.” Which is… three straight quarters of besting Wall Street’s paltry projections and slowing the Way Fordward’s cash burn. With the long anticipated sale of Jaguar and Land Rover only days away, it would seem that Mulally’s machine is running smoothly. Yes Virginia, there is a Santa Claus.

No question: FoMoCo’s financial outlook is festively plump compared to last year’s lump of coal. That’s mainly due to the fact that Alan Mulally’s minions have slashed and burned their way through the Blue Oval’s bloated bureaucracy. After paying off the United Auto Workers, they’ve taken an axe to Ford’s chronic overproduction, shuttering plants, eliminating shifts and generally cleaning house.

Bottom line: the Blue Oval’s downsized their cash burn from an estimated $17b per year, down to a measly $12b to $14b per year.

To celebrate this turn of events (i.e. better balance their books and lighten a debt load that makes Paraguay look flush), Ford recently spawned 62m more shares of common stock. And the stock found buyers too, thanks to the ongoing belief that you (and by that I mean Ford) CAN cut your way to prosperity. Why all Ford has to do to turn its ass around is… right-size the company to the point where production meets demand!

Only demand for Ford products shows no signs of recovery. The truth is, Ford’s “product lead” turnaround is still stuck in neutral. Indeed, the Blue Oval Boyz market share continues to erode. Reviewing their latest internal report card, Ford’s number crunchers cringed when even their employer failed to meet its modest market share projections: 13 percent. Currently (through November) Ford reps just 12.4 percent of the North American pie, and the slice is getting smaller by the day.

Not surprisingly, fingers were pointed outside the Glass House, at FBOC (Factors Beyond our Control). The usual suspects were all present and accounted for: the “faster than expected” market shift from SUVs and trucks to small cars and crossovers; the rise in fuel prices and the fall in the economy as a result of the sub-prime mortgage crisis. Absent, of course, was any acknowledgement that, at this point, they should know better.

Ford simply ignored the North American customer. As analysts (and TTAC) have pointed out on numerous occasions, FoMoCo’s mélange of motorized product is truck heavy. Currently, the Ford brand offers customers six car models and nine trucks. Mercury’s ratio is better at 4:3 (cars to trucks). Lincoln, FoMoCo’s luxury marque, is more vulnerable, with only two car platforms and three trucks.

With the demise of the Panther platform (Crown Victoria, Mercury Marquis, Lincoln Town Car), three car models will disappear from the Ford roster, resulting in an even heavier truck-based portfolio. The Ford Focus is FoMoCo’s smallest model, its only American economy car. The 2007 TTAC Ten Worst nominee’s moving slightly more units than the vine-withered model it replaced. The automaker’s next next big thing, the Ford Flex, is just that: another big “thing.”

Bottom line: through November, FoMoCo’s car sales are already down over 24 percent from last year. So even the few Ford passenger cars available aren’t winning over consumers.

Auto analysts Robert Barry (Goldman, Sachs & Co) and Rod Lache (Deutsche Bank Securities Inc.) both reckon Ford’s decade long decline is nowhere near done. Not unlike Toyota, Honda and Nissan, Barry realizes that “demand growth will be greatest for smaller cars” and that without them, Ford’s market share is simply “unsustainable.”

Worse, Barry also contends that Ford’s current production-related savings are fleeting at best. Because of increasing regulatory demands (i.e. new Corporate Average Fuel Economy standards), Ford will need to spend more on each and every vehicle produced. In his analysis Barry figures the new UAW contract will save Ford about $4b in “structural cost reductions.” The automaker will need that money, and then some, to the tune of $11.9b, just to keep up.

The Detroit News reports that Ford Americas President, Mark Fields expects the 2007 US light vehicle market to hit its lowest mark in about a decade (16.4m units). Fields also expects that number to fall further next year, to around 15.3m units. Figuring 12.5 percent market share, that means Ford will move around 1,912,500 units.

Of course this all depends on an economy that, the Federal Reserve figures, is poised to continue to weaken. “Modest” Mark said Ford is “planning conservatively.” They’ll “look at things on a month-to-month basis” and “take appropriate actions if things go worse than expected.”

Bottom line: Happy New Year!