Ford Death Watch 2: The Way Fordward

Last month, Toyota sold more vehicles in North America than Ford. Understandably, The Blue Oval Boys have refrained from public hand-wringing over their displacement in the US sale charts. But there is no underestimating the development’s damage to Ford’s corporate psyche. Newbie CEO Mark Fields was already deep into crisis management. Now, suddenly, it’s obvious that Ford’s turnaround cannot rely on pushing (deeply discounted) products and hoping and waiting for a Hail Mary pass. A brand new plan is set to be hatched at the end of the third quarter. The way forward is now in fast forward.

Like GM, Ford is downsizing to match market share. According to Harbour Consulting, Ford used 79% of its production capacity in 2005 (FYI: Toyota’s plants ran at 106%). Originally, Ford planned to close fourteen plants (including seven vehicle manufacturing facilities) and “cut” (a.k.a. buy out) 30k union jobs within six years. The new plan: lop a couple of years off the timeline. Speaking to industry analysts yesterday, Ford manufacturing chief David Szczupak promised that FoMoCo will use 100% of its production capacity by 2008.

The clock is ticking. Although Ford has a $23b cash hoard (Health Care fund included), the company needs $16b to keep the assembly lines rolling until the next product cycle. No wonder Ford is thinking outside the Oval. The sale of parts bin diva Jaguar and reliability krypton Land Rover is reportedly only a buyer away from happening. [As Mazda and Volvo account for some 75% of Ford’s current value and provide mission critical product integration, their sale is highly unlikely.] Ford Motor Credit and bailed-out parts supplier Visteon may also be in play.

With so many cards on the table, Ford has followed GM’s lead and turned to a high profile consultant for advice: Kenneth Leet. In 2003, President Bush asked the 18-year Goldman Sachs vet to be his undersecretary for domestic finances. That gig didn’t pan out. But when Billy Ford called Leet for similar guidance, Leet showed why bullshit walks (exact contract unknown). The mergers and acquisitions guru is reported to be on the prowl for alliance(s) with other automakers.

Nissan is the most likely target. Despite the initial rise in stock prices prompted by a possible partnership with GM, a Ford – Nissan alliance makes more sense. (Not much, but more.) Although the UAW would rather accept the bubonic plague than see Carlos Ghosn prowling Ford’s HQ, his arrival on the scene would certainly shake up the joint, and give Blue Oval’s Brass insight into Le Cost Cutter’s management style. Renault and Nissan would gain access to Ford’s distribution networks.

Yes, well, the Ford family holds 40% of FoMoCo’s voting rights. With such an oligarchy at the tiller, any outsider seeking a merger or alliance would be extremely wary. The set-up has triggered some fanciful talk. Rumors have the Ford family purchasing 1.9b shares needed to take the company private. For roughly $13b, Ford could find the way forward without the hassles of the SEC, the press or interim profit reports. While FoMoCo stock may appear cheap at the moment, it’s highly unlikely that the Fords would want to raid their personal portfolios for such an enomrous gamble. What does that tell you?

Well, listen to this from today’s Detroit News: "The market for subcompact autos in the United States could reach 600,000 units annually by the end of the decade, according to Mark Fields, president of Ford Motor Co.'s Americas group. But he says Ford will not enter this growing domestic segment until it has something different to offer consumers." At the very moment Toyota’ small cars are eating up the US market, at the very moment Ford should be rushing a killer B-segment car to market, Fields is publicly declaring a “wait and see” approach.

This from the same man who admitted that America’s bold move to more fuel-efficient vehicles is not a passing fad. "I'd rather be proactive than wish things would go back to where they were,” Fields told analysts and reporters. “Because I don't think they will.” Don’t look for much fuel conscious proactivity over the next six months. Yes, nine new Ford vehicles are set to hit the market in that time frame. But we’re talking about a Mustang variant (based on the Hertz edition GT-H), a four wheel drive Fusion and Milan (same car, different wrapper), an F-150 with greater towing capacity, the Edge crossover, a refreshed Ford Expedition (thirsty) and Expedition EL (extra thirsty).

It’s two steps way forward, one step way back. Although Fields remains publicly committed to putting Ford back in the black by 2008, it’s hard to imagine how he could achieve the goal. Ford will announce its accelerated restructuring plan by the end of the next month— at the same time its third quarter results hit the street.