Ford Death Watch 36: What Profit a Man?
Last week, Ford exceeded Wall Street’s expectations by reporting a profit. A profit! As in, the American automaker took in more money than they spent! Pundits unfamiliar with the fact that Ford carries around so much debt it makes Atlas' planetary burden seem like a small backpack, oblivious to the missing ten foot pole marks on Ford dealers' inventory, hailed the news as a sign that the only Way Fordward is up. You know you need to worry when the CEO himself feels obliged to warn stockholders and camp followers that billion dollar losses lie directly ahead. And indeed they do.
In Q2, Ford reported a $750m profit– a full billion dollars better than last year's second quarter results. Globally, FoMoCo’s finances ended ahead by $750m. Locally, the automaker’s NorAm unit fell into a $279m hole. While it bested the previous year’s $317m negative number, the improvement reflects drastic domestic cost cutting and company sell offs, not increasing sales.
In July, Focus and Mustang sales slipped into double digit declines. The transmogrified Taurus did little better than it did as a Five Hundred (down 22%). The hecho en Mexico sedans lost their estrella status (Fusion -31.3%, Milan -36.2% and MKZ -11.5%). The cross-border crossovers found almost 4k less “Dave” like drivers than the month previous. And the F-Series looks set to decline some 200k units by year’s end. Despite incentives and zero percent financing, Ford's U.S. sales are slumping across the board: down 19 percent.
Given that The Big 2.8 are now fighting each other for less than 50 percent of the U.S. market, anyone who thinks Ford is poised for a profitable comeback is certifiably delusional. They just don’t have the goods. This paucity of product is a problem both now and, more worryingly, for the foreseeable future.
According to Merrill Lynch’s annual “Car Wars” study, The Blue Oval Boys are destined to place dead last in projected product replacement rates. Merrill’s analysts reckon Ford’s “Showroom of the Future” will be the oldest lineup in the entire U.S. car biz from 2008 to 2011.
The industry average total lineup replacement refresh rate currently hovers around 67 percent. Dearborn’s developers displace a mere 57 percent of moribund metal. FoMoCo just isn’t spending the money needed to compete in today’s fast-changing, endlessly evolving automotive climate.
As the F-150 proves, Ford knows how to refresh their vehicles. As the upcoming Fairlane demonstrates, they also “get” new models. It’s just that “Ford does not have the financial or managerial resources to keep plowing time and money into all its brands.”
This piece of wisdom arrives courtesy Jonathan Steinmetz. Morgan Stanley’s automotive analyst is part of the growing consensus that Ford wants needs to sell Jaguar and Land Rover by the time the kiddies head back to school, while Volvo should be under someone else’s supervision by Christmas break.
A shortlist of bidders has already begun poking and prodding the (un)balance sheets of the British PAG contingent, while Volvo is under “strategic review.” Mulally will try to protect Ford’s mechanical umbilical cord to the Volvo, but these are desperate days. Bottom line: FoMoCo is looking to unload all three beneficiaries of its ill-advised, mismanaged expansionist ambitions for about $16b.
Ford needs the money. Much of the automaker's $37.4b bank balance is already allocated. The Glass House Gang are spending $1.5b per year just to service their astronomical debt. While cheaper than ever before, the Way Fordward turnaround plan will still chip away an estimated $15b to $16b before its fiscal finale. That leaves Ford with just over $20b to keep their motors runnin’. Unfortunately all that and then some may be needed to fund the UAW’s September settlement.
The mavens at Morgan Stanley figure Ford currently carries a $30.9b (and growing) retiree health care burden. One of the key points in the current collective bargaining talks: excise that encumbrance by placing it into a union controlled trust fund (a.k.a. VEBA). It’s a “solution” that won’t come cheap: a one-time $25b cash and stock hit ought to do it. Short term pain for long term gain, no doubt. But any such payout would make things tighter than a duck’s ass in Dearborn.
If and when all these deals drop, if and when seven dissolute brands become four more tightly focused divisions and a UAW health care settlement goes down, FoMoCo could be sitting on as little as $10b at the start of 2008. As GM board member Jerry York pointed out back when The General was scraping the bottom of its barrel, that’s hardly enough money to keep the lights on. Ford would be living a day-to-day, hand-to-mouth existence.
That’s assuming the company generates quarterly results close to the plus side of the general ledger. As Ford CEO Alan Mullaly warned when Q2’s numbers were released, that prospect is highly unlikely.
Ford is now in the toughest quarter; facing rising commodity prices, a weak housing market, higher borrowing costs and unreliable pump price fluctuations. Refreshed F-150 or no, Ford’s aging lineup will be hard pressed to hang tough, never mind return Ford to its days of thunder. In fact, FoMoCo’s second quarter profits are merely a blip on the life monitor of a terminally ill patient.
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how can you sell mercury brand if it doesn`t have even a single its own model? How can you sell lincoln if all it has is heavy-mascara -job mazda face liftup? guys ,you should also count how many models each of the japanese companies sell, and what a surprise , honda, mazda or nissan doesn`t do cross- dressing and don`t rebadge each other models. While all american car manufacturers come down to 3 brands , for their exteriors are so heavily rebadged, that actual amount of real models within each subsidiary is mega-tiny. And it is ridiculous saying that ,`say` GM has too many models. look closer- how many models does Saturn have that wouldn`t be a rebadge version of a foreign car or its own subsidiary? Eon? GMC? how many models? Do you realize that the whole range of models gm offers is similar in amount to Honda or toyota( without lexus or scion or daihatsu or hino)? And good luck, Toyota has plans unfolding Prius as a seperate brand. And would you really consider Mercury a real brand ? What diversity does Lincoln offer ? what unique sheetmetal does it have, and how many models? DETROIT, YOU CAN`T SELL 8MILLION UNITS A YEAR IF YOU DON`T HAVE THE REAL DIVERSITY OF MODEL RANGE, THAT HAS ITS OWN BRAND-UNIQUE SHEETMETAL. ( you can share door handles, seat rails or steering columns as much as you want, But if i can swap the front door of a premium licoln with base Fusion, it kills your status. )why don`t you put more realistic ad slogans, forget the bold moves, make one like this ,at least it will be true-` We build our lincolns on mazda platforms and engines and trannies, because we are too lazy and stupid to engineer anything with mechanisms ourselves. at the moment we are downing sodas and munching chips , wobbling our bellies and making speeches of the century about global parts sharing of ford go-ahead cost cutting program to remain competetive`
BostonTeaParty I was just responding to your musing about abandoning the North American market. I don't think any of the former big 3 can. They have an obligation to their dealer network. I only mentioned ch11 because that might remove the legal obligation but not the moral one. However, it is my sincere opinion that there is one underlying principal that got the former big 3 into the mess they are in today. That is to take the stance "screw this person or group as they don't matter and they are inconvenient." That's what lost you one customer at a time. You cannot systematically screw over your customers, your suppliers, your dealers and your workers, both salaried and hourly and your owners without long term ramifications. I simply point out, that to take the view "well screw this group" will not only not work but it is the very line of thinking that got the Detroit 3 where they are today. You can't simply screw over you dealers in flippant not give a damn way. I don't work in the industry and I also hate car dealers but I can't stand seeing company insiders just without a second thought just write off people that are allegedly your partners without a second thought. Why would any potential customer buy a car from a company that not only would screw someone over the second they could, but that had a long history of doing so? Oh and don't be fooled by union rhetoric, they usually are hardline when you have to make concessions. I fully expect that they will make the necessarry concessions. If they don't then they will ultimately suffer even more.