Ford Death Watch 41: Time to Bail

Alan Mulally began last year as a passenger on a nose-diving Ford Motor Company. Clocking the company’s $12.6b fiscal flummox, FoMoCo’s CEO left no punches unpulled. "We fully recognize our business reality,” Big Al pronounced. “And we’re dealing with it.” Twelve months later, Mulally’s machine’s cut a new deal with the United Auto Workers (UAW), scaled back production and launched some new whips. During today’s announcement, Big Al proudly pronounced the new new turnaround a success. “Each of our automotive operations is improving, and we are encouraged by the progress.” That makes one of us.

The bulk of the Blue Oval Boyz blues arrived in the fourth quarter. Over the year’s final frame, the automaker posted a net loss of $2.8b, racking-up a $2.7b loss for the year. NorAm came-up $1.6b short, bringing the worldwide sector down $1.1b on the year. Special items took their share of the FoMoCo fortunes ($3.9b YTD). All that red ink leaves FoMoCo’s corporate coffers with $34.6b in begged and borrowed cash and cash equivalents (including VEBA assets).

Some of those bucks will (again) head off for blue collar buyouts. As reported by TTAC, Ford is (again) sweetening the deals and asking all hands on deck to abandon ship. In an effort to “help ensure we are able to deliver our commitments despite the difficult external environment,” Mulally is trimming fat (again) and (again) putting product development on the front burner, serving-up a new Verve and yet another version of Ford’s never-say-die Taurus/Five Hundred/Taurus.

On the year, excluding special items, the Blue Oval Boyz generated just shy of $174b in revenues, an increase of $13.8b over last year’s total. Doing so while moving 12% less metal, in the current economic climate, indicates that Mulally’s minions might have made good on their promises to stop strapping [as much] cash to the hoods of moribund metal. It also leads one to believe that Ford is keeping its promise to trim low-profit, residual-killing fleet sales; reportedly down 18 percent.

As always, the devil is in the details. While U.S. retailers were able to scale back rebates in the fall, Canadians were cashing in on exchange rate induced bonus bucks. This occurred while the Loonie was soaring at unheard of heights. Therefore, the trend was more costly overall to the bottom line greenbacks.

Also, a closer inspection of FoMoCo’s fleet reveals that Edge buyers may soon feel snubbed. Yours truly was aghast at the site of Ford’s last next big thing (in full Limited trim) on a rental lot. While sampling some of Ford’s finest wares at an airport near you may help brand awareness, flooding used car lots with ex-renters never yields positive results.

The Blue Oval moved 2.57m units (down 350k) in 2006. Ford floggers attributed more than two thirds of those declining sales to discontinued models. What kept 3600 dealers (400 less than last year!) afloat: the new cross-border crossovers (Ford Edge and Lincoln MKX) and (believe it or not) the fresh faced Focus.

Ford’s Edge bested predictions by 30 percent (130k units)– although Ford doesn't say how many of these vehicles ended-up in the aforementioned fleets. The Focus did nine points better after its launch, but it could well be one of the “rising tide lifts all B-segment boats” deals, heading for a dead car bounce.

Meanwhile, what was once high margin full-size pickup truck paradise, Bloomberg reports that Ford is losing the battle on hallowed ground, in Texas. According to market research firm R.L. Polk & Co, ToMoCo’s Tundra market share skyrocketed 79 percent in the Lone Star State, while the domestics shrank by five percent. The trend is truly, madly, deeply worrying, especially as Texan Ford dealer Sam Pack reports that Tundra sales “are coming from traditionally Ford buyers."

Heading into ’08, the Glass House Gang figures total U.S. new car sales will continue to slip to around 16 million vehicles, and shrink their piece of the pie right along with it. Ford’s (once again) revised market share target is now set at the “low end of 14 to 15 percent.” This translates into about 2.3m new FoMoCo products hitting America’s highways and byways in the year ahead. In the current and predicted economic climate, based on previous years’ precedence, moving the metal is going to get a lot harder before it doesn’t.

Bottom line: profits aren’t on the horizon. As Dearborn continues to “right size” its operations, its transplanted competitors are already there. No wonder Ford’s stock price is only slightly better than January ninth’s 22-year low. While there’s no question that posting a year-on-year improvement resembling Paraguay’s GDP ($9.9b) is nothing to sneeze at; that the gain still leaves a net loss more than twice the size of Belize’s GDP ($2.7b) is.