Is Ford 'Bold' or Busted?
{{#rendered}} {{/rendered}}Pledging major assets, piling on billions in debt and slashing the workforce in half hasn't instilled much confidence in Ford investors this week.
In fact, despite kernels of optimism in the ailing automaker's slew of news in the past couple of days, Ford shares have shed more than 4 percent.
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{{#rendered}} {{/rendered}}"Achieving globally competitive cost levels will likely take even longer (this is unlikely to happen until some time in the next decade), and Ford's position will remain precarious in an increasingly competitive global market," Deutsche Bank's Rod Lache said in a note.
He echoed concerns in the analyst community when he reiterated his cautious stance on the shares, explaining that "it will take many years for Ford to achieve profitability levels that support today's stock price."
Matt Collins, an analyst at Edward Jones, maintained his sell rating on the stock but acknowledged that at least Ford is making the proper strides.
{{#rendered}} {{/rendered}}"This really drives the message home to investors: Ford understands the urgency in getting this turnaround going," he said.
Obviously, such drastic measures are needed after Ford (F) posted a third-quarter loss of $5.2 billion due primarily to the weak performance in North America, where fixed costs and waning demand have kept the company mired in red ink.
Ford kicked off the heavy news flow Monday, with plans to borrow $18 billion to fund its restructuring and cushion against a possible recession. The move wasn't entirely unexpected on Wall Street, but some did see it as an admission the "Way Forward" plan is moving slower and burning cash faster than first feared.
{{#rendered}} {{/rendered}}Ford warned that it expects to burn $4 billion in cash in the fourth quarter — a staggering $44.4 million a day — and $17 billion more between 2007 and 2009.
The company followed up with word that its plans to shed up to 30,000 jobs are right on track, if not slightly ahead of schedule.
"The headlines this week amount to: Ford Survives!" said Burnham Securities analyst Dave Healy, although he advised those looking for a quick fix not to hold their breath.
{{#rendered}} {{/rendered}}"This is such a long lead-time business," he said. "But Ford should do damn well if you can wait through more huge losses, write-offs and some dull models until 2009."
Ford has said it will need to stabilize its North American market share in a range of 14 percent to 15 percent if it is to achieve profitability by 2009. That amounts to a double-digit percentage decline from 1997. At the end of October, Ford's market share stood above 17 percent, which means the company is planning on further contraction.
Edmunds.com estimated that Ford's share will drop to 16.5 percent in November.
{{#rendered}} {{/rendered}}Goldman Sachs analyst Robert Barry said that while the hefty financing makes investing in the stock riskier than it already is, Ford had few alternatives.
"The scale of the new financing highlights the large expected cash burn rate in coming years, which we see remaining significantly negative for years — a clear fundamental headwind," he wrote in a note to clients.
Barry added, however, that he does see some positive catalysts in the next year, such as the aforementioned employee buyout take rate taking hold, as well as some new strong products and Mulally's influence on the restructuring efforts.
{{#rendered}} {{/rendered}}"But we think Ford share losses are not over," he explained. "GM's and Toyota's new pickups could take a big bite out of 2007 F-Series sales, and macroeconomic concerns keep us biased to the downside on our outlook for North America auto sales, so we continue to think net positive restructuring progress is far from certain."
Deutsche Bank's Lache estimated that Ford needs at least 50,000 hourly workers to keep its factories humming through 2008. After the cuts, Ford will likely only have about 45,000, which means that Ford will have to either retain former employees as temps or hire outsiders.
Some of these cuts hit Ford's auto-parts division, but in a trend that is becoming more and more prevalent in Detroit, the company is looking overseas to pick up some of the slack. Ford last month said it expects to buy more than $2.6 billion in components from China this year, up 63 percent from about $1.6 billion a year ago.
{{#rendered}} {{/rendered}}Between temporary hires, overseas manufacturing and the workers who opt to stay on the assembly lines, Ford should be able to stay afloat long enough to put that $18 billion to use.
After all, rival General Motors (GM) had very little difficulty keeping its business humming after an unexpectedly high number of its workers accepted buyouts.
But unless it all translates directly to less financial bloodshed and more cars capable of drawing the consumer focus away from the foreign competition, this week's news will just be another footnote in the drawn-out demise of the domestic automakers.
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