Will Ford monopolize 'Buy American' and anti-bailout customers?
Ford (F) has an exceptional business opportunity -- there are plenty of people in this country who want to buy American vehicles and others who don't want to help out companies that take bailout money. Ironically, the only company that will soon be able to satisfy those needs could be Ford.
I say "ironically" because the U.S. has lent money to the other two competitors -- General Motors (GM) and Chrysler -- and those two appear moments away from bankruptcy. In an effort to help them, the U.S. may have sealed their ultimate doom. Those loans look like a scarlet letter that will keep some customers away -- particularly when they file for bankruptcy.
So Ford will be the only American automobile company left that is relatively healthy. And it will start to buck the trend of 40 percent sales declines because even though the automobile market is down, people are still buying cars. And for those people who want to buy American or to shun companies that take bailout money, Ford will be the only place to go -- meaning that Ford's sales could decline less than the overall market as it takes customers who formerly bought from GM and Chrysler.
Ford's financial report for the first quarter reveals that it is in far better shape than those two. Sure it lost $1.4 billion in the first quarter, but that was less than analysts had expected -- its 75 cent a share loss from continuing operations was less than the $1.23 analysts had forecast. More importantly, Ford has cut its quarterly cash burn rate from $7.2 billion in the fourth quarter of 2008 to $3.7 billion in the most recent one -- and it has $21.3 billion in cash on hand.
Ford's sales are really hurting right now though. They plunged 43 percent in the first quarter, compared to a 38 percent decline for the industry overall. So how will Ford start to take market share? It hopes that its Taurus sedan and Fusion hybrid sedan, along with a program that covers monthly payments for buyers who lose their jobs, will draw more customers into dealerships. It may be that the Buy American and anti-bailout consumers will view Ford as the only alternative.
Meanwhile, Ford has taken steps to lower its costs. It already changed a union contract to cut $500 million a year and it convinced the union to take Ford stock instead of up to $6.5 billion in contributions to a new health-care fund for retirees. Finally, Ford cut its debt 38 percent, or $9.9 billion, through a restructuring program.
This leads to a question for investors that will also affect the future of Ford's retirees: Is today the day to buy Ford stock -- which is up 23 percent in pre-market -- or after rising 256 percent from its November 2008 low of $1.26, has its stock peaked?
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.