Ford’s foresight puts carmaker in pole position

As Chrysler makes its way through bankruptcy court and General Motors tries to avoid the same fate, Ford is
emerging as the strongest of the “Big Three” automakers.
Ford has taken no federal bailout money, but it’s pulling ahead of its rivals because of well-timed financial planning
and a focused and attractive mix of product. The automaker also is profiting from the troubles at GM and Chrysler.
“[Ford’s Chief Executive Alan] Mulally went out and got credit when it was available, and he has positioned the
automaker with a global strategy using the Fiesta and the Focus,” said George Magliano, director of automotive
industry research at IHS Global Insight. “So they have gone way up the ladder, and of course they look a lot better
because they didn’t ask for a bailout.”
Ford is pushing ahead with its plan to build small compact modern cars for the U.S. market.
On Wednesday the automaker said it will invest $550 million to convert its old Michigan Truck Plant into a facility that
will build its next-generation Focus, which expected to roll off the line next year. The plant will also make a new
battery-electric version of the Focus for the North American market. That vehicle is expected to debut in 2011.
The move could help sustain Ford’s sales momentum. North American auto sales remain dismal, but Ford added
market share in April, thanks to record sales of its fuel-efficient midsize Fusion. And with Chrysler in bankruptcy and
likely to see sales continue to plummet, Ford will continue to gain, analysts say.
Ford sales were down 32 percent from a year earlier, but that was good enough to push past Toyota to reclaim its
position as the nation’s No. 2 car company, with 16 percent of the market. GM, the largest automaker with 21 percent
of the market, saw sales drop 34 percent. Chrysler, which filed for a government-engineered bankruptcy Thursday,
reported the sharpest decline among major automakers, falling 48 percent.
Key to Ford’s success is its strong cash position. Two years ago, having just arrived in Detroit from Boeing and
profiting from a stronger credit market, Ford’s Chief Executive Alan Mulally mortgaged every conceivable asset owned
by the automaker — including the iconic blue oval Ford logo — to the tune of $23 billion to finance its turnaround
plan.
Today, Ford has around $30 billion on hand, enough to finance its day-to-day operating needs until sometime in 2010,
when the auto market is expected to pick up again, according to analysts.
Ford also has managed its product mix effectively, notes Tom Appel, associate publisher of Consumer Guide
Automotive, a guide for car buyers. In mid-2008, when the price of gasoline topped $4 a gallon for the first time, Ford
was best-placed out of all the big U.S. automakers to “roll into the recession” and handle the sharp rise in gas prices,
he said.
While Chrysler had developed a suite of compact and midsize cars, including the Dodge Avenger and the Jeep
Compass, that all looked similar and unrefined, and were not especially fuel-efficient, Ford and GM were producing
stronger vehicles in these categories, Appel said.
Ford’s Fusion and Mercury Milan, in particular, were perfect for when the recession hit and car-buyers “got
conservative,” he said. Dodge’s midsize Avenger sold 1,400 units in April, but the Ford Fusion sold 18,000 units, Appel
added. Ford also managed to work nice new interiors into the vehicles, and they have benefited from good press
surrounding the introduction of the Ford Fusion hybrid.
“Ford didn’t spend a lot of money on the Focus; they didn’t redesign it, so when $4 gas came they had this vehicle
ready, and so they could sell it cheaply when people started looking for cheaper transportation,” he said.
Chrysler in particular missed the mark on vehicle introductions, bringing out the redesigned Dodge Ram pickup truck
and updated minivans just when the auto-buyer market was shifting to smaller vehicles.
“The Dodge Ram is an outstanding vehicle, but the market is not good for trucks right now,” Appel said. “They might
have the best pickup ever made, but this is not the time to get the word out on it.”
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The Obama administration has said it will backstop Chrysler warranties even with the automaker in bankruptcy, and
has promised to extend the same protection to GM customers.
But a recent survey by research firm TNS Automotive shows 20 percent of customers are less likely to buy cars from
an automaker that is operating with government help. That figure rises to 37 percent when bankruptcy is introduced,
according to report on the findings by IHS Global Insight. Only 12 percent say they would support a car receiving
government aid, with that number falling to 8 percent if the company files for bankruptcy, according to the report.
IHS Global Insight’s Magliano says Chrysler is likely to lose 40 to 60 percent of its sales volume in bankruptcy, and
something similar could happen to GM if it is forced into bankruptcy protection. What’s more, Chrysler is cutting plants
and scaling back production, which also will weigh on sales, he added.
“Despite the government guarantees for when you buy a car or a truck from these guys, this is a serious issue for the
automakers,” Magliano said. “These sales will be lost and spread throughout the industry, and so we think Ford could
see their sales volume increase by 30 or 40 percent because there are people out there predisposed to buy an
American brand. That’s a significant amount of value for them.”
However, Ford isn’t out of the woods yet, notes Magliano. They’ve had luck getting money to survive on, but they still
have too many plants and too many dealers, and also too many dealers in a shrinking and increasingly fragmented
industry.
“And they’re counting on a significant recovery in sales at the end of this year, expecting annual sales to come in at
the 12 million range, but we are looking at something more like 9.5 million or 10.5 million,” he said. “So there could
be significant pressure on them at the end of this year; pressure they haven’t been counting on.”
The Associated Press contributed to this report.
URL: http://www.msnbc.msn.com/id/30576127/