Not Ranked
An article from the New York Times on the plight of Ford and GM.
"Atmosphere of Gloom Thickens Around G.M. and Ford
The New York Times
March 14, 2003
By DANNY HAKIM
DETROIT, March 13 -- A century ago, American car companies were nearly as plentiful as 1990's Internet start-ups. Now there are just two independents left, General Motors and Ford Motor, and some prominent analysts rate their prospects as not much better than a dot-com's.
Without ''a material change'' in the industry's business model, G.M. and Ford face a crisis that ''will involve restructuring, consolidation, or possibly even mergers with other partners,'' said John Casesa, auto analyst at Merrill Lynch, in an interview.
Gary Lapidus of Goldman, Sachs wrote in a recent report entitled ''Motown Breakdown'' that ''the status quo may be untenable.'' Sean Egan, an analyst at the independent credit rating agency Egan-Jones, was even more pointed recently, saying Ford would be bankrupt if not for its blue- chip brand name.
Certainly, these are lean times for the Big Three, though Chrysler at least has its German parent, DaimlerChrysler, to lean on.
The latest sign of economic trouble came from Ford, which said today that it would cut second-quarter production 17 percent. War worries appear to be halting years of booming North American sales.
''It's pretty clear that consumer confidence has slipped,'' said George Pipas, Ford's top sales analyst. ''It may be an equal measure of concerns about geopolitical instability, prospects for conflict, and there hasn't been much good news as it relates to jobs.''
Rising gas prices are also wearing on a pivotal Detroit profit center, big S.U.V.'s. Making matters worse, after a year and a half, an incentive war led by G.M. appears to have lost its effectiveness, while many customers now take zero percent financing for granted.
And there is the most basic problem: Toyota and Honda build vehicles that customers tend to like better. As if all that were not bad enough, now the domestics face a reinvigorated Nissan and an improving Hyundai.
Ford looks weakest right now, for a variety of reasons. Its cost structure is bloated and its bonds are trading as if they had junk ratings. The company, which celebrates its centennial in June, has lost $6.4 billion in the last two years.
And there is continuing turmoil in the corner offices. The management team, assembled by William Clay Ford, Jr., the chairman and chief executive for nearly a year and a half, has yet to coalesce. Nicholas V. Scheele, Ford's president and chief operating officer, sent a memo Wednesday to company officers that tried to squelch rumors of a rift with David Thursfield, another top executive. And Ford is currently looking for its sixth chief financial officer in four years while Allan D. Gilmour, retired until last year, fills in.
This has not bolstered Wall Street's confidence in the turnaround plan Mr. Ford's team laid out last January, 2002, and analysts wonder whether Ford is worth taking a flier on even after hitting a 10-year low Tuesday.
Mr. Egan told Grant's Interest Rate Observer in an article last month, ''if it didn't have the name Ford, it would be in bankruptcy.''
But Ford does have the name Ford, and almost all other analysts dismiss talk of bankruptcy. In fact, Ford stock got a boost Wednesday when Saul Rubin, a UBS Warburg analyst and a noted bear on Ford, upgraded the stock from ''reduce-2'' to ''neutral-2,'' in effect telling investors that Ford may be bad, but not that bad.
''While long-term prospects look poor indeed, we believe that Ford simply does not have the balance sheet weakness to support any notion of imminent bankruptcy risk,'' Mr. Rubin wrote in his report, adding that while it was ''a poor equity investment'' it was also fairly cheap.
After falling to $6.60 Tuesday, Ford stock rebounded 53 cents over the next two days to close at $7.13. Ford traded as high as $38.11 in 1999.
Others were more pessimistic.
''The reality is that Ford is very bad,'' Maryann Keller, a longtime auto analyst, adding that the company's troubles are a holdover from the brief, but destructive, reign of Jacques A. Nasser, who was ousted by Mr. Ford in October 2001.
She said Mr. Nasser ''squandered billions,'' laid off the company's older managers and let product plans stagnate.
''Here they are with no products, no bench, no people,'' she said.
In recent decades, she added, Ford got by because it ''was a little better than G.M.'' by such measures as quality and manufacturing efficiency, and pressures on the Big Three ''were largely inflicted on General Motors.''
''But now, by most statistical measures, G.M. is better than Ford,'' she said. ''And the world's largest auto company doesn't need to be better than Honda or Toyota, just Ford.''
With a potential war looming, things could get worse. ''They were not making money over the last two years when auto sales were good,'' Mr. Egan said in an interview. ''So what will it look like over the next two years?''
He also sees a company with total debt load of $166 billion last year versus $11.2 billion in shareholders' equity. But David Brandi, Ford's director of long-term financing, argued against combining Ford's automotive debt with Ford Credit's huge portfolio of car loans.
''You have two very different kinds of businesses,'' he said, ''and there is an appropriate leverage for each.''
Most analysts see Ford's borrowing situation as ugly but under control. And there is a debate on whether G.M. really is in much better financial shape than Ford.
''Ford is highly liquid and it has lots of assets to sell,'' Mr. Casesa of Merrill said. ''I'm in the camp that sees the restructuring plan as credible and achievable and exactly what the company needs, but it will take time to create results.''
''I think it's the most vulnerable in the market right now, but from a balance sheet standpoint Ford may have more staying power than G.M., primarily because Ford has a much larger net cash position and a much lower pension liability.''
Part of G.M.'s problem is that it is the remnant of a much larger company and now supports two and a half retirees per worker in North America, compared with a one-for-one situation at Ford.
Mr. Lapidus of Goldman, Sachs said ''the conventional view would be that Ford operations are not performing as well,'' but he added that Ford's ''balance sheet, at least in the short run, is in better shape.''
There are fewer short-term calls on their cash and they have more of it,'' he said."
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