A New Spin On Ford And Union Drag

This is interesting:

Ford Motor is suffering from guilt by association. The automaker has $15 billion or so in the bank and billions more in credit lines, is not looking for a year-end bailout and still gets splashed with mud. Every day I hear the TV news people, the stars like CNBC's Maria Bartiromo, lump General Motors, Ford and Chrysler together as facing bankruptcy. In Ford's case, this is just not true.

Alan Mulally, the chief executive Ford imported from Boeing, has moved smartly since he gave up his wings. He mortgaged assets (for $24 billion) and signed up credit lines two years ago before all the current turbulence.

He also sold Jaguar, Land Rover, Aston Martin, some of Ford's Mazda stake and has put Volvo on the block. You can disagree or agree, maybe some of these operations could still have turned into winning assets, but Mulally decided Ford did not need the problems right now.

Unlike GM, Ford has no surplus car lines, which means it avoids both heavy spending to keep too big a lineup up-to-date and endless lectures from Wall Street know-it-alls who say to get rid of them. Excluding Volvo, which Ford hopes to sell, and Mazda Motor, in which it has only a minority stake, Ford has only two dealership channels in this country: Ford and Lincoln/Mercury.

Both Ford and GM are unlike Chrysler in that they have robust foreign operations. For Ford, Europe and South America earned $2.5 billion pre-tax in the first nine months this year. Those markets are slowing, yes, but they are strong businesses. Europe is providing the small-car knowledge and engineering that Ford needs in the U.S.

Yes, Ford has asked for a government-backed credit line, just in case the economic downturn gets much uglier, and is asking for some of the government cash that Congress already appropriated for updating plants and making fuel-saving vehicles. On the other hand, Ford is not begging for an immediate cash infusion to keep it afloat.

Long run, Ford has the ability to grow. For the past two months the Dearborn, Mich., manufacturer has held its own in share against the prior year, while the others slipped. The company even picked up share in November, to 16.4% of the industry sales versus 15.4% a year before. This is a good sign. If GM downsizes, Ford could end up bigger than GM in just a few years.

The challenge for Ford is to make money in the U.S. selling small cars. This is possible, but only if Ford sells lots of them. For example, Ford sold 173,000 Focus (compact size) models last year but Honda sold 331,000 Civics. Ford sold 149,000 Fusions (family-size sedans) versus 473,000 Camrys for Toyota Motor.

If Ford could come close to Toyota or Honda in selling small cars, it would make lots of money. The same goes for its coming Fiesta, where I think Ford needs to sell 300,000 of these subcompacts a year in the U.S.

In this business, volume makes all the difference between profit and loss. Ford loses money on passenger cars in the U.S. because it does not sell enough of them. To sell more--and to be successful--it must win over customers with style, comfort, performance, quality and dealer service. This means taking business from Toyota, Honda, Nissan and Hyundai and even Chevrolet.

Of course, that is not easy but it is not impossible. The strong yen should help. The Japanese will need price increases--unless our government allows Japan to manipulate its currency again. Gasoline at $1.50 a gallon will be a roadblock but the right vehicles can help Ford get around that problem.

Pick-up trucks and sport utility vehicles are still profitable, too. This may not please environmentalists but it is a plus for Ford.

Chief Executive Allan Mulally has instituted the "One Ford" policy. This means that Ford vehicles around the world will have a similar, recognizable look. The idea is to take advantage of economies of scale and reinforce the concept that Ford is a global brand. This approach may not be too important unless some markets do not like the look. The other part of this policy is dropping non-Ford brands, which gave the company an excuse to sell nameplates like Jaguar and Land Rover. Lincoln and Mercury seem to be exceptions and they are likely to stay.

Someday Ford will likely reverse the "One Ford" notion. Most successful auto companies go the other way. Volkswagen is quite successful without a "One Volkswagen" philosophy. Its Audi division sells one million cars a year, and Bentley is a winner. The same goes for Toyota, which also has the Lexus and Scion nameplates and BMW (Mini and Rolls-Royce).

One day in the future, a Ford chief executive will say, "We need some high-profit upscale luxury cars, and we can't sell luxury cars with the name Ford. Can we create or buy a global luxury brand?" That is in the future. Right now, One Ford is an acceptable strategy for restructuring the company and seeing it through the severe economic downturn.

Is Ford stock a buy? If Kirk Kerkorian had only waited, and bought Ford at $1 a share instead of $8, he could (theoretically) now own 50% of the company and have tripled his investment already. He had the right idea--but moved too early.

Ford lost $8.7 billion over the past nine months, but Ford now looks like the best positioned of the Detroit automakers. The strength of Ford is this: The company has a strategy. You may not like all its parts, but Ford has a direction and is moving fast to execute the plan.

One more advantage: Washington is still battling over a bailout package, but Ford's two domestic rivals may have to report to a "car czar." That will not help them. In fact, if this person turns out to someone like Congressman Henry Waxman or one of his friends, GM and Chrysler could face ruin in 90 days. If so, Ford could pick up the pieces.

I think that last paragraph is especially interesting to consider.  If Ford can avoid being shoved into the czar's box, they can really outshine the competition in the coming years.  By remaining nimble and answering to the market rather than the politically-motivated czar's whims (which will inevitably be way too green to be profitable), Ford is looking straight in the eye of an immensely positive opportunity.

If this does play out, we could see a vivid real-life comparison of government-run entities and private companies in the free market that should be very useful for future arguments about capitalism and socialism.

One last thing to pass on to you that really puts the union drag on American car sales into proper perspective:

[B]oth Toyota and GM ... made about 9.4 million vehicles last year. But as Investors Business Daily notes, Toyota made a profit of $1,874 per car, while GM lost $4,055 per car, or $38.7 billion, and almost all of those loses were due to its U.S. operations.

Now, why do you think that is?  It's not all due to the unions and the bloated union obligations, but the bulk of it probably is.  What else could it be?  I have yet to hear a reasonable explanation otherwise, and I have yet to see a union person address this.  The other nail in the coffin is the fact that GM has pretty robust international profits.  Guess what's missing once you leave the U.S.?  That's right: the unions.

Hmmm...

There's my two cents.