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Wednesday, August 02, 2006

Ford Is Finished

Stocks: (F)(GM)(DCX)(TM)

It is really not that long ago that the "energy crisis" caused long lines at American gas stations. At that time, in the 1970s, Japanese cars were small toy and curiousities. Honda cars had engines in them no bigger than the ones in large motorcycles. But, high gas prices changed all that as Detroit gave up share to gas efficient cars from overseas. The VW ad campaign of that time summed it up: "Think Small".

Boom will be followed by bust. It may be the oldest economic rule in the book. But, Detroit did not get a copy. The inevitable cycle caught the big US automaker flat footed again.

There is nothing sexy about most of the cars and trucks Toyota sells in the US. But, they don't break and they are full efficient. Just as American cars begin to catch Japanese rival in the quality surveys of firms like JD Power, the fuel issue raises its ugly head again.

It is not news that Toyota has now passed Ford for second place in North American vehicle sales. Ford's July sales dropped 34.3% to about 240,000 units. Toyota's sales rose 11.7% to almost 242,000 units. The Toyota figure is more all the more impressive because total unit sales for all car market dropped 17% for the month. Last year's sales were driven by huge incentives for consumers.

Ford is now probably finished, at least as the company we know today. Bill Ford could not preserve the family legacy.

Ford will probably have to sell its Jaquar unit and may announce a push to build strategic alliances with other large car companies ala the GM/Renault/Nissan tie-up that is being reviewed by those companies. Ford, in a much weaker position that GM, will probably have to give up more ownership in the firm than GM would due to Ford's smaller sales and slower restructuring.

Ford did not see the slower sales of its pick-ups and SUVs coming. They can take small comfort in the fact that GM and Chrysler did not either. But Chrysler has a large parent and GM made money in North America last quarter.

The Ford family may have to give up control of the company founded by Bill Ford's great grandfather. And, that may come before the end of the year.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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