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Wednesday, August 23, 2006

Ford's Stock Moves The Wrong Way (F)

Ford's stock is up 5% today to $7.80 on news that the company's chaiman, Bill Ford, tried to reach the head of Nissan and Renault about a global alliance. Ford's shareholders are desparate to move the stock on information that is thinner than toilet tissue.

Carlos Ghosn, the cost-cutter who turned around Nissan and is trying to do the same at Renault, is considered something of a magician in auto circles. The problem is that both Nissan and Renault are not doing well now, either in terms of unit sales of stock price. Ghosn also approached GM about an alliance, and the board of the world's largest auto maker said they would talk to him. After GM reported stronger-than-expected earnings, Mr. Ghosn was asked to wait in the executive washroom. He was last seen washing his hands.

Ford has two problems with Mr. Ghosn, and both should be driving Ford's stock down if there is any truth to the rumor about talks. First, Mr. Ghosn may have lost his touch. Second, and more important, Mr. Ghosn will want to own a piece of Ford, just as he wanted a slice of GM's shares. At Ford, that is a dicey proposition, since the Ford family has steriod-based shares of a class that control 40% of the voting power at the company.

Ford's finances become more dire by the week. News that the company would cut fourth quarter production by 21% sent the bond rating agencies back to their calculators, and not in a good way. Mr. Ghosn is in a position to cut a very hard bargain if Ford wants to deal with him. That is not likely to be good news for current equity holders. It may also be tough on the Ford family, but they are hardly first in the hearts and minds of investors who bought the stock two years ago at $14.

If word comes out that negotiations have begun in earnest, investors should look at using their Ford stock certificates for wallpaper. It might save on redecorating costs.

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

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