Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Monday, August 21, 2006

Who’s Running Ford? A Bankruptcy Court?

The Ford Motor Company announced that is will cut more salaried workers and cut the pay of many of managers remaining. It will also cut Q4 vehicle production in North America 21% for the fourth quarter. Moody’s and S&P are looking at further debt downgrades in light of the news. The Wall Street Journal also reported that there are sources who believe that the car company will cut advertising and marketing expenditures. Of course, it is hard to sell cars when you don’t advertise, but it may save money short-term.

Ford might as well go into Chapter 11 and get it over with. The stock trades as if the company were already insolvent. The company’s market cap of $15 billion is only 9% of annual sales. According to Yahoo!Finance bankrupt auto supply company Dephi trades at over 3%.

Ford’s sales are dropping much faster than expected and are now in the “catch a falling knife” category. The company cannot cut costs fast enough to keep pace with the drop in sales, especially in the lucrative SUV and pick-up markets where some models are off 30% to 40% compared to last year.

Ford’s largest single cost problem, which is huge, is retired and current workers. The salaries, benefits, and pension costs continue to swamp the firm. Delphi’s “Way Forward” to solve the same problem was to throw the issue into the court system for relief. So far, the program seems to have worked. According to the New York Times, 80% of Delphi’s hourly workforce will be eliminated in the current restructuring.

It’s a shame that Ford did not make its cuts sooner and faster, but it is now almost certainly too late.

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

Powered by Blogger