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Tuesday, September 05, 2006

Ford (F): The Sight Of The Gallows Focuses The Mind

Bill Ford, the beleaguered chief of the auto company that bears his family’s name, wrote to his employees last week that “these should not be days of fear for the people at The Ford Motor Company”. Undoubtedly, the thousands of employees who may be fired at part of Ford’s “The Way Forward” program would disagree. Mr. Ford also pointed out that the company’s old business model, which had worked for many years, would not sustain the company in the future. Someone may want to thank Ford for stating the obvious much later than most other people have.

It is no odd coincidence that Mr. Ford’s note to his vassals comes on the heels of another disastrous sales month. SUV and pick-up units sold in the month dropped almost 21%. These products tend to be much more profitable for Ford that car sales.

By contrast, GM’s unit sales rose 4% and its light truck sales were up the same amount. The world’s largest auto company credited more fuel efficient cars and trucks. Ford has not turned this corner yet. It still relies on sales of long-time successes like its F-series pick-ups. But, the demand for these is dropping each month.

“The Way Forward” is being expanded to cut up to 30,000 jobs and close 14 plants by the 2012. Six years is a long time. Wall St might be impressed, if the cost cutting goal was targeted for the next year or two.

The management of Ford appears to have been reduced to talking away its problems. The stock is not likely to recover until Ford’s market share at least levels off at about 17% in North America, or it is clear that the cost cuts scheduled for three or four years from now will happen sooner.

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

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