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Friday, September 01, 2006

Ford Looks Into The Abyss And The Abyss Looks Back

Stocks: (F)(TM)

Edmund’s, the auto research firm, is projecting that Ford’s sales will drop another 15% in August compared to a year ago. According to S&P, Toyota’s sales should continue to rise. If so, Ford will move further behind the Japanese giant in terms of US market share.

Ford’s problems are well-chronicled. Just last month, Forbes suggested that the founding family might give up control or push out Bill Ford to see if they can get back some of the huge fortune they have lost as the car marker’s stock has dropped.

Ford’s production cuts of 21% for the fourth quarter of this year will only be a temporary solution to the problem. Longer term, the company’s labor costs in North America are still bleeding the company. Rumors that Jaguar or Aston Martin may be sold mean little. The amount of money that either would raise is a drop in the bucket of Ford’s financial troubles.

If Ford does not halt is sales drop-off within the next few months, the cost cuts that the company would have to employ to balance lost revenue would be almost impossible to get. The UAW is not going to simply allow itself to be dismantled.

It may be that some portion of the company has to be offered to the labor union in exchange for lost jobs. If some form of arrangement is not reached, there will be little to fight over.

Douglas A. McIntyre

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