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Wednesday, October 25, 2006

Ford Gets An Upgrade? The Alan Mulally Hostage Tape

Right after Ford put put out its horrible quarterly numbers, the folks at Goldman Sach upgraded the stock from "sell" to "neutral". Maybe someone spiked the punch at the investment bank's office party. Hopefully, Goldman does not do banking work for Ford.

The basic reason for the change of heart is that the restructuring at Ford will overwhelm its poor sales. The company has said that its market share will probably drop from the current level of 17% to settle at 14% in the US.

A number of astute observers have noted that restructuring will not save Ford. Cutting costs is not a successful long-term strategy of products don't sell.

Fitch, the rating service, has taken a much more sane approach to Ford's problems. The credit rating agendy put Ford on its negative credit watch list. Fitch made the additional note that "unsecured holders would recover approximately 68% in a bankruptcy scenario". Standard & Poor's made a similar call on Ford's propects. Quite a contrast to Goldman's view.

Ford is in real trouble. The worst may still be ahead. Not wonder Ford's new CEO, Alan Mulally, looked like a man making a hostage tape when he announced earnings. He want his former colleagues at Boeing to pay the ransom and rescue him.

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

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