The Way Forward

Good morning. Today is Black Monday—the day that Ford Motor (F) will announce its major restructuring plan.
I know you might be a little confused and thinking, “wait, aren’t they already in a restructuring plan?” Apparently not. Or rather, we may be in a new restructuring plan. I’m having trouble keep their bold initiatives apart. Perhaps the old turnaround plan is itself being turned around. It’s hard to say. Honestly, I think everyone’s lost track.
Personally I’m rooting for “bold leadership in an ever-changing world.” When you’re dealing with these announcements, bold’s like a blue blazer, it never goes out of style. The good news is that the plan already has a name—“The Way Forward” which unfortunately sounds like a plan for the East German economy circa 1971. Forward Comrades! But given Ford’s history, this too might be an improvement.
According to reports, The Way Forward (or TWAF) will reposition Ford as “America’s Car Company”—“Red, White and Bold” and “Bold, American and Innovative.” So we got “bold” in there twice along with “innovative.” That’s a double word score for your thematic marketing efforts. Of course, the problem will leadership by sloganeering is that is tells us more about Ford’s fears than it plans. I would call Bill Ford many things, innovative is not one.
I’ll make this very simple. Ford is a company that’s designed to make X number of vehicles per year. The public wants half-X. Therein lies our problem. There are many thousands of employees who need to be…well, x-ed out. I suppose restructuring is being a bit generous. The Ottoman Empire was restructured. But Ford? They’re screwed.
I’ll give you an example. Ford makes the Explorer. It really not that bad (by Ford’s standards), but sales have plunged. Ford used to make two assembly plants worth of Explorers. They don’t need that anymore. In the immediate future, Ford is actually in slightly worse shape than General Motors (GM). As hard as that is to imagine, GM at least has some new models coming out this year. Ford is empty. Also, their newer cars, like the Fusion, aren’t selling well. Truthfully, they haven’t been marketed well.
(By the way. Fusion? Good god, who named this? Rule #1: Car names should rock. Think Mustang. Don’t think 37-minute jazz improvisations. Fusion??)
It’s astounding how quickly Ford has sunk. The New York Times recently said: “Just five years ago, the talk in Detroit was about whether Ford could eventually outsell G.M. Now the talk is about which of these two companies is worse off.” Make no mistake, GM is in far worse shape.
Ford’s problems started a few years ago when the company went Google for trucks and SUVs. So the public stopped thinking of them as a car company. Now Americans turn to Accords and Camrys for that. In the past year, gas prices went up and Ford’s stock collapsed. The company’s market share is now down to 17.4%, and it’s still dropping.
In May, the company’s credit rating was downgraded to junk. Then recently, it was cut to even lower junk. Ford has basically been blackballed from the bond market. The company’s bonds were even evicted from the Lehman Brothers Bond Index.
Incidentally, Ford is the King of Extra-Long-Term Debt. They have non-callable bonds set to come due in 2043 (12% YTM), 2047 (12.3% YTM) and 2097 (11.5% YTM). I wonder how many restructuring plans Ford will have over the next 91 years.
When Bill Ford took over, his plan was to have the company make $7 billion in 2006. That’s not going to happen. It appears that Ford will shut down 10 assembly plants and cut around 25,000 jobs. Maybe 30,000. That’s a start. I’m afraid this is a year too late. Plus, Bill Ford always seems to move in half-steps when truly bold moves are needed. I should add that there’s some big double top-secret project that we’re going to learn about. Something about a recyclable, environmentally-friendly car. Yawn.
As I said, Ford isn’t in as much trouble as GM. At least Ford is making a profit, largely due to its finance arm. I hope to see Ford sell off some divisions. They already ditched Hertz.
What does the future hold? Who knows? I think Ford will exist in some form, but it won’t be a major automaker. Perhaps it will be closer to what AT&T is today. As Ford stands now, it’s trapped. The company is under attack from all sides. Any successful plan for the future isn’t The Way Forward, it’s The Way Out.

Posted by Eddy Elfenbein on January 23rd, 2006 at 6:03 am

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