FORD PLANS ITS 'WAY FORWARD'
Tax-exempt bondholders take note
Ford Motor Company this week announced improved fourth quarter
2005 results and presented its long awaited turnaround plan that
it calls "Way Forward."
Financial results for full-year 2005 showed a profit of $1.98 billion,
half of which represents a gain on the sale of its Hertz rental
car unit. Ford's positive earnings mostly resulted from the $2.5
billion in earnings from Ford Motor Credit that offset North American
pre-tax automotive losses of $1.6 billion. In the fourth quarter,
net income was $124 million, up $20 million for the same period
in 2004.
Interest to bondholders
Ford's results are of interest to municipal bond holders because
Ford has outstanding tax-exempt debt, which was issued through the
Ohio Environmental Facilities Authority and the Michigan State Strategic
Fund.
Ford finished 2005 with $25 billion in cash and is embarking on
a major cost-cutting initiative to bring profitability back to their
North American automotive business. Over the next few years, 14
plants will be idled and up to 30,000 jobs will be eliminated, half
by attrition. Ford currently operates its plants at 75% of capacity
and will seek to reduce production by 1.2 million cars and trucks
to bring the company's production more in line with its actual market
share. Additionally, holders of Ford Motor Credit debt were assured
that over the next several years, FMC has more investments maturing
each year than debt payments. Essentially, FMC debt will be self-liquidating
over the four-year period that Ford believes it needs to "fix"
the company.
Long-term approach
In addition to cost cutting, Ford plans to rely on a longer-term
approach to its business and a greater focus on meeting customer
needs, with an emphasis on innovation. Ford indicated it would no
longer give quarterly earnings guidance, preferring instead to keep
Wall Street's focus on the long-term execution of its recovery plan.
Ford also indicated it would strengthen its three main brands -
Ford, Mercury, and Lincoln - giving each a distinctiveness and identity
that will be clear to car buyers. Rather than producing vehicles
based on available capacity, the company is seeking to better identify
and satisfy consumer preferences.
Ford is also seeking to change its culture from bureaucratic to
one based on innovation. Technologies and platforms will be shared
among brands to better leverage investment, while keeping Ford products
on the "cutting edge" of consumer taste. For example,
Volvo safety engineers will collaborate with other Ford brands to
develop the next generation of safety equipment and airbags that
can be deployed by all brands. Ford has also pledged to make hybrid
versions of at least half their models by 2010.
Ford's plans are ambitious but similar to those unveiled earlier
this month by GM. Analysts' reaction to Ford's new mid-size line
(Ford Fusion, Mercury Milan, Lincoln Zephyr) instills optimism that
the Blue Oval can still build cars with strong eye appeal at a reasonable
price.
Ford, like its American counterparts, is going through a major transformation.
Consumers are taking a new look at passenger cars and truck-based
SUVs and asking for something in-between. The Crossover Utility
(SUV built on a car chassis) is fast becoming a popular vehicle.
Small and medium cars are showing signs of making a comeback. Last
year, Ford sold more cars than the previous year for the first time
since the mid-1980s.
Success of this plan is not assured. Ford's North American automotive
division finished 2005 with a large unsustainable loss. Ford's previous
plan, outlined in 2002, called for profitable automotive results
by now - but that didn't happen. The difference now is that Ford
is no longer measuring success by market share. Instead, it is focusing
on building quality vehicles that meet consumer preferences.
1/27/06
About Dr. Abrams
|
