Ford Weighs Drastic Moves

[nadepalma]

Source: http://www.detnews.com/apps/pbcs.dll...0372/1121/AUTO

Thursday, August 03, 2006
FORD WEIGHS DRASTIC MOVES
As 2nd-quarter loss soars to $254M, automaker looks at alliances, sale of assets
Bryce G. Hoffman and Christine Tierney / The Detroit News



DEARBORN -- Facing pressure from its board and Wall Street, Ford Motor Co. has hired a mergers-and-acquisitions expert to study whether it should sell underperforming brands such as Jaguar, form an alliance with another major automaker or make other large-scale strategic moves.

Kenneth Leet, 48, a former investment banker for Goldman Sachs and Bank of America, will report to Chairman and CEO Bill Ford Jr.

Leet has been charged with "exploring a broad range of strategic alternatives," the company said Wednesday. While Ford did not elaborate, people familiar with the situation said the review will explore assets sales and possible alliances.

The announcement of Leets' appointment came the same day Ford was forced to restate its second-quarter financial results, doubling its loss to $254 million, and warn that its Premier Automotive Group -- which includes Jaguar and other European luxury brands -- will lose money in 2006.

Ford launched a North American turnaround plan in January that called for plant closures and job cuts, but a rapid shift away from pickups and SUVs has severely undermined the effort. Ford has pledged to speed up the plan.

In an e-mail to employees Wednesday, Bill Ford said the North American turnaround remains the top priority but that he "will continue to evaluate the rapidly changing landscape of our industry and review the best ways in which we should adjust."

He added: "Contrary to speculation, nothing has been decided and we will not rush to judgments."

Some Ford board members are concerned about the pace of Ford's turnaround effort and worry that a possible tie-up between rival General Motors Corp. and Nissan Motor Co.-Renault SA could leave Ford vulnerable in the rapidly evolving global automotive industry, according to people familiar with the situation.

Leet decision was Bill Ford's

Ford spokesman Tom Hoyt stressed that the decision to hire Leet was made by Bill Ford in consultation with the board.

"Bill and Ken have had a long relationship," Hoyt said, noting Leet once headed the Ford account at Goldman Sachs.

As the strategic review progresses, the Ford family could be forced to reassess its role in the company founded by Henry Ford. The family, led by Bill Ford, has held a 40 percent controlling stake in the automaker for the past 50 years through its Class B super-voting shares. But mergers experts say the size of the stake could be an impediment to forming a major alliance with another automaker.

"Ford will not be able to do some of the things it needs to do as long as the family maintains its control of the company," said veteran auto analyst John Casesa of New York's Casesa Shapiro Group LLC. "It's an issue the family needs to confront now."

Ford officials dismiss the notion that the family control is blocking potential mergers, pointing out its various alliances and joint ventures around the world. But they haven't expressly ruled out changes in the ownership structure.

The knowledge that Ford is open to an alliance puts additional pressure on GM as it begins its own talks with Nissan-Renault -- particularly since many analysts see an alliance between Nissan-Renault and Ford as a more promising alternative.

Renault and Nissan's CEO Carlos Ghosn approached Ford more than a year ago about a possible tie-up, but was told the Dearborn automaker would not consider any deal that required the Ford family to cede its controlling stake in the company, according to people familiar with the situation.

Ghosn open to deal

In July, Ghosn told The Detroit News that he is open to considering other alliances if a merger with GM fails to gel. A person familiar with the GM-Renault-Nissan negotiations said Ghosn has never ruled out a deal with Ford. However, the person said there is an understanding in investment banking circles that no one will deal with Ford unless the family agrees to dilute its voting rights to 20 percent and hires an experienced CEO to take over day-to-day running of the company from Bill Ford.

One of Leet's first priorities will be assessing the future of Jaguar Cars Ltd. Ford acquired Jaguar in 1989 for $2.6 billion but has been unable to make the British luxury brand profitable. In December, Ford was forced to spend $2.09 billion to bolster the brand.

"It's time to figure out what we are going to do about some of these brands," a Ford official told The News.

While Wall Street analysts welcomed the idea of Ford shedding Jaguar, they say more substantive changes are needed to fix Ford's domestic automobile business.

"Is selling Jaguar going to fix your problems in North America? I don't think so. The cash is nice, but they don't need it," said Bradley Rubin of BNP Paribas. "They don't need an alliance (either). They need to solve their own problems. They need to close the factories faster, open the attrition program to all employees and stop selling cars to the daily rental fleet market."

Ford has outlined a plan to shutter 14 factories and eliminate some 30,000 factory jobs over the next six years. While Ford has taken a more targeted approach to downsizing, GM has already managed to eliminate 34,000 U.S. hourly workers through buyouts.

'Desperate times'

"Desperate times call for desperate measures -- especially when GM is taking them," said Robert Barry of Goldman Sachs. "We think Ford's core challenges are unsustainably high (North American) market share given the competitive landscape, a relatively less competitive (North American) product lineup, and onerous legacy liabilities. We have doubts a strategic review or alliance can have a material impact, especially in the near- to medium-term."

Bill Ford says he knows the company needs to move faster and has promised to provide details of an accelerated restructuring plan and additional cost-cutting moves within the next couple of months.

The second quarter took Ford by surprise. Rising gas prices and interest rates forced a tectonic shift in the North American vehicle market away from gas-guzzling sport utility vehicles and full-size pickups toward more economical cars and car-based crossovers. Ford had braced itself for the drop in SUV sales, but the sharp decline in its bread-and-butter large pickups caught the company off-guard.

Ford also may review options for its Ford Motor Credit, its profitable finance arm. GM has sold a controlling interest in GMAC, its captive finance unit, to raise cash and lower borrowing costs. However, that appears to be lower on the list than other options.

"Ford Motor Credit Co. is a strategic asset to Ford that generates solid profits and dividends," Bill Ford told employees.

Though most analysts agree that Ford's problem is not a lack of cash, its financial woes have undermined the credit rating of Ford Credit, forcing it to borrow money at a stiff premium. That means Ford makes less money on the cars and trucks it finances.

Investors welcomed the news of Leet's appointment. Ford shares rose 38 cents, or 5.8 percent, to $6.96 Wednesday. They have fallen 9.8 percent this year.

[ByTheLake]

Ugh. Really tough times at Ford, but in my opinion, they played it way too conservatively, product-wise. Car companies must strive to understand what their customers truly want and deliver exactly on those needs.

Do Lincoln customers want the current product line-up?

What about Mercury?

Good grief.

[nadepalma]

Originally Posted by ByTheLake

Ugh. Really tough times at Ford, but in my opinion, they played it way too conservatively, product-wise. Car companies must strive to understand what their customers truly want and deliver exactly on those needs.

Do Lincoln customers want the current product line-up?

What about Mercury?

Good grief.

I agree that they have played their vehicles very very conservatively. If you look at the Expedition from the last two generations, they look almost exactly alike on the outside. Even the iconic Jaguar brand's XJ looks WAY too much like the old XJ despite it's nice interior and technology laden engineering (all alluminum structure, etc)

So by playing it so safe they've really just shunned customers to the brand. Granted, they've got the Fusion and Milan that are selling very well and point to more aggressive styling direction, but they have to step it up. Grafting the 3-bar grille alone on the Focus, Five Hundred, Ranger and Explorer won't get tons of extra folks running to the dealerships. The should adopt the same gusto for design that Ford of Europe seems to be riding. Cars like the next Mondeo look stunning in execution (and I also notice they don't really have the 3 bar grille over there either).

I think as far as brands go, Mercury has been the read-head-stepchild of FoMoCo's group of vehicles forever. It seems that just getting a few new and key products like the Mariner and Milan -- both of which are pretty stylish -- has helped to turn things back a bit after Jacque Nasser neglected the company for so long. But obviously more needs to be done.

I hope that Ford turns around the ship. I'm a GM guy, but I want to see all the Domestics do well!

[Mikkoo]

Originally Posted by ByTheLake

Ugh. Really tough times at Ford, but in my opinion, they played it way too conservatively, product-wise. Car companies must strive to understand what their customers truly want and deliver exactly on those needs.

Do Lincoln customers want the current product line-up?

What about Mercury?

Good grief.

Very well stated. And has GM really given the consumer what it wanted? We could say that they haven't given them enough standout vehicles that were class leading and edgy in design. GM has also settled for extremely conservative designs, something they can't and won't continue to do going forward.

[dufus22]

i think an alliance with VW would be the best. I also think if this happens, they should get rid of jaguar, too. That way they can focus on the core business. Vw couls help Ford get a good b-class car based on the polo. That's my two cents.

[darknight9]

Ford hanging onto Jaguar is akin to the average nice guy hanging onto the smoking hot, gold digging girlfriend that constantly cheats: Dollar after dollar, surgury after surgury, she never looks better and deserves a one way trip to the curb before the wallett runs completely dry!

[kenman923]

Sell Jaguar and Land Rover to Toyota and add more to their problems.

[boblutzfan]

Originally Posted by darknight9

Ford hanging onto Jaguar is akin to the average nice guy hanging onto the smoking hot, gold digging girlfriend that constantly cheats: Dollar after dollar, surgury after surgury, she never looks better and deserves a one way trip to the curb before the wallett runs completely dry!

Yeah... but when she's around she's good in bed!!!

LMAO.

Seriously - very well put. I think the reason they hold onto Jaguar is because they know without them they just have Ford, Nice Ford (Mercury) and really nice Ford (Lincoln). Jaguar is the only real luxury they can claim right now.

I remember hearing five years ago how Ford was committed to traditional luxury buyers and that Cadillac's new image wouldn't be successful. How did that turn out?

[jbartley]

wow, did that article really call toyota "the ultimate sugar daddy?

i feel dirty and confused all at the same time!

[jbartley]

If ford needs to sell things.

1st: Jaguar (DOH!)
2nd: Volvo
3rd: Land Rover
4th : Ford Credit

[igor]

If you think about this - it is very similar to the Audit GM had done about a year ago, where they came out with recommendation to close Saab and shut 1-2 US bands (IIRC)

Ford is more and mroe resebling GM last year ... and I Will repeat this until someone decides to refute it --- not much announced, a lot of speculation (with the twist to negative), and management scrambling around and shuffling plans...

Sounds familiar?

BUt Leer will be interesting in Ford - given that Bill hired him, I supposed that whatever is recommended will be done, which might help if we like the move ... or we might hate it..

Ford Credit should stay - that company is much more profitable ot Ford than GMAC was to GM. Volvo and Mazda and Land Rover have been profitable, and while they hit a rough patch this year, they are strong brands, with good product..
Jaguar might need to go... but I am indifferent. .I do not know the numbers, to see how much mroe would Ford need to invet to bring them around - they might simply not be able to afford it, but want to make sure that by selling it, they will not lose more money than but seeing the project through...

this will be interesting.

Igor

[fkh1]

This article makes things seem worse then they are. granted ford isnt in best of shape but everything new that they have released is selling well, for example the Fusion....Fords problem isnt the products themselves but the styling of those products..and they are working on that...I grew up in a honda & Ford family and i want them to succeed...but I think once ford gets the styling right things will right themselves very quickly.

[DanCBJMS1988]

Ford allied with PSA?
I'd rather they buy 'em outright!

[boblutzfan]

Originally Posted by igor

Ford Credit should stay - that company is much more profitable ot Ford than GMAC was to GM. Volvo and Mazda and Land Rover have been profitable, and while they hit a rough patch this year, they are strong brands, with good product..

Igor

Mazda is one of Ford's better investments. It is their only mainstream brand that doesn't rely on truck and suv sales for growth. With gas prices rising Mazda may be poised for a strong come back. Look at last months sales - they were one of the few brands to post increased sales. While they do have CUVs - they have no full size gas guzzling SUVs or trucks which will be hit harded in the current fuel crisis.

Ford would be wise to hold onto Mazda.

[Cortazzo]

Ford has the worst management in the auto business, by far. I'm not saying this because I prefer GM, but as a follower of the auto industry. The product development team has been SO conservative and SO oblivious to the market, that they have lost all favor with the buying public. Every redesign they have implemented on successful models has looked visually identical to the outgoing model in such cases as the focus, towncar, escape, explorer, LS, ranger, taurus, mountaineer, XJ, etc. This leads consumers to believe that these 'new' or 'heavily refreshed' products are still the same old mid 90s product that they've been seeing on the road forever. This in conjunction with, to be quite honest, uncompetitive powertrains you have a recipe for disaster. Ford's only really world class powerplant is the neweset 3v 4.6 v8, the rest are old outdated, and fuel inefficient compared to everyone else (even GMs old pushrods).