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While Wall Street frets, Ford stays the course

Thu., July 20, 2006

DETROIT – Richard Bazzy owns three Ford dealerships in Pittsburgh’s northern suburbs, and his livelihood depends exclusively on the nation’s second-largest auto maker.

But by nearly all accounts, Ford is in trouble.

Its sales are dropping. It has the oldest model lineup in the industry. It relies heavily on truck and SUV sales to make money when gas prices are sending people to cars and crossovers. It doesn’t have enough new models in the pipeline, say its critics, its inventory is building and it is moving too slowly with its “Way Forward” restructuring plan.

The company, which reports second-quarter earnings today, halved its dividend last week. Its stock is stuck near a 52-week low, and its credit rating has been pushed further into junk status. Ford lost $1.2 billion in the first quarter of the year, and Wall Street uses words such as “ominous” to describe the company’s future.

Yet Bazzy says he’s not worried.

“I believe that the leadership is in the right hands,” said Bazzy, who bought into the dealerships in the late 1990s when cash rolled into the showroom doors on high-margin sales of the Explorer SUV and the F-150 pickup. “It’s not like we’re a ship without a plan.”

It’s the plan, though, that has Wall Street and others wondering if Ford can compete in a marketplace that’s being carved up more and more by aggressive foreign nameplates.

“I think Ford is in much worse shape than General Motors,” said Gerald Meyers, former chairman of American Motors who now teaches leadership at the University of Michigan. He added that even the Fords, who started the company in 1903, “must be thinking about what kind of toothpaste to buy.”

General Motors Corp., Ford’s closest U.S. rival by market share, lost $10.6 billion last year. But it is talking with Renault SA and Nissan Motor Corp. about forming an alliance this year and has made progress on its restructuring plan, with 35,000 hourly workers retiring or taking buyouts. The company plans to close 12 plants by 2008, and it made a $445 million profit in the first quarter.

Ford’s share of the market has declined from around 26 percent in the early 1990s to 17.3 percent at the end of June. But the rate of decline is starting to slow, even rising slightly in June.

The company unveiled its “Way Forward” restructuring plan in January, announcing that it will cut 25,000 to 30,000 jobs and close 14 facilities. The automaker expects 12,000 hourly workers to take buyouts or retire by the end of the year.

But recently, the company has given few specifics on whether the plan is progressing.

“I don’t think anyone knows where Ford is or what it’s doing,” said Jim McTevia, a corporate turnaround specialist in Bingham Farms. “Maybe one of the reasons that they’re not talking about it is because there’s nothing to talk about, because it’s bad news.”

Mark Fields, Ford’s executive vice president and president of the Americas, says he has heard it all before, when he turned around a lifeless Mazda Motor Corp. from 2000-2002.

“When I was at Mazda, we were in even more dire shape, if I can call it that,” said Fields. Mazda had lackluster products, large debt and a weak brand, said Fields, who began his present job in October.

When he introduced the “Millennium Plan” at Mazda, he faced skepticism from Wall Street for 12 to 18 months, he said.

“I took a lot of personal heat for a while, and now the business is back on a firm foundation.”

Earlier this week, Morgan Stanley analyst Jonathan Steinmetz pointed to slowing sales of the F-150 as a harbinger of trouble. Ford’s full-sized pickup remains the largest-selling vehicle in North America, and it accounts for 27.6 percent of Ford’s overall sales.

But during the first half of the year, F-150 sales dropped 2 percent compared with the same period in 2005.

“The fact that it’s such an important vehicle and contributes such a large portion of their overall unit sales and their profitability does give us some concern,” said Bruce Clark, a senior vice president with Moody’s.

Sales of the Explorer SUV, another big profit center, also are sliding, down 29 percent from the first six months of 2005.

Car sales are up nearly 9 percent, fueled by the Ford Fusion and Mercury Milan.


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