Ford (F) is in the best financial health of The Big Three. Its position could improve more, at least temporarily, if its deals to cut debt and reset its contract with the UAW work well.
But, the No.2 US car company still faces the fact that no one in America is buying new cars. Sales for some auto companies are running off over 40%. Total domestic vehicle sales could be only 10 million this year, down from 16 million three years ago.
Ford may find an investor other than the US government, if it needs one as the year moves along. According to the FT, “Abu Dhabi-based Aabar Investments is to take a 9.1 per cent stake in Daimler in a €1.95bn (£1.84bn) move to bolster the German premium carmaker, becoming its largest shareholder as the company battles against the worst industry crisis in decades.”
Even investors with a huge appetite for risk are not going to make investments in GM or Chrysler. Their prospects of going into bankruptcy are too great. But, Ford is about to bring its debt load down by half and get labor costs in line with those of Japanese production facilities in the US. When that happens, Ford stands to benefit substantially more than its competition from a move up in the US car buying market. Its restructuring has brought down its breakeven costs so much that the American market does not have to produce 16 million light vehicle sales for Ford to make money.
With global banks still in enough trouble that sovereign capital will not put more money into an industry where it has already been burned, the number of places for the large investors to make bets has dropped. The Daimler deal shows that smart money thinks the strongest players in the global auto industry have good futures. That may put a lot of cash into Ford’s pocket.
Douglas A. McIntyre
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