What About Ford (F)?

Chrysler is well on its way through the Chapter 11 process. The media has pointed out that even if everything goes as planned Chrysler has a line of vehicles that desperately needs a face lift. The company will also have to deal with the time difference between where the workers are in Detroit and where the bosses are in Italy.

GM (GM) has lined up most of the support it needs to enter Chapter 11. With the US government as its primary owner and nearly endless access to capital, it is hard to imagine how anything could go wrong. It is a bad sign that GM’s market share in most of the places where it operates around the world fell in the first quarter. The US was no exception. The No.1 US car company may have to deal with a domestic vehicle market that will only support sales of 10 million units a year and a market share that is below 20% and falling.

One of Ford’s (G) largest suppliers, Visteon, will also make a trip to bankruptcy court. Ford it giving Visteon debtor-in-possession financing. Visteon was a part of Ford until it was spun out in 2000. The No. 2 US car company insists it has the cash to both bail out the parts company and keep its own head above water even with ongoing losses.  Despite that Ford admits that trouble with its suppliers could become increasingly expensive. In its last 10-Q the company wrote “it is reasonably possible that our costs to ensure an uninterrupted supply of materials and components could be higher than our present planning assumptions by a material amount.”

With all of the news coverage that GM and Chrysler are getting it is hard to remember that Ford lost $2.3 billion in the first quarter of the year and only had $24.8 billion on its balance sheet. A conversion of convertible notes has improved Ford’s finances since March 31. Revenue for that period was down to $21.4 billion from $39.1 billion in the same period a year ago.

Ford faces two problems, and it is possible that it will not be able to solve either of them. The firm’s US market share in the first quarter was only 13.9%. That is down from 15% in the first quarter of 2008. Ford cannot afford for that figure to go any lower. The large Japanese and Korean manufacturers will use their balance sheets to make certain that product development and efficient operations give them an ongoing edge in costs and quality. Ford also faces competition which it might well deem as unfair from GM and Chrysler. They will be free of many of their costs after bankruptcies and government assistance. The Administration will be tempted to throw good money after bad if its two wards do not meet their projections. Ford will not have access to that kind of funding if it stays with its pledge to keep its hands out of the government’s pockets.

Ford cannot avoid the fact that the auto parts industry is in as much or more trouble than the large manufacturers. That is not news to anyone who reads the papers, but the trouble is becoming more acute each month that the auto market does not improve and with every call from the car companies asking for more price concessions. A breakdown of the auto supply chain will hurt every car company in America, but Ford may not have access to capital to ride out a long interruption.

Ford has been hailed a bit of a miracle company, the one US manufacturer that has been able to stand on its own. It took the risk of refinancing its balance sheet two years ago when the action was not popular. The gamble paid off. Now Ford has to do something that it may not be capable of doing. It has to increase its piece of the US car market during a period when some of its suppliers cannot ship parts.

Douglas A. McIntyre