15 Companies That Management Can’t Fix: Ford

There are certain companies that probably cannot be turned around no matter who runs them. They tend to be in industries where macro-economic trends are against them, like the buggy whip business 150 years ago.

Investors are not likely to get much out of these firms, unless and until the trend that is hurting them is reversed.

The management at DaimlerChrysler (DCX) has financial resources and manufacturing prowess that only a few car companies like VW, GM (GM), and Toyota (TM) can match. Daimler’s CEO ran its Chrysler unit for several years and got it to the point where it made money for Daimler.

So, why is the German automotive company so anxious to auction off its American unit? It may be that the management at Daimler believes that the retirement costs and labor burdens at Chrysler coupled with Toyota’s relentless increase in market share in America make the operation almost impossible to turn around.

Which brings Wall St. to Ford (F) and its long list of problems. Ford has several immediate issues it needs to resolve and it may not have the resources to do so. First is that the company relies heavily on SUVs and pick-ups for revenue. These vehicles are among its most profitable. But, rising fuel costs have cut into sales and made it necessary to offer significant incentives to bring customers to dealerships.

Ford’s next set of critical problems involve its costs. The company is in the midst of closing plants, but legacy labor costs for health benefits and pension costs remain much higher than those at many of its rivals, especially the Japanese. Ford’s retirement and benefits plans are underfunded by about $46 billion. If the UAW will not make historic concessions, Ford may have no way around curtailing these expenses. Although Ford has brought in additional cash through new debt, the balance sheet may not support the company’s huge burn rate. Reuters quotes Sean McAlinden, an analyst for the Center for Automotive Research as saying that "They (Ford) are going to start burning through their cash faster than they thought they would, maybe at twice the rate."

The final problem is Toyota. Toyota’s market share in the US was 15.4% in 2006. While Ford’s share was 16.4% in 2006, it is forecasting that the figure could drop as low as 14% in the coming years. Toyota already has the fuel efficient cars that Americans want in its product line-up and it has the financial resources to attack Ford in its core SUV and pick-up product lines.

Ford has fallen so far behind in the industry and has so many handicaps, that it simply may not be able to get back on its feet.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.