The Miracle At Ford (F) Continues

Ford (F) made two audacious decisions recently, decisions made in an industry where audacity is a distant memory that died when Lee Iaccoca left the business. William Clay Ford, Jr., the company’s CEO since 2001, went outside the industry and he and Ford’s board brought in Boeing executive Alan Mulally to replace him in September 2006. Mulally may have been a good executive but he was not a “car man”, the kind of manager who had been running The Big Three for years.

Mulally, in turn, bet the company in order to take advantage of the opportunity to fill its treasury later in 2006 just before the auto market was swamped by one of the largest downturns in history. Ford got $23 billion in convertible notes and a revolving credit line for pledging an extraordinary amount of the firm’s assets.

All three of the major credit agencies cut their views of Ford once the capital infusion was announced. The majority of auto analysts believed that Ford had given too much for too little.

The decision by Mulally about the funding may not have taken Ford out of the woods, but they certainly kept the company from floundering to the  point where it had to turn to the government for aid as GM and Chrysler did. Ford used the restructuring of the industry earlier this year, which had been given federal government blessing, to improve its own positions with the UAW and creditors. Ford substantially improved its place at the domestic car company table without becoming a ward of the state.

Ford’s latest bit of magic comes in the form of its announcement that its July sales were higher than they were a year ago.  The Wall Street Journal reports that “Ford Motor Co. saw an increase in its July sales, the first year-over-year jump for the auto maker in almost two years.”

Ford gives part of the credit for the improvement to the “cash for clunkers” program that brought large numbers of buyers into US dealerships. The federal program was so popular that the $1 billion fund was exhausted in a matter of days. The House has passed a bill to replenish the pool with an additional $2 billion, but if it is not signed into law, the August results for the domestic car market may flag a bit.

Ford gets more credit for the revival than the government’s program does, a great deal more. Ford now has the youngest line-up of vehicles among the American car companies, a testament to its decision to continue product development through the downturn and to prune the number of brands it offers.

Ford demonstrated that its decisions were working better than expected when it announced its second quarter earnings last month. The firm reported a profit of $2.3 billion, due primarily to extraordinary financial events, but the progress the company has been making was crystal clear.

The most important recent news about Ford is that it is gaining domestic market share. It is doing so during a period when the fortunes of GM and Chrysler are likely to be poor, giving the competitors of the two companies the chance to do well based on their misfortunes. Most analysts expected the large Japanese cars to benefit from the problems in Detroit. It appears that Ford is doing as well if not better than the Japanese at picking up new customers among the few intrepid consumers who are willing to come back into the car markets.

The improvements at Ford, which not so many quarters ago was at death’s door, has been fast and furious, and the benefit to its shareholders is probably not over yet.

Douglas A. McIntyre