Egan-Jones Ratings is a relatively obscure little outfit out of Haverford, PA. It’s one of those companies whose website doesn’t have a flashy design or, for that matter, a phone number (just a contact form). Forbes rates them number 1 on their list of eight financial mavens (not ten!) “who saw the crisis coming.” “A vocal critic of rivals Moody’s, Fitch, and Standard & Poor’s, Egan has a track record of warning investors about poor credit quality long before the Big Three ratings agencies. Most recently he said to shun subprime-mortgage-backed bonds even while the other agencies said these were investment-grade credits.” And now Sean has a few words on Ford, via a ginormous Fordetorial in Bloomberg. ““It’s unrealistic of Alan [Mulally] to expect Ford to survive, let alone profit, when they’re experiencing a 30-plus percent decline in sales. Without a bankruptcy filing and a complete reorganization, Ford is not going to be profitable, period.” Egan ain’t kidding. His company rates Ford’s debt a D, its lowest level. And if that’s not enough blowback for Mulally-loving Fordophiles, here’s some more…
“The company may need a bailout to get to 2010, because for all Mulally has accomplished, it’s not enough, says Kevin Tynan, an auto analyst at New York-based Argus Research Corp. Mulally should have produced smaller cars faster and pushed for union concessions to take effect before 2010.
‘He played the cards he was dealt,’ Tynan says. ‘What you needed was someone who would throw back the cards and say, ‘This won’t work.’ You needed General Patton, somebody who is not going to accept this is how things are done. It was essentially a missed opportunity, maybe the last chance.'”
PREACH!
So much for my last man standing theory for Ford. Thank God I don’t wager money on anything. Still, I give Mulally props for accomplishing a shitload more than his equivalents elsewhere. I wonder though if there is any point in Ford waiting for federal money instead of bellying up to the bailout bar along with GM and the zombie formerly known as Chrysler?
I’ve written it before here at TTAC, so won’t belabor the point, but betwixt 1929 and 1932, the auto market collapsed to one quarter of it’s prior high. This, when a good 60% of cars were bought with CASH MONEY, SAVED UP.
Some 90% of cars are financed now.
It may be an interesting world to see what it looks like in about 2011, with a US auto market of 4 million cars OR FEWER, and 1/2 to 3/4 of the world automotive manufacturers gone. As in, dust in the wind.
“Just in case” I hit the reset button on my 2005 Prius and obtained a 2008. Likewise, my wife’s 2007 Sonata will probably be replaced by a 2009 once the ’07 finishes the lease.
I think I may need to obtain 250,000 miles and 15 years of service from each of them, by the look of things.
Is our immediate future to be kind of like a combination of the great depression, rationing of WWII and post-1990 Japanese stagnation…. ?
I pray to God this is not so.
Regardless of your position or opinion in the current political turmoil, you should read the Bloomberg article.
Good insight and observation, along with a few things you probably didn’t know. Well worth your time.
JT
And likely the reason Ford is not keen on a bailout is the Ford family. The Ford’s control the company through the opwnwership of a relatively small amount of Ford stock. they do not wish to lose that power and likely the government won’t allow it.
More likely the decision to not take the payoff money was made by Billy junior.
Would you invest in a company run by the spoiled great grandson of the founder?
J.T. Marlin is still saying to buy Ford.
Seth Davis called me today too.
He was also pushing Med Patent.
This is too bad. I was rooting for Ford to make it. Hoping that at least one domestic maker would still be in the game and maybe after a reorganization they’ll still be here.
‘He played the cards he was dealt,’ Tynan says. ‘What you needed was someone who would throw back the cards and say, ‘This won’t work.’ You needed General Patton, somebody who is not going to accept this is how things are done. It was essentially a missed opportunity, maybe the last chance.’”
This quote seems to be unfair with Mulally. It sounds a lot like “armchair CEO”. Remember, Patton was actually fired once when he slapped a GI in the face. I believe that would have been Mulally’s fate should he tried to overplay his hand.
You can call me a “Mulally-loving Fordophile” now, but what is fair is fair. I believe Ford will need a bailout as well, but I would be much less reluctant to grant one to Ford than giving money to dinosaurs like GM and Chrysler. At least Ford has something closer to a vision for its future.
I think there might be a few flaws with this argument against Ford:
Every automakers is experiencing 30% loss in sales. Is Egan Jones implying every auto company will be out of business?
What they seem to be missing is that someone is going out of business. #1 on that list would be Chrysler. When Chrysler goes belly up, those sales aren’t going to just disappear, and considering most of Chrylsers sales are trucks and SUVs, Ford is very likely to be the destination for those shoppers.
Egan Jones projection seems to be making the assumption that every other automaker will be staying in business except Ford.
Mulally’s compensation seems to have been front-end loaded. Bright boy!
I don’t think Ford is doomed. There are some things in the zeitgeist going in their favor.
For one, they are an independent company. GM and Chrysler will now have a “minder” on their matters, one who is politically selected and motivated in decision making. The full cost of that will become quite apparent once it is actually in practice. Whatever concessions are forced out of the UAW via the hand-wringing will benefit Ford more than the other outfits because of that.
Also, if the other companies roll over fast enough, the UAW will now have to deal with Ford alone. If Ford is losing money in operations and needs to shrink anyways at that time, it may make business sense for them (and their creditors would understand this) to finally crush the union and start shrinking through the sale of capital assets (probably stripped n’shipped to the PRC) to generate positive cash-flow through that strike.
The UAW can fight court-battles all day, but if Ford turns the lights off for an extended period of time, I don’t see how the UAW survives because there won’t be anyone else to soak dues from during the strike. Given the UAW is an organization of paid apparatchiks, it needs liquidity to survive from somewhere, just like any other “business.”
Ironically, the F-150 would be the only money-earner impacted by a protracted strike. Ford’s other high-volume widgets as best as I can tell, aren’t made in this country.
I also think gas prices are going back up, which is in Ford’s favor relative to the other domestics. Between the situation in the Middle East and the printing press at the Fed, those manic risk and inflationary forces will drive prices up once the deleveraging in markets has mostly run its course and all that toilet paper is then floating around. Throw an “incident” from Iran somewhere in the straights of Hormuz, and I would guess gas is going to be about ~75/bbl in nine months. Ford will be positioned rather well to actually be competitive making efficient rides, especially with that new Fusion sedan.
Mao always said things were at their darkest before it goes totally black, but I don’t think all the light has left Ford…they have a slim chance at survival here.
The detroit business model is dead..Kaputt. They will all fail without constant federal handouts. They have to come up with a new business model that is designed for the ‘new reality’ in the 21st century. Will be hard to do. The UAW will try and sabotage every effort they make. Government may be a secret ally of the UAW but not admit it. I wish them luck. But having been a detroit customer for many years I will not be supporting them with my automotive purchases until they ‘see the light’. As my wife has said “You either see the light or feel the heat”. They are feeling the heat finally. Let’s hope they see the light too.
“It’s unrealistic of Alan [Mulally] to expect Ford to survive, let alone profit, when they’re experiencing a 30-plus percent decline in sales.”
Couldn’t this be said of just about any manufacturer? The market is terrible right now yet Ford is actually gaining market share.
One thing that Egan does not mention: IF GM can negotiate some real concessions (not just temporary ones) and IF these go for Chrysler too, then Ford should be able to take advantage of these as well. Pattern bargaining in reverse. If Ford can take advantage of an industry-wide reduction in its cost structure, it has already been gaining share in relation to GM, and this trend should continue. If Chrysler goes all or partly under, I have a suspicion that Ford will pick up a disproportionate share of Chrysler’s business. This is based on overall appeal of product, and the nagging suspicion that anyone who would buy a recent model Chrysler probably has no fondness for GM anyway and wants to buy american. One choice left.
Patton was overrated. Grant would have been a much better example.
Anyways, that editorial isn’t exactly saying anything new; yeah if next year the market for new cars is 10 million Ford is pretty screwed. Mullaly himself said as much to Congress. I guess he and the Ford family figured that they’d be better off rolling the dice on that than getting on the government teat for the few billion they would have gotten from Bush’s loan. And it’s not like they will never get another shot at government money. Hell, as the only domestic that isn’t totally screwed, they are pretty much guaranteed enough aid to get them through to 2010 should it come to that. That guy from Egan-Jones just said that Ford wouldn’t make a profit at current sales levels, not that the company couldn’t survive even in a good economy. Add in the dead cat bounce of being the only domestic that isn’t taking government money or getting a pre-pack bankruptcy and they might do alright even in a 10 million market.
If any of the domestics survive this, it’ll be Ford.
Speaking of oil prices going up. My inner paranoid can’t help but think that the Saudi’s want the Somalian pirates to succeed in capturing a couple of oil tankers.
They could cause oil prices to spike as the market over-reacts, as it is apt to do, every time these pirates threaten oil shipping. Sort of like the modern equivalent of the Suez canal in 1973’s oil shortage.
Just another person with another scientific wild ass guess, also known as the SWAG method. I remember the “experts” saying we would have $200 a barrel oil by now and now we have “experts” predicting $20 oil soon.
So what does Miss Cleo have to say about this?
I tried to tell you guys before that Ford had it’s own set of unique problems and was not out of the woods by a long shot. And as for “vision of the future” thing – big deal. They want to bring cars over from Europe. It’s been 2 years already. I’m still waiting for a Euro Focus. All the domestics are in agreement they have to have good small cars to sell as well as hybrids/alternative fuel vehicles. Very insightful and inspiring. No wonder the execs get the big bucks. Also I saw the spy shots for the new Ford Taurus today. That’s it? Better looking than the current 500/Taurus, but what isn’t?
Their reasoning is flawed. As so many others have mentioned, EVERY manufacturer is experiencing dramatic sales drops. It is affecting ALL manufacturers across the board, though to varying degrees. (Ford’s drops have been the smallest of the domestics, and in line with its foreign competition)
All that matters is whether Ford will have the products that people want when the market does recover and it becomes competitive again.
Another thing that is just laughable is their assertion that Mullaly should have pushed through the small cars sooner; if he had done so, Ford would be in WORSE condition compared to where they are now. Those small cars aren’t cheap to produce, their profit margin is razor thin, and their sales have suffered as much (if not more) in this downturn since ‘green’ buyers are holding on to their older cars instead of buying new ones.
This is all arm-chair quarterbacking and is about as useful and relevant as my dog’s best work.
Just another person with another scientific wild ass guess, also known as the SWAG method. I remember the “experts” saying we would have $200 a barrel oil by now and now we have “experts” predicting $20 oil soon.
So what does Miss Cleo have to say about this?
This is all arm-chair quarterbacking and is about as useful and relevant as my dog’s best work.
This/
As they say in sports: “You’re not as bad as they say but you’re not as good as you believe.”
I think that Bloomberg overstates their case. Yes, Ford is in tough times, but like all the rest of the B&B has stated, so is everyone else. They will pull out of this much bruised but not broken. GM, OTOH, is in it verrry deep and I don’t hold out a lot of hope. Only Ford is in the position to benefit from the misery of others.
2010 IS the key year after all.
I was in a Lincoln/mercury dealer today kicking tires. Gone is the town car, and the salesman showed me the two bread and butter cars. A Mazda 6 that has been reshaped into an mkz and a taurus (volvo) framed car reworked into an mks. The smaller one (mks) is priced low starting at 30K and offers awd. The bigger one mkz is a true 40-50K luxury car wannabe. The problem I told the salesman is that Huyndai has a $36-45K luxury crusier (genesis) that doesn’t share any parts with any other Huyndai and it stands where the LS400 lexus did 18 years ago. The reviews fault the Huyndai for being less a road car than a Bimmer 5 series, or a mercedes E class and the new Jaguar. However, every one of those cars starts at $50 and goes to $75K. They said this genesis is at least as good as a lexus G series. All of this to point out, that while Ford is better, the target keeps moving and there is always someone (usually foreign) ready to take over a segement with an underpriced blockbuster line of cars. Go figure. Oh, the salesman said , who would pay that much for a Huyndai?