Ford doing better than GM and Chrysler, but still not very well

So far, Ford is avoiding bankruptcy or a government bailout. Consumer confidence will be most important in securing its financial situation.

Ford Motor Co. stands to gain from being the “other” Detroit automaker – the one not embroiled in federal rescue negotiations or bankruptcy.

That’s not to say that Ford is on easy street. Its slumping sales and losses of $1.4 billion in the first quarter, announced Friday, prove that point. But in the face of a historic downturn for the industry, Ford is so far restructuring and surviving on its own two feet, and out of court.

That’s good news for the company on several fronts: It avoids bureaucratic interference from Washington and the uncertainty of legal proceedings. Also, the rising rumors about bankruptcy at General Motors and Chrysler in the past few months are enough to make some consumers wary of a purchase from those two firms – and hence more likely to turn to their healthier rival. An actual bankruptcy for those firms would tilt even more customers Ford’s way, industry analysts say.

Ford could pattern the others' cost-cutting

In addition, Ford may be able to benefit by using GM and Chrysler as a pattern for its own efforts to cut costs. If a bankruptcy court approves steep pay cuts on union workers for those firms, Ford can argue that the survival of its own union jobs depends on moving toward a similar pay scale.

“They’re hoping to ride the coattails” of any bankruptcy-induced changes, says Rebecca Lindland, an auto analyst at IHS Global Insight in Lexington, Mass. And “the longer Ford goes without taking government money, the better the consumer perception is of Ford.”

A bankruptcy for other big carmakers wouldn’t be an unalloyed boon for Ford, however.

One immediate uncertainty would involve the auto supply chain. All the companies have an overlapping base of suppliers, and those companies are already on hard times because of the industrywide sales slump. The risk of suppliers going bust could rise further if bankruptcy proceedings result in unpaid bills or a further slowdown in auto production.

The industry is bearing the brunt of America’s consumer recession.

Overall, sales of light cars and trucks are down 38 percent so far this year, compared with the early months of 2008. The Detroit Three have been hit even harder than that, number suggests, as their foreign rivals have gained market share.

Everything depends on consumer confidence

Ford may already be benefiting somewhat from consumer fears about bankruptcy. Its sales are down 43 percent so far this year, less than Chrysler (46 percent) or GM (49 percent). But as those numbers suggest, doing relatively better does not mean doing well.

“At the end of the day, all the machinations [over restructuring] won’t matter if we can’t get the consumer back into the showroom,” says Ms. Lindland.

In recent weeks, the prospect of bankruptcy at GM and Chrysler has grown more likely, after an Obama administration task force decided neither company had gone far enough in presenting a restructuring plan designed to win more government aid.

Together, the two firms have received $17.4 billion in loans since December, as the Bush and Obama administrations have sought to avoid the huge job losses that would result from the industry’s sudden collapse.

A bankruptcy filing by Chrysler could come by the end of April. And if Chrysler doesn’t succeed in a deal to line up Fiat as part owner, the result could be a difficult liquidation for the firm. GM has about a month longer to work out its plans. The question there is not so much survival – the government has signaled its commitment to keeping the largest US automaker afloat – as it is the terms of the restructuring.

A bankruptcy is not inevitable, but many analysts see it as likely.

“The degree GM needs to change … almost necessitates a court process,” says Aaron Bragman, a Detroit-based analyst, also with IHS Global Insight. “There’s no guarantee that it’s going to be quick.”

To reassure consumers, the government has said it will stand behind the warranties of new cars bought from GM or Chrysler.

Analysts still worry that carmakers going through bankruptcy will see a significant hit to their sales as a result.

Relatively good news for Ford

Against that backdrop, Ford is shining brighter. Its quarterly loss was not as steep as many analysts had forecast. And it has made some impressive headway lately in cutting costs – negotiating deals with both the United Auto Workers and with creditors who own Ford bonds.

“We’ve made strong progress on our plan to transform Ford into a lean, globally integrated company poised for long-term profitable growth,” chief executive Alan Mulally said in conference call Friday. He’s implementing a “one Ford” strategy to create more synergy across the firm’s global operations.

Among the positive signs for Ford:
• The new union deal will save $500 million in annual labor costs.
• In exchange for incentives, creditors agreed to eliminate $10 billion in debt owed by the company – another big cost saving.
• Its F-series truck remains the top-selling pickup in the US, and the company’s market share rose in Latin America and Europe.

Ford still needs to hope the current recession doesn’t become deeper and longer. Its cash reserves aren’t unlimited. But so far, so good.

“We are positioning Ford to survive the current downturn” and capitalize on a recovery, Mr. Mulally said.