- The Washington Times - Monday, May 18, 2009

Executives at Ford Motor Co., the only Detroit automaker that has not sought government loans or submitted to government control, used to worry about having to compete with “U.S.A. Inc.” But lately the automaker’s strategy of independence has been paying big dividends.

While Chrysler LLC is reorganizing in a way that gives control of the company to its autoworkers union, and General Motors Corp. appears headed toward a bankruptcy reorganization that would give Uncle Sam majority control, Ford has been gaining market share and enjoying the benefits of being an independent corporation.

Consumers are showing a preference for buying cars from an American company whose solvency is not in doubt and which is not subject to the vagaries of government and union ownership. Ford not only increased its share of the U.S. market in six of the past seven months against GM and Chrysler, but it managed to overtake Toyota in April for the first time in five months as No. 2 in auto sales nationwide.

Ford’s stock price has tripled in less than two months. And in perhaps the ultimate declaration of independence and sign of corporate health, Ford announced last week that it will raise as much as $2 billion in a stock offering - something that GM and Chrysler in their battered and shackled states could not expect to do for years to come.

Analysts say Ford’s gains have come at the expense of its Detroit rivals, whose troubles have been in the news from coast to coast since the end of last year.



“Ford is gaining retail market share and separating itself from GM and Chrysler in the minds of car buyers and investors,” said Peter Morici, business professor at the University of Maryland. He called Ford’s stock offering “a smart move.”

“A successful share offering could reinforce the positive image gains and car-buyer confidence now being generated by its strong lineup of new vehicles,” he said.

Ford has burnished its image as a U.S. company that can compete head to head with Japanese and Korean manufacturers in selling high-quality, fuel-efficient cars in the United States.

“In many categories, its cars now challenge offerings from Toyota and Honda for best in class,” said Mr. Morici. “From the Focus to the Flex, Ford is separating itself from the pack.”

The well-timed stock offering is the kind of adroit financial move that has enabled Ford to avoid the bankrupt state of its peers, analysts said. The money will be used in part to fund a retiree health care fund. But unlike GM and Chrysler, Ford is giving the union-run fund cash rather than equity shares, which would give the United Auto Workers part-ownership of the company.

Breakingviews.com, an investor information service, heralded the Ford stock sales as “smart union arbitrage” that not only leaves the company firmly in the control of investors, but does not dilute their shares too much.

The lift Ford is getting from the favorable comparison with the other Detroit automakers was neither expected nor inevitable. Ford executives were so unsure of the company’s fate late last year they told Congress that, while they did not need loans immediately, they might need to secure a line of credit with the Treasury to get through hard times.

When the government moved to assist GM and Chrysler with loans this year, Ford executives openly fretted that they could be put at a disadvantage without the backing of the government and access to the deep well of Treasury financing.

“We really don’t want to compete with a state-owned enterprise,” said Bill Ford, Ford’s executive chairman, at a conference in California last month.

“Frankly, that’s probably not in anybody’s best interest, including the government’s,” he said at the time.

Ford executives also worried about the fallout from a bankruptcy of either GM or Chrysler, which many in the industry feared would lead to a chain-reaction of bankruptcies among suppliers that provide critical parts to all the automakers.

“One keeps reading about quick and easy bankruptcies. I’ve got to believe this will be anything but easy,” Mr. Ford said.

But the government’s quick victory in winning court approval of key components of Chrysler’s reorganization plan within a week of filing for bankruptcy on April 30 - and the pains the government has taken to prevent the bankruptcy from disrupting the auto-supply chain - appear to have dispelled those worries for now.

Ford executives boasted last week that they are flush with cash and on target with their restructuring plans. And Mr. Ford told reporters that “the government is keenly aware” of the supply-chain issue and has averted problems for now.

Mr. Ford added that he still worries a bit about supplier failures occurring in the months ahead when Chrysler plants are shut down in an effort to save cash as it navigates the bankruptcy process, with GM expected to follow suit shortly.

Ford’s unexpected resilience in the face of a historic bust for the auto industry worldwide appears owed in large part to consumer reaction against the government bailout and takeover of GM and Chrysler.

Fred Hawkins, a Florida retiree, is one of a dozen who told The Washington Times they are disgusted with the bailout and fear that the quality of cars made by Chrysler and GM will suffer as critical decisions are made for political reasons by the unions and government managers.

“GM and Chrysler are toast,” Mr. Hawkins said. “I now consider it my patriotic duty to buy nothing made by the UAW.”

Hitin Anand, analyst at CreditSights, said he is impressed with Ford’s performance, which picked up in the wake of Chrysler’s bankruptcy last month.

Ford’s gains in the key middle market where Toyota has dominated suggest that “the strongest of the domestic automakers may be more appealing to consumers who want to buy American vehicles,” he said. Combined with its far better financial condition, that makes Ford a big winner in today’s cutthroat auto market, he said.

“Ford has the liquidity options to get past this very tough set of industry conditions that has already pushed Chrysler into bankruptcy and GM close to the brink,” he said.

The steep drop in Chrysler sales as it approached bankruptcy, while helpful to Ford, is a dire sign for GM, which may suffer the same fate if it follows the same route as Chrysler in the weeks ahead, Mr. Anand said.

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