It's not like Mark Fields, Ford Motor's (F) executive vice-president of the Americas, didn't have enough on his hands already. Sales are down, share price is sagging, debt has been downgraded, and now he has to battle nasty rumors that the company's promised return to profitability in 2008 is as realistic as the Detroit Lions' prospects of winning the Super Bowl.
Fields, the executive at Ford most responsible for executing the struggling auto maker's turnaround plan, vigorously asserted on June 21 that the company's North American automotive business will indeed achieve profitability on time. The trouble is that investors and Wall Street remain skeptical. That's a problem that can get worse for Chairman and Chief Executive William C. Ford Jr. even if he squeezes a little black ink out in two years.
Speaking at a preview of 2007 models in Dearborn, Mich., Fields tried to counter published reports attributed to unidentified Ford executives, as well as rumblings around Detroit, that the company's SUV business is falling so fast that the losses will swamp the company's cost-cutting efforts and new-model rollouts. "We will return to profits no later than 2008—we are committed to that," he told reporters.
At the center of the skepticism is whether Ford can execute its plan to stock its passenger-car and crossover-SUV lineups with compelling new designs in the next three years, and bring them to market fast enough to make up for falling demand of its SUVs and competitive pressure on its successful F-Series pickup line (see BusinessWeek.com, 4/19/06, "America's Favorite Pickup"). "A big issue for Ford is whether it will have the right vehicles to hold on to customers who are trading out of Explorers, Expeditions, and Navigator SUVs," says Jim Sanfilippo, an analyst with auto consultants AMCI Corp. Besides falling sales of the Explorer and other SUVs, Toyota (TM) is building a new pickup-truck plant in Texas, and the Japanese auto maker is gunning for the F-Series.
MIGHTY HAVE FALLEN. And Ford is not alone. General Motors (GM) has also seen sales of its SUVs and pickups suffer and is laboring to restore luster to the coupes and sedans it had ignored as sales of its TrailBlazers, Suburbans and Silverados took off.
Ford's shares traded at a 14-year low on June 21, closing at $6.43. Given the current volatility of the stock market, falling through the $6 per share floor would be astonishing. That would leave Ford with a market capitalization of less than $12 billion as the street value for the combined global operations of Ford, Mercury, Lincoln, Volvo, Land Rover, Jaguar, and Aston Martin, including the value of those brands, plus Ford Motor Credit. And its one-third stake in Mazda. That's less than the recent purchase price of, for example, New York regional bank North Fork Bank.
As Ford's Fields was maintaining the company's target for profitability by 2008, analysts were reminded that it wasn't an ambitious target to begin with. "It's not a very lofty goal," says Standard & Poor's credit analyst Bob Schultz. Indeed, Fields will be true to his goal even if the company ekes out a $25 million profit from its auto operations, though it would be a small victory for a company that generates more than $170 billion a year in revenues.
S&P has Ford on negative credit watch and a junk-debt rating of BB-. Schultz expects Ford's 2006 losses to be worse than 2005, when the carmaker's North American auto operations posted a pretax loss of $1.6 billion, as it has been unprofitable in six of the past seven quarters. Ford's total earnings last year were $2 billion on the strength of writing car and truck loans at Ford Motor Credit.
FIRST MISSTEPS. Ford's market share through May fell to 18.5% from 19.1% a year ago. The Ford division's share fell to 15.4% from 15.9% a year ago. The loss of market share, which impacts Ford's network of dealers as well as the company, is attributable to a perfect storm of high gas prices that have sent sales of its most profitable vehicles, SUVs, reeling. In the late 1990s, Ford was making billions a year selling trucks and those gas-thirsty utility vehicles, and accountants gutted investment in passenger cars and minivans. The result today is that Ford is forced to sell old small-car and minivan designs largely on price, and it has too few offerings of car-based SUVs. The Ford Edge, debuting in the fall, is arguably the company's first modern crossover design.
Ford chief designer Peter Horbury, who is most responsible these days for making Ford designs competitive again, says the company is also suffering from a period in which "we started a design by first trying to make a product fit a factory, rather than starting with what the customer wants." Indirectly, Horbury was referring to the Ford Five Hundred sedan and Ford Freestyle crossover, whose reception by the public and automotive media has been chilly.
Built off the Volvo S60 engineering platform, the Freestyle turned out to look so much like a dowdy station wagon that Ford officials said the vehicle wouldn't be redesigned less than two years after it hit showrooms. The failure of the Five Hundred and Freestyle to excite the public especially stings because the models, along with the new Ford Fusion and Edge crossover, were supposed to replace the aging Taurus, which had become uncompetitive against the Honda (HMC) Accord and Toyota Camry.
LAUNCH EXPECTATIONS. It is disappointments like that on CEO Bill Ford's watch, since the great-great-grandson of founder Henry Ford took over the company in late 2001, that dampen enthusiasm for the company's ability to launch new vehicles. AMCI's Sanfilippo, who was present for Ford's 2007 preview, says there are kernels of good news to which shareholders should pay attention. Fields said the average age of Ford's lineup in 2008 will be 3.2 years, compared with 4.4 years today. "That's a bold improvement," says Sanfilippo.
Besides the Ford Edge crossover, the company this fall will also launch the Lincoln MKZ crossover SUV, the Ford Shelby GT500 (see BusinessWeek.com, 6/9/06, "American Idol") performance car, plus all-wheel-drive and four-cylinder versions of the new Ford Fusion, Mercury Milan, and Lincoln Zephyr, and a redesigned Ford Expedition and Lincoln Navigator.
There is arguably more excitement and anticipation, however, around the Ford Fairlane concept, which Ford executives privately say has been greenlighted for 2008 or 2009. The design looks a bit like a blown-up MINI Cooper with room enough for three rows of people, a design meant to make up for Ford's lack of a competitive minivan and to attract ex-Explorer SUV buyers who want utility, a car-like ride, and better gas mileage than a traditional SUV. Ford is also planning two, and possibly three, small cars for 2008, priced well under $20,000. "By 2008, we'll stand up to anyone in terms of product freshness," says Ford's Fields.
Kiley is a senior correspondent in BusinessWeek's Detroit bureau
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