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What Is Ford Worth?


What's Ford really worth? Its shareholders and the family that controls the ailing automaker are about to find out. And it won't be pretty.

Its market capitalization stood at just over $13 billion at close of trading on Wednesday. In comparison, Toyota (TM), which in July just passed Ford (F) as the nation's second-biggest car seller behind General Motors (GM), has a market capitalization of more than $170 billion. Looking to raise cash and stem its loss of market share, the company is thinking that the sum of its parts may be worth more than its whole.

READY TO GO. The company is signaling that it is prepared to act quickly. Ford confirmed Wednesday that it has hired former Goldman Sachs (GS) mergers and acquisitions investment banker Kenneth Leet to advise Chairman and Chief Executive William C. Ford Jr. and the automaker's board about possible alliances with other automakers and sales of assets such as its Jaguar brand or part of Ford Motor Credit. That news, which drove the automaker's share price up almost 6% Wednesday, was muted in after-hours trading when the company disclosed that, because of pension losses, its second-quarter loss was $254 million, more than double the number previously announced. It also said its British brands plus Volvo would lose money on the year instead of post a small profit as forecasted because of worsening sales.

Ford is facing the reality that its market share and profit outlook is falling much faster than it can possibly bring new products to market. Despite the fact that it has the best-selling vehicle in the world in the F-Series pickup truck, July sales figures released August 1 show that the company saw a more than 44% decline from June in light truck and SUV sales.

In addition to its flagship Ford brand, the company's assets include Lincoln Mercury; its Premier Automotive Group, which includes Jaguar, Land Rover, Volvo, and Aston Martin; one-third of Japanese automaker Mazda; and Ford Motor Credit.

ASSESSING THE ASSETS. So what would Ford sell, and what could it expect to make? Considering that Ford paid $6.45 billion for Volvo in 1999 and the Swedish brand is in better shape now than it was then, it's likely that the value of the company is at least equal to what Ford paid. Volvo is difficult to value because the brand's products and operations today are so integrated with the rest of Ford. As of last week, its Mazda stake was worth about $3 billion. Those two brands together, then, account for about 75% of Ford's value today.

Ford acquired Jaguar in 1989 for $2.5 billion. Given that Jaguar loses about $2 million per year and has cost Ford more than $10 billion in investment and losses over the years, it is uncertain whether Ford could sell it for much more than its original purchase price.

Valuing Volvo, Jaguar, Land Rover, or Aston Martin, says Merrill Lynch (MER) analyst John Murphy, is terribly difficult because of how intermingled the distribution and engineering have become among the British brands and between Volvo and Ford. However, if any of these companies are sold, Ford will need to determine a valuation.

Then consider that a half-stake in Ford Credit, says Murphy, would be worth about $6 billion. That's considerably less than the $14 billion GM is expected to net from selling half of GMAC. But Murphy points out that Ford Motor Credit is more of a pure auto-finance company with a little commercial real estate on the side, while GMAC is attractive because it has considerable mortgage financing and insurance business and a first-class loan serving operation. There would be fewer bidders in the room for Ford Motor Credit, says Murphy.

LIKELY BUYERS. Analysts and critics of Ford's multibrand strategy have long complained that it would probably be better to concentrate on Ford, Lincoln, and Volvo, rather than spreading its limited capital across so many brands. "Closing, selling, or JVing [joint-venturing] money-losing Jaguar would likely be difficult, but positive," says Goldman Sachs auto industry analyst Robert Barry. Ford would find few takers for its British brands despite a recent upturn in its Aston Martin brand and sales of the Range Rover Sport.

The most likely buyers to surface? American, European, and Japanese automakers would be unlikely to make a bid, even if assets like Jaguar were to be sold at fire-sale prices. Two possible scenarios involve a combination of private equity, probably British, or a Korean or even Chinese automaker.

Nanjing Automotive Group, for example, last year bought the remnants of MG Rover and announced it will build MG brand vehicles in China, Britain, and Oklahoma. The Chinese are more interested in old British vehicle brands than the rest of the world. Moreover, it would give a company like Shanghai Automotive a back door into the Western market by buying even a struggling but well-known brand like Jaguar. Private equity would likely surface to buy 51% of Ford Motor Credit, just as they did when GMAC went on the block.

NO SACRED COWS. What comes of Leets's work remains to be seen, but the work itself is significant. "We think the most significant near-term implication of any such news would be symbolic—that Ford the company, as well as CEO Bill Ford and the Ford family, is willing to take a more aggressive stance towards fixing the business, that there are no sacred cows,— says Goldman's Barry

Indeed, Leets's arrival signals that Bill Ford and his closest advisors do not have the time to wait four years for excess factories to close and new products to arrive to save the day. The company has not proved to be adept or consistent at managing its product launches and marketing. The three notable exceptions have been the Ford F-Series truck, the Ford Fusion, and the Mustang.

Outside of its British Premier Automotive Group, Ford's flow of new products is spread too thin and not coming fast enough. This fall, there's a new Ford Edge crossover arriving, and its mechanical cousin, the Lincoln MKX. Both are much needed, given the collapse of Ford's longtime breadwinners, the Explorer and the just redesigned Expedition SUV.

But the only new model of any note next year is a Ford Super Duty Truck. The 2009 model year, two solid years away, has the Ford Fairlane light SUV, the Lincoln MKS sedan, and a new F-150 pickup. Ford is now being cagey about when a series of small cars slotted below the entry-level Focus will arrive. Executives previously said 2008, but now it looks more like 2009 at the earliest.

FEWER BRANDS? All its woes are apparently leaving Ford management, the Ford board, and even the Ford family a bit squeamish. The door that's been closed to alliance partners who could end up with seats on the Ford board or sales of brands considered untouchable is now ajar. Jaguar, for example, has long been defended and protected by Bill Ford's father, William Clay Ford Sr., a board member who engineered his son's ascension to the chairman's job. But even he must be having his doubts about robbing Ford and Lincoln, not to mention Volvo, of resources to fund Jaguar's perennial revival plan.

If you buy into the idea that Ford needs to focus its resources on the brands and businesses that have the most reasonable expectation of upside, you are left with Ford, Lincoln, and Volvo. That means closing Mercury and selling off or jettisoning Jaguar, Aston Martin, and Land Rover. Can Ford get along with just three brands? So far, it's working pretty well for Toyota, which has just Lexus and Scion in addition to its own flagship. And Toyota just passed Ford and is crowding GM to be the world's biggest automaker.

Strategies change the worse off business looks for Ford. It was as recent at 2003 that Bill Ford said he had no interest in selling the company's Hertz rental car unit. "It's part of the Ford family," he said at the time. Hertz was sold off to private equity at the end of last year. There are families, and then there are families.


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