Is Ford starting to get desparate?
December 26, 2006
9 comments
This might be just about the only positive news out there for Ford at this point:
There are media reports in Japan that executives of Ford and Toyota have been meeting there.
Could be simply some discussion of co-marketing. Or perhaps working together on a new hybrid car to replace the Prius, which I think of as a very big video game.
Of course, Wall Street is taking it as a sign there could be a merger. Ford's stock price is about half what it was two years ago.
No word yet on other areas that matter like whether or not this will increase the quality of Ford's products from "two grades about $hi7" to "worth buying if you have money to blow." Sometimes it just blows my mind that American car makers haven't figured out yet that if they can't match the Japanese in engine design, they're gonners. You can only leech off of American patriotism for so long by relying on "buy American" sentiments to keep you afloat.
I mean, seriously, some of us drive Japanese vehicles because we like to drive our cars rather than look at them while hoisted up on a lift at the mechanic's shop.
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My best friend is a former Ford engineer (sound and vibrations) who left the company voluntarily in one of their many buyouts. He says it doesn't matter at this point what Ford does, they're goners.
The problem is not that they can't sell cars and not even that they can't build good ones. It's that they have a unionized/bureaucratized, century-old buttcrust of a management team, and that they are carrying too much debt (most of which is being paid to people who do not work there, like retirees).
It would not matter if they could sell 100 million cars a year, their costs are such that they can't make money, and their management is such that so long as they can borrow money, nothing will change. Ford already has more debt than market capitalization and loses the equivalent of half the company every year ($3.5 per share loss on a $7 stock). they are not desperate, they are terminal.
I would add that the day they can no longer borrow money (and it is coming, possibly late next year or in early '08), the company will simply cease to exist. It will not own a single asset free and clear (shareholders will get nothing) and their billions in pensions will be dumped onto uncle sam. I certainly hope the failure of their commercial paper does not bring a derivatives pyramid collapse, but they have so much outstanding that it just might.
Lots of rumours about mergers, but ask yourself this: what could Ford possibly offer Toyota that they do not already have?
GMC is a goner too then I would wager. With $1,500 in cost per vehicle for retirees, that's enough of a premium to make a vehicle uncompetitive for millions of Americans. Maybe this is the South's revenge after all. The majority of Japanese engineering and industry in America is being set up in Dixie where most people think of union workers as lazy parasites. Apparently most southerners are paid well enough that they can't be riled up by the UAW's efforts to unionize them and lock in the Japanese giants.
It's a shame, but it was bound to happen. As bad as corporate monopolies are, and they are bad in most cases, labor ones are at least as bad if not worse. Fortunately the southern states had the foresight on average to pass right-to-work laws to keep the unions from getting a cultural beach head here.
I do think there is some benefit to Toyota partially buying out Ford. Ford has some good brand names, and this **could** be an intellectual property agreement to basically transfer the engineering segments of the company over for a hefty penny for the inevitable meltdown so that shareholders aren't left 110% screwed. Stranger things have happened, but something tells me that this is not some deal that will basically end up leaving Toyota holding a financial hand grenade.
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Hey, Mike. Now that you've eliminated the email requirement, I'll try to comment here from time to time. ;)
I agree with El Borak that Ford is doomed. His
GM is a little different, though; they have a forward P/E of 6.29, which ain't half bad. They actually make enough of a profit from the finance side of the business to more than offset their auto-manufacturing losses.
Y'all are right about the cause: it's the unions. They've priced their labour out of the market, and now heavily unionized companies like Ford are paying the price. Or, rather, the shareholders are paying the price.
Unions wouldn't be a problem, of course, if the government didn't force companies to deal with them. So don't forget to throw a little blame towards the feds, too. ;)
At least one of them might survive. I would not have thought that their financial side would be enough to offset such a major loss on the manufacturing side. Guess you learn something new everyday.
What I've never understood is why these companies don't start shell companies in the South and then have those shell companies buy out parts of them. Ford could do that, start a company equivalent to Scion in the South where there are no unions worth mentioning, and then later have that company take over ownership of Ford's intellectual property and engineering assets. The unions would then be left without any company except for a burnt out husk of a corporation in Detroit and elsewhere.
Btw, there was never a requirement for a valid email address. It just ends up catching a lot of people and making it easier for me to quickly identify who is posting comments when I see an alert in my email.
Any chance Michael Moore's fat ass will leave a trail of twinkies chasing down the Union bosses that priced their labor out of the market?
I don't have any problem with labor unions spontaneously arising, I just don't like the government being able make an establishment or prohibition thereof, in their case.
Basic Economics will dictate if the there's really all that much to squeeze out of the boss's hip-pocket.
Desperate as in dry humping?
Ewww, a bit pathetic one would say, pa-the-tic ;)
Oh noooo I think they are more like so desperate that they are just humping ANYTHING...
Ahhhh, I know THIS feeling ;)