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If you haven't seen this, it was published last night. http://www.fool.com/investing/general/2011/02/23/rising-star...

Pent-up demand, I believe, is going to be a real driver (haha) for all the automakers, even if we do slip into a second recession. Older cars, harsh winters, and tiredness of having to drive the same old clunker leads to more people purchasing. Add higher fuel costs and the greater economy of today's models (especially the electrics and hybrids) and I'm not even sure another recession will totally stop this driving force.

Then there's something else which is really hard to quantify. Ford is the only one of the Big 3 that didn't take government money and avoided bankruptcy. Under Mulally's leadership, the automotive division is now in a net cash position for the first time in years. The kind of pulling yourself up by your bootstraps that Ford has done, and not getting a handout, I believe instills a sense of pride and esprit de corps in Ford's employees. We have a couple of Ford employees posting over on the Stock Advisor discussion boards, and they've commented on this. The "One Ford" initiative is real, not another corporate reshuffling that the rank and file knows won't do anything to improve the company or their role.

My final point, and tied to the above, is the strength of Mulally as CEO. I remember when he was first appointed and their were all kinds of comments along the lines of "What can an airplane guy teach us?" (He came from Boeing, if you remember.) Well, it turns out that he's taught the company to take pride in its work and itself and he was able to see the oncoming trouble soon enough for the company to do something about it, cutting costs and attacking the balance sheet so that he didn't have to go hat in hand to Congress, asking for help.

Yeah, General Motors came out of bankruptcy with a fresh start, but I'll bet you that they still have the same thinking at the top that got them into their mess in the first place. And Toyota's leaders lost a lot of face (and customer confidence) thanks to its highly-publicized problems last year. Ford's straighter thinking is a huge competitive advantage that should make this one a great investment.

We'll see.

Cheers,
Jim
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How is it net cash positive with more than $100B in debt? Also I was unable to find its recent earnings release.

Thnx

-A.
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How is it net cash positive with more than $100B in debt? Also I was unable to find its recent earnings release.

Hi anuragupta,

The net cash is for the automotive portion -- the car manufacturer. The rest of the debt you're seeing is from the financing arm, which you can treat kind of like a bank.

The earnings release was at the end of January. Here's the press release via the 8-K filed with the SEC. http://www.sec.gov/Archives/edgar/data/37996/000115752311000...

Cheers,
Jim
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Thanks Jim,

I had missed the exhibit portion of the 8K filing and was left wondering.

So if I understand it right the financing arm debt is essentially the money it is lent to enable customers buy the cars. Now how is that doing? Are they facing any bad loans?

Anurag
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Hi Jim,

Nice pick. Question though..

How about the gas prices going forward, we are already approaching $100 and its not even spring yet. I always thought that higher gas prices will hurt the overall market specially an auto sector.

Some so called experts are predicting $200 a barrel by next year.

Whats your take on it?

Mliaom
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How about the gas prices going forward, we are already approaching $100 and its not even spring yet. I always thought that higher gas prices will hurt the overall market specially an auto sector.

Some so called experts are predicting $200 a barrel by next year.


Wow.

The price per barrel was $109.41 on Wednesday's close (the last price my data source has) -- that's the Brent price. That's up 17% since the end of 2010 and up 12% in the last month. I think that reflects uncertainty of oil reliably coming out of the Middle East thanks to the political turmoil over there. Libya is a huge oil producer and turmoil there, especially with people evacuating, is bound to increase the price because of the possibility (or reality) of shutting down.

I think a more sustainable level is in the $80s or $90s range, but you know how the market loves uncertainty.

Higher gas prices could actually help automakers. Older cars are less fuel efficient, so high gas prices provide motivation to trade up. The transition to hybrid or all-electric vehicles is really gaining traction, too, and is helped along by high gasoline prices.

Finally, don't underestimate the power of pent up demand. Peter Lynch called this out in One Up on Wall Street (if I recall correctly). We've gone through a bad recession, people have had to drive their older cars for longer than desired, etc. Yes, the cash for clunkers thing pulled a lot of revenue forward, but I don't think it extinguished all of the pent up demand.

Cheers,
Jim
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Libya is a huge oil producer and turmoil there, especially with people evacuating, is bound to increase the price because of the possibility (or reality) of shutting down.

I'd heard on the news that Libya really wasn't that big a producer, but very important to Europe and particularly so because the oil is the right type for gasoline. I just decided to go looking for production numbers by country. The data at the first couple of sites I checked is a few years old but easy to read. It puts Libya in 18th place, just behind Angola and ahead of the UK,with just under 2% of world production.

But the most interesting thing I saw was off topic. The top 3 producers - Russia, Saudi Arabia and the United States - were relatively close to each other, and fourth place - Iran - produced less than half as much as third place. I confess I had no idea the USA was about neck-and-neck with the others at the top with close to 11% of the production.
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My final point, and tied to the above, is the strength of Mulally as CEO. I remember when he was first appointed and their were all kinds of comments along the lines of "What can an airplane guy teach us?" (He came from Boeing, if you remember.) Well, it turns out that he's taught the company to take pride in its work and itself and he was able to see the oncoming trouble soon enough for the company to do something about it, cutting costs and attacking the balance sheet so that he didn't have to go hat in hand to Congress, asking for help.


Jim,

From what I've seen of Mr. Mulally, he seems very smooth and polished. His clean image undoubtedly helped him get some of our tax dollars as was revealed at the end of 2010. That Ford did not receive our tax dollars is a myth according to Eric Fry of dailyreckoning.com "During the crisis of 2008-9, the Federal Reserve and Treasury operated as covertly as the CIA – doling out trillions of dollars in bailouts and guarantees to a handful of coddled corporations. Those financial “black ops” produced myriad deceptions in the financial markets.---

...for example, Ford Motor Company borrowed as much as $7 billion from a lending facility of the Federal Reserve. But the details of these borrowings did not come to light until just three weeks ago. And even now, very few investors – or car-buyers – seem to realize that GM and Chrysler were not the only “Big 3” car companies to receive a helping hand from the government. Ford also cashed a few government checks."

Read more: The Half-Truth and Nothing But the Half-Truth http://dailyreckoning.com/the-half-truth-and-nothing-but-the...

So far I've found dailyreconing to be a reliable source.

im
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imyoung,

At the risk of this coming off as splitting hairs, the loan referenced in this article was issued to Ford Motor Credit. It was not to prop up Ford's automotive operations. The CPFF funds referenced in the article were directed to banks, mortgage companies and other commercial lending businesses to open credit markets. People who were legitimately capable of purchasing homes and cars were being denied loans not because they lacked credit-worthiness but because their was insufficient liquidity in the lending institutions.

Credit markets had come to a standstill and CPFF funds were made available by the Federal Reserve to all lending institutions. This was necessary because the lending institutions were unable to secure buyers for its commercial paper who themselves were frequently facing liquidity problems. Unemployment was rising quickly and people were unable, and in many cases unwilling, to pay loans that had more principle outstanding than their vehicles and houses were worth. Injecting liquidity into the credit markets didn't suddently turn back on the spigot of sub-prime loans, but it did allow credit worthy people to buy homes and cars again. The example I provided was for retail borrowers, but the same was true on the commercial side. Businesses were also being precluded from borrowing even with stellar credit ratings.

The CPFF program was initiated by the Federal Reserve in 2008 before the government approved money for the automotive operations of GM and Chrysler. The $49.5M loaned to GM was on top of money GMAC had already received ($7.5M) from CPFF. It should also be noted that CPFF funds were available to the American credit arms of many foreign companies. Among those that tapped into CPFF funds were none other than Toyota and BMW. Here is a little bit more about that - http://blogs.insideline.com/straightline/2010/12/bmw-borrowe...

I think it should be noted that all suppliers and creditors of Ford Motor Co. and its credit arm FMCC were repaid. The paper held by shareholders, bondholders, and creditors has maintained or increased in value. Obviously, given the bankruptcies at GM and Chrysler, investors of Ford's crosstown rivals saw their assets vaporize. I don't find it disingenuous to suggest that Ford was not in need of being bailed out.

Doug
SA Home Fool & Ford employee
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