Ford Focused but Equity Stake Would be Consistent

By Markos N. Kaminis - Economy & Markets

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Kudos to Ford (NYSE: F). They showed up today with a plan and PR to be proud of. Meeting the deadline issued by Congress over a week ago, Ford was first to the table with a restructuring plan. However, it's a plan that asks Capitol Hill for more than the initial ad hoc request from the "Big Three". Also, Ford had to be first to the table, considering they need the money least. The nation's largest family run business risked being left out or short-changed otherwise. Still, Ford's humble request for a bridge loan it supposedly might not need is a pipe dream. Consistency calls for an equity stake, at discounted price.

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

Road Trip

A few years back, "The Greek" and a few friends (namely S-Man and Big Mikey) drove out to Detroit to meet a cousin of mine there (Philly Faf) for a sports filled weekend that took us to Joe Louis Arena to watch the Broad Street Bullies, followed up by a trip to the Dawg Pound in Cleveland to get bullied ourselves. Talk about two hostile environments, we went from the frying pan into the fire that weekend, sort of like where Detroit auto makers are now.

The point is, we rented a vehicle for the nine hour drive (managed in seven). We rented a Ford Focus for the trip... Illustrating the image issue American made cars generally share, we nicknamed it the Ford Fu__ Us. The worst part of the deal was that it was baby blue in color. It got us there fine though, and we had no complaints except to SMan (aka "Green One") for choosing such an uncool car for such a macho weekend.

Ford Focused Today

Ford was aptly focused today. The industry veteran led off its submission to its Congressional masters with a forecast to profitability. It's quite a cunning way of asking for a handout, by making it seem not a gift. Ford declared it would turn profitable in 2011, which is a rather optimistic way of saying, "we're bleeding money for the next two years." Ford promised it would only use the funds if it became necessary, which it noted would likely occur if one of its brethren at the table were allowed to go under, not to mention if the economy deteriorated further.

Ford, truly America's largest family run business, has been taking steps similar to those any of us might in order to save our own businesses. Because of capital raising efforts, including its sales of Aston Martin, Jaguar, Land Rover and the majority of its stake in Mazda, Ford has enough capital to get through 2009 okay. That's something General Motors (NYSE: GM) and Chrysler can't say. Rumor has it that GM might not even make it through Christmas without some Congressional love.

Making the Hard Choices

Ford has been making the hard decisions to preserve its survival. In bankruptcy you see, your equity decays to nothing, and when the family is invested in the future of Ford, you get action best representative of shareholder interests. The Fords are shareholders, and important ones at that (4%; 40% of voting rights). Bankruptcy, therefore, is not an option.

In its latest fundraising effort, the company is exploring the sale of Volvo, it's Sweden-based premium automaker. Basically, Ford is downsizing, or making itself better fit into the current bleak sales environment. Sure, when the economy turns it won't leverage that growth as quickly as it might have with all the pegs in place, but at least it'll still have pegs to play with.

Ford also said all the write things on Tuesday, and made all the right moves to win Congressional favor. Congress serves its constituents, and those voters don't like hearing about lavish corporate trips on taxpayer dollars, nor $50K flights from Detroit to DC. Heck, many of us can't even take vacations this year, not even to Detroit. We want compassionate actions from the folks we bail out (take note AIG people (NYSE: AIG)).

So, Ford is selling the corporate jet, as is GM (all four). In fact, the CEOs of Ford and GM are driving to Detroit. When parody drives reality, you know things are bad! SNL ran a hilarious skit last week depicting an out of touch car pool from Detroit to DC. It painted the CEOs as clueless to the unreliability of their own vehicles, the price of gasoline and even without a sense of direction. But wouldn't you know it; the real characters in this tragedy are actually driving southward today. Chrysler's top man might catch a commercial flight though.

Lucky these guys don't have to traverse the Gulf of Aden for the sake of $25 billion, but they might pass equally desperate Americans on their way through Ohio and Pennsylvania nonetheless. Actually, the great number of suppliers hanging in the balance in Ohio might inspire a police escort through the state for the sake of expediency.

An entire segment of the American way needs a hand. These are the companies that pick up the slack to make things like tanks when we go to war, something not out of the question for 2009. The UAW has an opportunity here to help out a little as well. Early talks are underway that would bring the cost of production more in line with the efficient producers out east, Honda (NYSE: HMC) and Toyota (NYSE: TM).

These are times within which we have to think about one another, and the greater cause. Never have the words of John F. Kennedy been so apropos. We really must think about what we can do for our country now. With sincere concern about sounding communist, we really have to put aside the selfish component of capitalism for a minute, and consider a little sprinkle of socialism here or there. (Did I really just say that?) You too can do your part though.

Buy American made!

Ford, GM and Chrysler are finally doing right by us again, or will be shortly. They'll be developing and producing fuel efficient vehicles, hybrids and alternative technologies, and they'll be investing funds toward that purpose right here at home. If government, with our tax dollars, is going to help out American companies, then it's already in our interests to see their survival through. We're invested!

There's yet another way we can help these companies and our fellow Americans employed by them. We can buy their stock, if we dare. We can at least refrain from selling it short. They could do without that pressure. Unconventional recessions, or ones like this one, call for unconventional thinking. It's just kind of funny that doing the right thing, the logical thing, is unconventional these days.

Conclusion

I think Ford has got the right idea for the most part, but I expect the government is going to lean toward an equity stake in the automakers, over a "bridge loan" at discount. The Treasury has been very clear on this point. It will help folks out, but it'll come at a cost. Anything less than this for the automakers would be inconsistent... not that Hank Paulson nor politicians could be mistaken for predictable. So, it seems anything is possible. Yet, we want to make money on our investment, not put our money at risk with little likelihood for return.

There's just one major flaw in this. General Motors stock is only worth $3 billion and Ford is priced short of $7 billion. According to GM, they need $4 billion just to make it through Christmas. In other words, we could buy these companies outright, and we should! Heck, we're going to over pay anyway. There's a saying that fits here. Beggars can't be choosers... Ford might not take that deal, since it has capital to make a go of it a little longer, but GM has no choice. Chrysler might just disappear.

One thing is for sure folks. We can't complain about the placidity of our time any longer. We've no reason to fantasize about exciting lives of generations past. We live in interesting times.


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