Ford Motor Company (F)

The situation of the Big Three has become more tenuous as long-time Michigan democratic Congressman, John Dingell, was replaced as chairman of the House Energy and Commerce Committee by Californian Henry Waxman. What does this mean for the Big Three? As a long-time champion of America's automakers in the House of Representatives since 1955, Dingell used his chairmanship to protect the interests of Detroit automakers against Federal Government regulation, especially fuel economy standards.^[1] Conversely, Henry Waxman has aggressively and openly called for ever more stringent fuel economy regulations and less generous help for automakers.^[2] This change and the broad regulatory scope of the Energy and Commerce Committee will likely make any Federal Government assistance for the Big Three both less forthcoming and less generous.

GM and Toyota plan to bite into Ford's share of the truck market with their GMT-900 and Tundra models, respectively. The combination of record high fuel prices and continuing difficulties in the housing sector has further accelerated the shift away from large pickups and SUVs to small and medium-sized cars and crossovers. We saw a real change in the industry demand for pickup trucks and SUVs in the first two weeks of May. It seemed to us that we reached a tipping point where customers began shifting away from these vehicles at an accelerated rate.- Alan Mulally, CEO Ford

That’s Ford (F) CEO Alan Mulally on a conference call this morning reviewing the company’s business plan.

Just another piece of evidence that the US consumer is getting squeezed and it is effecting his spending decisions.

It will take Ford many years to reach profitability. Product commonality must be planned from the early stages of a vehicle's production, and production lead times are 3-4 years. For example, if the Ford Escort were to be redesigned in 2007 to incorporate a significant number of parts of another Ford model, the new Escort would not be ready for sale until 2010.

Battered by increasing steel costs and dampened consumer demand due to high gas prices, Ford Motor Co. (F) announced on 22nd May 08, that it would not be able to meet Chief Executive Officer Alan Mulally’s goal of returning to profitability by 2009, Bloomberg News reported. North American vehicle production will be cut throughout the rest of this year due to "the rapidly changing business environment in the [United States]," a company statement read.

I think it makes more sense to look at the value of the entire company. In this case, the free cash flow is $8.7 billion, since I add back the $7.1 billion in after-tax interest expense. I also use an 8.5% weighted average cost of capital based on the after-tax cost of debt and the aforementioned 12.5% cost of equity.

In this case, I come up with an enterprise value of $102 billion. After subtracting the net debt, equity investors have a $43 billion hole to crawl out of.

In a note sent to investors Friday , June 20th , JPMorgan analyst Himanshu Patel blamed the loss on falling residual values for leased pickups and SUVs.

High gasoline prices have caused pickup and SUV values to tumble during the past year. Patel said they dropped 16 percent to 18 percent from May 2007 to May 2008.

Ford will have $1 billion in lease depreciation costs, and GM will have $600 million because it shares risk with its GMAC financial arm, Patel predicted.

He wrote that the price pressure on used pickups and SUVs has been aggravated by "generally more affluent customers' ability to `bail out' early." That further worsens the used vehicle market's supply and demand imbalance.

The Ford Motor Company said on Friday , June 20,2008 that it would delay introducing its new pickup truck and that it will probably lose money for a fourth consecutive year in 2009 because of the slowdown in demand for large vehicles.

Ford said it would begin selling the highly anticipated 2009 version of the F-150 pickup in late fall, two months later than intended, so that dealers would have more time to clear out the current model. In addition to the delay, the company said it would build 90,000 fewer trucks in the second half of the year than it had previously planned, while increasing production of cars and crossovers that are more fuel-efficient.

“As gasoline prices average more than $4 a gallon and consumers worry about the weak U.S. economy, we see June industry-wide auto sales slowing further and demand for large trucks and S.U.V.’s at one of the lowest levels in decades,” Ford’s chief executive, Alan R. Mulally, said in a statement. “Ford has taken decisive action to respond to this accelerating shift in customer demand away from large trucks and S.U.V.’s to smaller cars and crossovers, and we will continue to act swiftly moving forward.”

For the second time in a month, Ford issued a warning about next year’s financial results.

GM and Toyota plan to bite into Ford's share of the truck market with their GMT-900 and Tundra models, respectively.