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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

104 Years of Ford Motoring Going Down the Drain

Companies / US Auto's May 29, 2007 - 06:54 PM GMT

By: Submissions

Companies After years of being one of the largest and most renowned automaker, it seems like Ford the major stockholder of Mazda the manufacturer of Mazda cornering light is finally at its brink. It is no secret that Ford has been facing financial problems for years now brought about by products that failed to sell well in the market not to mention the frequent changes in the management stature.

Things have been going from bad to worst for the automaker that finally shareholders of Ford together with the heirs of Henry Ford are confronted with the prospect of finally relinquishing the control of the company whether they like it or not than to lose everything at the end.

The company has been lending just to meet the company's financing needs and right now it has exhausted all its resources and will need again fresh investment to pay for its factories, to launch new models, and to push through with its expansion plan for worldwide markets. The question is: Are there still investors and lenders that would risk additional billions knowing the family's dismal history as controlling shareholder? Frankly with the present condition that the automaker is in, it is hard to imagine that there would investors that are willing to take the risks.

The present wave of private-equity interest in Detroit automakers and suppliers would have been at Ford's advantage to find a financial partner but unfortunately most investors are not that willing to risk on the whims of family controlled management unless of course the family happens to have an outstanding record when it comes to handling a business.

Last May 10, the shareholders of Ford have rejected a proposal to end the family's control. The proposal would definitely face long odds especially since the family holds 40 percent of the votes. However, the margin of defeat was narrower this year compared to earlier years. The results show that 45 percent of the non-family voters would like to see the family out of power.

For the 104 years of Ford it has always been controlled by the Ford family with the addition of some hired hands. And it is not only once that the family has summarily fired or forced out non-family chief executive officers.

In the most recent happening at Ford the family has ease out one of it own. After disappointing financial results, Bill Ford Jr. last September have gave up his position as CEO in favor of Allan Mulally who is a senior Boeing Co. executive recruited to try and help the automaker regain financial health. On the other hand Bill Ford Jr. has remained chairman.

CEO Mullally optimistic in spite of crisis
After his appointment as new CEO, Mulally has swung into action pledging most of Ford's assets to borrow $23.5 billion in cash. And because auto making is a lead-time business, it would take at least two to three years before Mulally could see the results of all his efforts. Hopefully Ford's cash hoard will last during that period and of course it is also expected that the automaker should gain profit before it run out completely of cash.

The current price of Fordï's stock is $8.78 giving it a market value of $16.5 billion, which is a little more than that of Harley-Davidson Inc. The price of the automaker is down by 75 percent from its peak in 1999, this can be seen as little more than a call option on the part of the company avoiding bankruptcy until 2010. Despite the crisis that the company is in right now CEO Mulallly is optimistic that the automaker will be profitable again. Ford has obtained a net loss of $12.6 billion last year and $282 million in the first quarter of this year which makes me wonder for how long CEO Mulally can keep up its positive facade.

The Circle of Trust
Bill Ford aged 50 with his cousin Edsel 58, his father Bill Sr., 82, plus a handful of Fords---all have held senior positions at Ford or on its board. They together with dozens of other family members also owned super-voting Class B shares in a family trust. For those who are not aware of what Class B stock is it represents 40 percent of the shareholders vote with less than 4 percent of the equity.

Class B shares are owned by family members only. In case no family member wants to buy B shares these shares they are put up for sale where they are converted to Class A shares and ultimately sold for cash. When enough B shares are converted, the family loses a proportion of control.

Last April 21, Ford met with investment bankers Joseph Perella and Peter Weinberg in Dearborn, Michigan. Mulally spoke at the meeting which was held to brief family members of whom mostly aren't close to the company's operations. The meeting was private although Steve Hamp, Bill Ford Jr.'s brother-in-law, later told Detroit News that the concept of bringing in an outsider as an adviser was not agreed on by everybody saying that it was not yet time.

According to David Cole, Chairman of the Center for Automotive Research in Ann Arbor, Michigan, As most companies go down the road in generations, they have difficulties and that�s why they sell out. Don't think the Fords are different. Do you ride out the troubles or get out? What do you do?ï

Not all Fords are worried about the imminent bankruptcy of Ford Motors like for instance Bill Ford Dr., owner of the Detroit Lions, and Elena Ford, 40 daughter of the Greek shipping tycoon---these are Fords that are rich even without owning a piece of the automaker. However the other Fords those that are not really rich and are just depending on the stock dividend from the Ford Motors are really feeling the pinch especially after the company has suspended the release of common stock dividend last summer.

If the suspension of common stock dividend had already a great impact on some of the members of the Ford family just imagine their worries if Ford Motors finally ends in bankruptcy which would definitely render their shares worthless unless of course they start selling their shares today which by the way only cost a meager $8 or $9 a share.

By Kraig Johanssen

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