Barclays Says Ford May Need To Dip in U.S. Aid in 2009

February 2, 2009; Tenzin Pema writing for Reuters reported that Ford Motor Co may need to access U.S. government aid in late 2009, an analyst at Barclays Capital said on Monday, just days after the automaker said it would have the cash to survive the worst downturn in auto sales in a decade without a state bailout.

Analyst Brian Johnson downgraded the U.S. automaker's stock to "underweight" from "equal-weight" and cut his price target on the stock to $1 from $4, citing cash concerns and an increase in the company's net debt.

The analyst also forecast a fourth-quarter loss for Ford's rival General Motors Corp and cut his price target on the stock to 50 cents from $1. Johnson has an "underweight" rating on GM shares.

The analyst expects GM's fourth-quarter results to reflect continued headwinds from weak demand in North America, but said he was more concerned about the quick deterioration in international markets.

Ford's results last week were a reflection of just how quickly non-U.S. markets have deteriorated, Johnson said. He noted that the company had reported an international automotive operating loss of $1.1 billion compared with his estimate of a $0.3 billion profit.

The analyst estimates GM's automotive loss to total $4.3 billion and expects the struggling automaker to burn through $3.1 billion as production was down significantly across all regions in the fourth quarter.

He expects GM to post a loss of $6.18 a share in the quarter, while according to Reuters Estimates, analysts on average are expecting a loss of $7.18 a share.

"With international segments no longer offsetting North America losses, we expect investor focus to remain on GM's cash levels and how the company expects to minimize future cash burn," Johnson said.

Last week, Ford reported a record $14.6 billion full-year loss and burned through $21 billion for the year, but said it would be able to better conserve cash in 2009 if U.S. sales stabilize in the second half as it expects.

Analyst Johnson said Ford could also relieve some of the stress on its cash balance by renegotiating its United Auto Workers (UAW) wage/benefits and Voluntary Employees Beneficiary Association (VEBA) contributions along the lines of GM's plan, even without obtaining government loans.

"While this would benefit Ford as an enterprise, in terms of equity holders, providing stock in lieu of cash or debt to the VEBA trust would create significant dilution with about half of Ford's equity being ceded to the VEBA trust," he wrote in a note to clients.

Some of the conditions imposed by the U.S. government for its $17.4 billion bailout of Ford's rivals GM and Chrysler were the reduction of debt by two-thirds via a debt-for-equity exchange, making half of VEBA health-care trust payments in the form of stock and eliminating UAW jobs bank, which pays laid-off workers, sometimes for years. Ford shares, which have fallen 18 percent since the start of the year, closed at $1.87 Friday on the New York Stock Exchange.

GM shares, which closed at $3.01 Friday, have plunged 33 percent since December 19, when the U.S. government announced it was extending a $17.4 billion lifeline for GM and Chrysler.

Editing for Reuters by Gopakumar Warrier and Himani Sarkar in Bangalore