Ford Cost-Cutting Moves Don't Move Investors

DETROIT; Jocelyn Parker wrting for the AP reported that Ford Motor Co. is searching every nook and cranny -- from selling corporate jets to cutting refreshments from company meetings -- for cost cuts, but it'll take much more than penny-pinching to convince wary investors.

Ford shares aren't rebounding despite its efforts to slash costs and better-than-expected second-quarter earnings. Earlier this month, Ford's stock price fell to its lowest level in six years amid concerns of rising incentives and fears of another recession. The shares closed Wednesday at $11.63, not far from that low of $10.65.

At this point, Ford needs to deliver several quarters of solid financial results, and make steady progress in its turnaround plan to spark investors to buy its shares, analysts said.

So far, Ford is making strides, analysts said. The auto maker reported second-quarter earnings of 29 cents a share, ahead of the consensus estimate of 26 cents.

Ford is also selling off many noncore assets, including its Kwik-Fit auto-repair business and two company jets. Its also phasing out slow-selling vehicles, such as the hulking Excursion sport-utility vehicle. Additionally, the company is slashing bonuses and merit raises for all its employees this year.

The bad news is that Ford's cost-cutting plan, an integral part of its overall restructuring, is still lagging. Chief Financial Officer Allan Gilmour said last month that Ford's material cost-cutting plan was six months behind schedule.

Also, competition is heating up as Ford struggles to get new vehicles to the market. Newer entries such as General Motors Corp.'s Cadillac CTS and Toyota's redesigned Camry are snatching market share from Ford. Its aging vehicles are forcing it to offer big discounts just to sell its vehicles, analysts said.

"I think the turnaround is going, but it is going fairly slow," said Raymond James analyst Greg Salchow. "I don't think people expected incentives would remain this high. But this is a very product-driven market, so Ford's lack of new vehicles will likely cause incentives to stay high."

In July, Ford's incentive spending, on average, was about $2,600 per vehicle compared with $2,376 in June, Burnham Securities analyst David Healy said.

Ford, which lost $5.45 billion last year, is going through one of its toughest periods in a decade due to product recalls, growing competition, and an overall deviation from its core auto business. In January, the company announced a turnaround plan that entailed thousands of job cuts and several plant closures.

Ford's plan calls for annual profit of about $2 a share by mid-decade. But skepticism is growing that the company might not meet this target, especially if the market sours.

"Mixing poor fundamentals for both company and industry, we see Ford struggling to make $1.70 by mid-decade -- a would-be shortfall in Ford's revitalization plan that calls for a rough $2.35 in (earnings per share) by then," said UBS Warburg analyst Saul Rubin, in a recent research report. Rubin rates the company's shares a hold.

Ford now has managers that are "realistic, pragmatic, straight talking and willing to prepare for the worst," but that doesn't change the fact that the company is in a bind, he said.

Evidently, other analysts are worried about Ford's future. Of the 16 analysts reporting to Thomson First Call, 10 rate the shares a "hold," three rate them a "buy" and three rate them a "strong buy."

Other factors could also hamper Ford's return to prosperity, analysts said.

Last week, Continental Tire North America Inc. announced that it was recalling some 600,000 ContiTrac AW and General Grabber AW tires, installed mostly on Ford's popular Expedition and Lincoln Navigator sport-utility vehicles, because of partial tread separations. The recall could leave another bad mark on Ford's quality reputation, experts say. Ford could also face lawsuits associated with the recall because it labeled the wrong tire pressure for some of the tires, Healy said.

Ford also faces the threat of a strike by the Canadian Auto Workers union over the upcoming closure of its Oakville, Ontario truck plant, which makes F-150 pickup trucks. The move has angered the union because it argues that Ford will cut Canadian jobs to move the production of the F-150 back into the United States, where it already has plants producing the model.

A strike would be a major blow for Ford. The auto maker runs a plant in Windsor, Ontario that produces the Triton V-8 engine, the heart inside Ford's highly profitable Expeditions and Lincoln Navigators. The loss of the vehicles due to a strike could devastate Ford's profits and market share, analysts said.