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Ford's "Break Even Point"


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This article starts out like another gloom and doom Ford financial article

 

The Debt Specter Haunting Ford

 

But buried in the article is this statement

 

Ford needs 15% of the U.S. market and for industrywide sales to rise from the current annualized pace of 10.5 million cars to 12 million.

 

That certainly seems obtainable, but the article also cautions, that there will be a huge marketing push from Chevrolet that may blunt Ford's recent increases in marketshare.

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That certainly seems obtainable, but the article also cautions, that there will be a huge marketing push from Chevrolet that may blunt Ford's recent increases in marketshare.

 

But Chevy still has to deal with the Bankruptcy spector that it has..you can advertiste all you want, but Chevy still doesn't have as strong of a product lineup as Ford...they have a couple nice models, but Ford will have just about everything new or refreshed by 2012 or so

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GM are going to bleed sales as well, there's a lot of Pontiac buyers who have wiped GM

and maybe they will pick Ford over Chrysler or an import.

 

I think Ford is still in the box seat but it's annoying journalists are mention in just

about every article that Ford needs to repay the revolving credit loan by 2011.

I think Ford deserve some credit for managing their debt over the past three years.....

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I think Ford is still in the box seat but it's annoying journalists are mention in just

about every article that Ford needs to repay the revolving credit loan by 2011.

Financial analyst just can not ignore that "800 lb gorilla in the room" ! However ...

Himanshu Patel, who follows the auto industry for JPMorgan Chase (JPM), expects (Mulally) to try to swap the debt for new shares in the next 12 months. With shares trading near 7, and Goldman Sachs (GS) predicting they will hit 9.50 by yearend, the automaker could handily surpass the $1.5 billion it raised in May when the stock was at 3.45

Based on this years stock sale, I expect another new issue of stock to do well next year !

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Well, Ford still has a couple of significant changes that still haven't changed:

 

Fiesta production for retail sale. At the moment, that production line isn't making revenue. Its just sucking up money. Once they get that line to start making revenue, assuming that they can get at least a passable selling price on the Fiestas, that's one negative in the books that will turn positive.

 

Scorpion Diesel production hasn't commenced for retail sale. Once that gets to full volume and Ford no longer has to pay navistar for diesel engines, that's another negative that can turn positive for them.

 

Fiesta 1.6L engine production also hasn't started, that's another negative that can turn into a positive.

 

That's all big stuff that can change and significantly affect their profitability. And, I believe, almost all of that is supposed to happen next year.

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Third party analysts really have no ideal how a company is going to do in the future.

 

Alan Mulally says that by 2011, every car line will be profitable. When half the car lines are profitable, Ford should be profitable. They must be getting close this year. On the other hand, they will be incurring a lot of expenses related to bringing the next gen C cars to the US.

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Re: revolver due in 2011.

 

If all else fails, it can be refinanced. Banks make money off interest, not repaid principal. The lending consortium will happily refinance whatever is not already paid off because unlike some car companies, Ford has been pretty punctual about paying interest.

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Quarter 2 proved that Ford had their expenses in line and Q3 will show what happens when you combine expense containment with top line growth. Ford may not make money in Q3 but they will certainly improve on the $400+ million loss from operations in the 2nd quarter. Of course, Kiley uses the NA loss (-600 mil) when talking about Ford. Vehicle production is what drives revenue and in NA, at least, they are going to be up 15% or 25% depending on whether you compare to prior quarter or prior year quarter.

 

The only potential weakness will be South America. It is cooling off, finally. Ford may not break even in SA in Q3 or the rest of the year. However, Asia should be much stronger financially since the Fiesta supply channel will have been filled for the entire quarter.

 

Another potential downside is the fact that there is not alot of available product on the lots. The Cash for Clunkers program has nearly completely depleted the Escape and Focus inventories at all the dealers that I have access to. The F-150 was down to only 6 units at the largest dealer here as opposed to a normal inventory of 25+. Fusion is down to nothing as it has been for months. So Ford is churning revenue currently producing vehicles to build these inventories back up but sales in August may be negatively impacted due to the shortages if not already impacted in July.

 

I realize hindsight is 20/20 but if Ford had been able to somehow bring out the Fiesta or the new Focus prior to the Cash for Clunkers program the impact on marketshare would have been epic. Just dreaming a bit on that one.

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Re: revolver due in 2011.

 

If all else fails, it can be refinanced. Banks make money off interest, not repaid principal. The lending consortium will happily refinance whatever is not already paid off because unlike some car companies, Ford has been pretty punctual about paying interest.

Exactly.

So where people see an elephant in a room, it's actually opportunity to grow business by refinancing.

Maybe some of Ford original borrowings can be covered using the government's $6 billion loan.

If they have valid projects in play maybe the refinancing is already there...

Edited by jpd80
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Exactly.

So where people see an elephant in a room, it's actually opportunity to grow business by refinancing.

Maybe some of Ford original borrowings can be covered using the government's $6 billion loan.

If they have valid projects in play maybe the refinancing is already there...

 

Thats only for restructing plants...not restructing loans, its the law.

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Thats only for restructing plants...not restructing loans, its the law.

No, you do this:

Use Government money for its intended purpose but the cash that was raised

is kept and the revolver debt refinanced, and another debt for equity swap occurrs.

Edited by jpd80
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Thats only for restructing plants...not restructing loans, its the law.

The amount of money that Ford has theoretically "already" spent to retool Michigan Truck for Focus production can potentially be pulled out of the goverment loan to do with what they want. Like pay down current debt at 35 cents on the dollar.

Edited by jobu37
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