Is the auto industry facing a future without Ford?

Jan. 1, 2020
There was a time when envisioning a future without new Ford vehicles would have seemed as far-fetched as one where the United States fared better internationally in soccer over basketball. Welcome to the new world order, one where American teams no l

The outlook for Ford remains gloomy as financial analysts downgrade the company's recovery prospects.

There was a time when envisioning a future without new Ford vehicles would have seemed as far-fetched as one where the United States fared better internationally in soccer over basketball. Welcome to the new world order, one where American teams no longer rein over "American" sports, and Ford creeps ever closer to bankruptcy.

More bad news for the struggling automaker came from bond rating agency Fitch Ratings in June, when Fitch downgraded long-term ratings for Ford and the Ford Motor Credit Company (FMCC) to Negative Rating Outlooks.

The ratings indicate recovery prospects of 50 percent to 70 percent in the event Ford files for bankruptcy.

This report follows the release of a chart compiled by J.P. Morgan that shows the credit market implying a probability of 43 percent that Ford will default in three years, compared to a 34-percent probability of GM failing.

An auto industry analyst for J.P Morgan also predicted Ford would lose at least $2.5 billion in North America in 2006. That figure could increase dramatically if high gas prices continue scaring customers away from the large SUV market, historically a strong (and key) market for Ford.

The declining full-size SUV market is a large part of what ails the nation's number two automaker. At the heart of Ford's problems: Where the company is strong, the market is weak; where the market is strong, Ford is struggling to compete.

Fitch notes that Ford is also troubled by high commodity and operational costs that Fitch believes will accelerate losses into 2007. Ford had hoped to address these problems with employee buyouts and a new healthcare agreement with the United Auto Workers (UAW). Ford also put into place its "Way Forward" revitalization and recovery plan, which calls for cutting 30,000 jobs and closing up to 15 plants by 2012. Fitch predicts the cash savings here won't be enough to offset losses before 2007.

Peter Morici, a business analyst and professor at the University of Maryland's Robert Smith School of Business, says Ford has given consumers the idea that its products are dull and uninspiring. This factor not only hurts the sales of new vehicles, it negatively impacts the sales of others.

Critics charge that Ford has few "must have" or "halo" vehicles, models that peak consumer interest and drive traffic into showrooms. GM features three such vehicles: the Chevy Corvette, Pontiac Solstice and Saturn Sky roadsters. Corvettes have remained popular for years. The Solstice and Sky already are sellouts with waiting lists.

Ford arguably has just one halo vehicle, the Mustang, and consumers appear to be losing interest in it. Just one year after a redesigned Mustang hit the streets, sales have slipped 11.6 percent (21 percent from where they were in May of last year).

Ford also is failing to pick up business in important new segments that are driving profits for other manufacturers. In the red-hot hybrid market, the company has no cars to compete with the Toyota Prius and Honda Civic Hybrid. (Ford does offer hybrid SUVs, the Ford Escape and Mercury Mariner.) Ford also has no vehicles in the small car market to compete with the new Honda Fit, Toyota Yaris and Nissan Versa.

The automaker acknowledges the range of challenges it must address to right its sinking ship. However, the company is quick to dismiss any talk of bankruptcy and confidently declares it is working its way out of its current financial troubles.

"You have to remember Ford is a global company. Right now we're having difficulties in one market, North America," says Becky Sanch, Ford Financial News Manager. "We have a plan to address the problems there."