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FORD WEIGHS DRASTIC MOVES
As 2nd-quarter loss soars to $254M, automaker looks at alliances, sale of assets
Bryce G. Hoffman and Christine Tierney / The Detroit News
DEARBORN -- Facing pressure from its board and Wall Street, Ford Motor Co. has hired a mergers-and-acquisitions expert to study whether it should sell underperforming brands such as Jaguar, form an alliance with another major automaker or make other large-scale strategic moves.
Kenneth Leet, 48, a former investment banker for Goldman Sachs and Bank of America, will report to Chairman and CEO Bill Ford Jr.
Leet has been charged with "exploring a broad range of strategic alternatives," the company said Wednesday. While Ford did not elaborate, people familiar with the situation said the review will explore assets sales and possible alliances.
The announcement of Leets' appointment came the same day Ford was forced to restate its second-quarter financial results, doubling its loss to $254 million, and warn that its Premier Automotive Group -- which includes Jaguar and other European luxury brands -- will lose money in 2006.
Ford launched a North American turnaround plan in January that called for plant closures and job cuts, but a rapid shift away from pickups and SUVs has severely undermined the effort. Ford has pledged to speed up the plan.
In an e-mail to employees Wednesday, Bill Ford said the North American turnaround remains the top priority but that he "will continue to evaluate the rapidly changing landscape of our industry and review the best ways in which we should adjust."
He added: "Contrary to speculation, nothing has been decided and we will not rush to judgments."
Some Ford board members are concerned about the pace of Ford's turnaround effort and worry that a possible tie-up between rival General Motors Corp. and Nissan Motor Co.-Renault SA could leave Ford vulnerable in the rapidly evolving global automotive industry, according to people familiar with the situation.
Leet decision was Bill Ford's
Ford spokesman Tom Hoyt stressed that the decision to hire Leet was made by Bill Ford in consultation with the board.
"Bill and Ken have had a long relationship," Hoyt said, noting Leet once headed the Ford account at Goldman Sachs.
As the strategic review progresses, the Ford family could be forced to reassess its role in the company founded by Henry Ford. The family, led by Bill Ford, has held a 40 percent controlling stake in the automaker for the past 50 years through its Class B super-voting shares. But mergers experts say the size of the stake could be an impediment to forming a major alliance with another automaker.
"Ford will not be able to do some of the things it needs to do as long as the family maintains its control of the company," said veteran auto analyst John Casesa of New York's Casesa Shapiro Group LLC. "It's an issue the family needs to confront now."
Ford officials dismiss the notion that the family control is blocking potential mergers, pointing out its various alliances and joint ventures around the world. But they haven't expressly ruled out changes in the ownership structure.
The knowledge that Ford is open to an alliance puts additional pressure on GM as it begins its own talks with Nissan-Renault -- particularly since many analysts see an alliance between Nissan-Renault and Ford as a more promising alternative.
Renault and Nissan's CEO Carlos Ghosn approached Ford more than a year ago about a possible tie-up, but was told the Dearborn automaker would not consider any deal that required the Ford family to cede its controlling stake in the company, according to people familiar with the situation.
Ghosn open to deal
In July, Ghosn told The Detroit News that he is open to considering other alliances if a merger with GM fails to gel. A person familiar with the GM-Renault-Nissan negotiations said Ghosn has never ruled out a deal with Ford. However, the person said there is an understanding in investment banking circles that no one will deal with Ford unless the family agrees to dilute its voting rights to 20 percent and hires an experienced CEO to take over day-to-day running of the company from Bill Ford.
One of Leet's first priorities will be assessing the future of Jaguar Cars Ltd. Ford acquired Jaguar in 1989 for $2.6 billion but has been unable to make the British luxury brand profitable. In December, Ford was forced to spend $2.09 billion to bolster the brand.
"It's time to figure out what we are going to do about some of these brands," a Ford official told The News.
While Wall Street analysts welcomed the idea of Ford shedding Jaguar, they say more substantive changes are needed to fix Ford's domestic automobile business.
"Is selling Jaguar going to fix your problems in North America? I don't think so. The cash is nice, but they don't need it," said Bradley Rubin of BNP Paribas. "They don't need an alliance (either). They need to solve their own problems. They need to close the factories faster, open the attrition program to all employees and stop selling cars to the daily rental fleet market."
Ford has outlined a plan to shutter 14 factories and eliminate some 30,000 factory jobs over the next six years. While Ford has taken a more targeted approach to downsizing, GM has already managed to eliminate 34,000 U.S. hourly workers through buyouts.
'Desperate times'
"Desperate times call for desperate measures -- especially when GM is taking them," said Robert Barry of Goldman Sachs. "We think Ford's core challenges are unsustainably high (North American) market share given the competitive landscape, a relatively less competitive (North American) product lineup, and onerous legacy liabilities. We have doubts a strategic review or alliance can have a material impact, especially in the near- to medium-term."
Bill Ford says he knows the company needs to move faster and has promised to provide details of an accelerated restructuring plan and additional cost-cutting moves within the next couple of months.
The second quarter took Ford by surprise. Rising gas prices and interest rates forced a tectonic shift in the North American vehicle market away from gas-guzzling sport utility vehicles and full-size pickups toward more economical cars and car-based crossovers. Ford had braced itself for the drop in SUV sales, but the sharp decline in its bread-and-butter large pickups caught the company off-guard.
Ford also may review options for its Ford Motor Credit, its profitable finance arm. GM has sold a controlling interest in GMAC, its captive finance unit, to raise cash and lower borrowing costs. However, that appears to be lower on the list than other options.
"Ford Motor Credit Co. is a strategic asset to Ford that generates solid profits and dividends," Bill Ford told employees.
Though most analysts agree that Ford's problem is not a lack of cash, its financial woes have undermined the credit rating of Ford Credit, forcing it to borrow money at a stiff premium. That means Ford makes less money on the cars and trucks it finances.
Investors welcomed the news of Leet's appointment. Ford shares rose 38 cents, or 5.8 percent, to $6.96 Wednesday. They have fallen 9.8 percent this year.
BMW rumoured to be interested, as well as TVR.
