FoMoCo Execs reject bankruptcy (again) and shift the blame for poor June sales

Although William Clay Ford, Jr. ("'lil Billy") hasn't taken center stage at www.fordboldmoves.com, he's not been silent. The June 28, 2006, edition of the Wall Street Journal reports lil Billy's denied (again) speculation that Ford will file bankruptcy. Such talk increases each time FoMoCo's bond ratings are cut futher into junk status--as Standards and Poors did earlier this week.*

Months ago, Automotive News columnist Edward Lapham identified the obvious reason why 'lil Billy won't lead FoMoCo into reorganization anytime soon: The Ford family--as controlling shareholders--would stand last in line behind all of Ford's creditors, meaning financial disaster for the Ford family's equity interest.

Of course bankruptcy talk is premature for other reasons. While FoMoCo has huge debts, it still can borrow money and is sitting on billions in liquid assets.

More interesting was 'lil Billy's denial of rumors that FoMoCo's bargain-basement share price might prompt a move to take the company private. FoMoCo was private for three and a half decades, ending in the mid-1950s, so such speculation isn't unprecidented. However, given the Ford family's control and the probability that such control reduces FoMoCo's attractiveness for a domestic or international takeover attempt, one wonders how the "go private" rumors had any viability in the first place.

Automotive News reported on June 29, 2006, that Cisco Codina, Ford group vice president of North America marketing, sales and service, is complaining Chrysler's suggestion of an employee discount plan in July has weakened sales during the last couple of weeks in June. Codina said "It's unbelievable that someone would begin talking about next month's incentives in the middle of the month. Go figure."

Cisco, of course, protests a little too much.

Obviously, the U.S. consumer is conditioned to summer-time "fire sales" from the Detroit 3. Moreover, given the dramatic declines in truck and SUV sales as well as increasing general economic impact of sustained higher fuel prices and FoMoCo's relatively weak position in high m.p.g. vehicles (No tiny "B car" in the U.S. market, the aging Focus and Ranger forced to carry Ford against newer competition, no light diesels, no economy engine option for Mustang, limited hybrid capacity, Ford's failure to use currently-available technology to increase V8 fuel efficiency, etc.), consumers fully and reasonably expect escalation in the incentive wars this year.

Add into the mix Toyota's aggressive expansion ideas, including the new Texas Tundra plant and Nissan's recent sales softness, and the conditions are becoming ripe for yet another firestorm of customer incentives, such as "employee pricing."

Cisco saves special hostility for treating ordinary customers as well as the ever-shrinking group of Ford employees: "I don't think employee discounts are good . . . Last time we were dragged into it. Right now, at this point in time, we have no intention of doing employee pricing. It’s very disruptive."

Sorry Cisco, but it looks like a good time to stay on the sidelines until the "real" deals begin later this summer . . . .


*Reuters reported Wednesday: "S&P cut its corporate credit ratings on Ford and Ford Motor Credit Co. to "B-plus, ' four steps below investment grade, from "BB-minus.' Ford's 7.45 percent bonds due in 2031 fell to 70.375 cents on the dollar, down from 70.438 cents on Tuesday, according to MarketAxess."