Ford Motor Company: Protect My Investment and Build Hybrids
Ford Motor Company is cutting back on production and trying to figure out how to save its business. Moody's cuts Ford's (F) bond rating, and the company prudently cuts its dividend. Much as General Motors (GM) has been, I think Ford will be the new focus of credit fears and bond holder worries.
The global car business is not in trouble, other companies are doing well. Why are Ford and GM in so much trouble? Is it just the Unions and health care? Well, that's part of it. Their competitors are all in countries where there is national health care; the expense is not borne by business (when it is) as in the U.S. These companies also lack innovation and risk taking. GM kills the electric car; and Ford cuts back on it's hybrid production. At least Chrysler had the wherewithal to go out and sell itself to a foreign company. I think they did it to find better management and bigger risk takers. (Germany is not a country known for being full of risk takers.)
As a shareholder/bond holder I wish Ford would make a bigger commitment to making more hybrids. By sticking to a failing strategy of big gas guzzling vehicles they are potentially ruining the value of my stock.
photo courtesy of Judith Zissman
Socially responsible investing: If you must own Ford common (F), be sure to vote your proxy. There are usually several shareholder proposals every year to get this company to clean up its act.
Disclosure:
I own FORD MOTOR CAP TR II (F-PS). This is a non-voting convertible preferred stock that pays a fat dividend of 6.5% (against a $50 notional that's almost 13%) . It's a risky bet but I prefer it to owning the common. I think many of the Ford descendants own this instrument as well. I believe that will make it harder for the company to cut the preferred dividend.
I also own put spreads* on Ford Common. This partially gives me a hedge against some of the credit default risk embedded in the preferred shares because I benefit from a drop in the price of Ford stock.
*The put spread? January 2008 expiration: 7.5 strike (long) 5.00 strike (short).
I own DaimlerChrysler Euro Notes maturing in 2011.
Nothing in this blog is meant to be specific financial advice or a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult an investment professional familiar with your specific financial situation before buying or selling any security.
The global car business is not in trouble, other companies are doing well. Why are Ford and GM in so much trouble? Is it just the Unions and health care? Well, that's part of it. Their competitors are all in countries where there is national health care; the expense is not borne by business (when it is) as in the U.S. These companies also lack innovation and risk taking. GM kills the electric car; and Ford cuts back on it's hybrid production. At least Chrysler had the wherewithal to go out and sell itself to a foreign company. I think they did it to find better management and bigger risk takers. (Germany is not a country known for being full of risk takers.)
As a shareholder/bond holder I wish Ford would make a bigger commitment to making more hybrids. By sticking to a failing strategy of big gas guzzling vehicles they are potentially ruining the value of my stock.
photo courtesy of Judith Zissman
Socially responsible investing: If you must own Ford common (F), be sure to vote your proxy. There are usually several shareholder proposals every year to get this company to clean up its act.
Disclosure:
I own FORD MOTOR CAP TR II (F-PS). This is a non-voting convertible preferred stock that pays a fat dividend of 6.5% (against a $50 notional that's almost 13%) . It's a risky bet but I prefer it to owning the common. I think many of the Ford descendants own this instrument as well. I believe that will make it harder for the company to cut the preferred dividend.
I also own put spreads* on Ford Common. This partially gives me a hedge against some of the credit default risk embedded in the preferred shares because I benefit from a drop in the price of Ford stock.
*The put spread? January 2008 expiration: 7.5 strike (long) 5.00 strike (short).
I own DaimlerChrysler Euro Notes maturing in 2011.
Nothing in this blog is meant to be specific financial advice or a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult an investment professional familiar with your specific financial situation before buying or selling any security.
Few thoughts:
1) the GM electric car was a poor design to begin with: low range (<60mi), have to plug it in, two seater, aggressively odd styling. I know engineers who bought it, but mostly for the experimental/geek factor. This is why I was excited when I first saw the Prius my friend had bought: smart because it was a transitional, no-change-to-the-customers-habits. I'm not surprised GM killed it, but I think it sucks they didn't learn from it and use it as a platform for a better design.
2) that said, a hybrid is not right for me because they are relatively expensive (the break-even is pretty late), my local mechanic can't fix it so I have to go to the dealer for service (shudder), and the possible balloon payment on replacing the batteries in 7(?) years may move the break even to time infinite. Still I hope a gazillion hybrids are sold to get everybody out of their SUV's. Or perhaps $5/gallon will do that?
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Right, I think Ford and GM are in the same basket in many ways. Neither company has really distinguished itself from the other in the past two decades, though - they make cars that are mechanically very similar and are locked in a perpetual orbit together. A shake up is good news.
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I'm totally happy with GM building more hybrids. I don't have their stocks so I don't care so much about that. As long as they come up with more fuel-efficient cars, I will definitely still shop at GM when getting a new car. Thanks for posting this!
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Gosh, I think equating Ford with GM is a big stretch...as a Ford owner, I have been impressed with its stability while other US car manufacturers were stumbling in the past few years. Also, I don't think health care can be blamed - it is in the end a small part of the puzzle. Hybrids. . . I am waiting to see how much of that is a passing fad, and frankly I think Ford is wise to hang back a bit. We will end up with more efficient vehicles, but the new hybrids are so often impractical - I wouldn't put my money in those!
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Since the date of your post, the car industry has changed so much! I hope you now look at Ford with pride, as their hybrid production has increased, and they are building among the best cars in the world, these days. I still don't trust GM much, but I would consider Ford where I would only look at Japanese brands last year.
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What you fail to consider, is that hybrids are not practical for your average American. Whether it is fuel capacity or space, these things are too often a joke. Where to put the kids? The dog? The cargo? And what if in the course of a day you NEED to drive more than 100 miles? Plus, factor in the size and directly related lack of protection, and you have a loser.
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