Ford CEO Alan Mulally unveils the Focus ST at last month's Paris Motor Show.
Its stock price at a 6-year high, Ford Motor Co. hopes to maintain its momentum – and how it fares in the days and weeks ahead could have an impact on rival General Motors’ own return to public trading.
Ford shares will open at $16.21 today, having risen by 2.2% on Friday, to the highest level since June 2004 – and more than double the stock’s price a year ago. As recently as November 19, 2008, Ford shares had plunged to just $1.26, investors and analysts alike wondering about the viability of Detroit’s Big Three automakers.
After years of decline, however, the domestic manufacturers are showing unexpected life, Ford leading the revival.
Just last month, Ford posted its best third-quarter profit in two decades, with earnings of $1.69 billion for the July-September quarter, or 43 cents per share. Barely a week later, the maker announced a 19.3% increase in October sales, even as rival Toyota posted a 4% decline. The industry, overall, posted a 13.4% gain for the month.
But what may be most assuring for investors is Ford’s effort to pay down the sizable debt it has run up in recent years.
The maker mortgaged most of its assets as the economy began to sink into recession. The move – conceived by Mark Fields, Ford’s President of the Americas and approved by then-new CEO Alan Mulally – generated significant concern, at the time, but proved to be a prescient decision as the industry sank into its worst financial crisis since the Great Depression.
While Ford initially stood side-by-side with its cross-town rivals as they went begging to Washington, the number two American maker was able to steer clear of bankruptcy and decline a federal bailout. But it also was stuck with a sizable debt even as GM and Chrysler were able to shed much of their own liabilities through Chapter 11.
CEO Mulally has been steadily reducing that debt, this year, and last month announced plans to trim it even further – among other things pre-paying $3.6 billion into its union-run VEBA, or retiree health care plan.
And with its cash horde up nearly $2 billion over the last 12 months, to $23.8 billion at the end of September, Ford has been getting solid reviews from industry analysts.
“The company is well-positioned to continue generating strong earnings and cash flow through 2011, and to further strengthen its balance sheet,” said a report by J. Bruce Clark, senior vice president at Moody’s.
The market has been listening. Since announcing its third-quarter earnings, Ford stock has surged more than 15%. Whether it can continue to maintain its momentum remains to be seen, of course, and will likely depend on both internal and external factors.
Close to home, the maker is pushing out an assortment of critical new vehicles, including the 2011 Fiesta, which got off to a solid, early start, notably making gain in normal import-centric California. Next up is the 2011 remake of the once-popular Ford Explorer. Switching from a truck-based platform to a car-like crossover design, the maker hopes to regain at least some of the ground lost by the Explorer, which was, for years, the best-selling SUV in America, but which saw sales collapse after a safety scandal early in the last decade.
Meanwhile, Ford has other challenges to deal with, notably in Europe, where a weak economy is dragging down car sales. And the company has yet to establish a significant presence in China, the world’s fastest-growing car market – which has helped sustain GM during the last few dismal years.
Ironically, Ford has, at least indirectly, helped its domestic arch-rival. Insiders note that GM decided to raise the projected price it anticipates for its upcoming IPO to between $26 and $29 at least in part because of the strong performance of Ford’s stock. And the smaller maker’s revival is helping GM executives pitch their own optimistic view of the future as they fan out to convince investors to back their own stock offering.
In turn, if GM shares win a good reception, analysts believe it will only help build further momentum for Detroit as a whole.