Wednesday, 13 May 2009

Company Focus - Ford Motor Company - 'Stock' Car Company Racing

As the economic woes slow the NASCAR business model (inducing a possible re-think) the investment community keeps a watchful eye on an alternative leader-board that involves not stock cars, but car company stocks. The Autos element of the Dow Jones Industrial section of the NYSE is becoming increasingly dynamic as observers seek to seperate the winners from the loosers amongst listed VMs and Suppliers.

As GM heads closer toward the Washington-set Chapter 11 deadline, so questions over its Market Capitalisation value have become apparent which in turn has driven down the stock by a third over the last few business days from $1.60 to $1.16 as of close of play on Tuesday 12.05.09. [see previous 'predictive' posting 08.05.09].

With that aforesight Ford's Mulally and company bankers seem acumenical enough to utilise the stock-price distance/incongruance that has emerged over the last year. To in turn use that market confidence to the company's advantage and literally capitalise upon it.

Thus, FMC's statement on Monday 11.05.09, 3 days ahead of its AGM, that it would offer a 300m new share issuance to the market. [NB 347m including the book-runner's underwriting uptake option for Citi, JP Morgan, Morgan Stanley & Goldman Sachs]. As the stated SEC 8-K announces, much of that raised funding will be allocated to fund the outstanding contributions required for the UAW VEBA.

Ford was wise enough to take out its securitized "home improvement loan" some years ago to fund the R&D and CapEx required for a new product development rationale and relatively lean product pipe-line with global reach (esp 'Global' Focus). By doing so it was able to refrain from reliance upon Washington funding and its implicit and explicit associated 'covenant' terms and conditions.

Doing so of course took a toll on debt levels and so balance sheet liabilities, and given the securitization element and generally depreciating asset-prices of the present time, sanctioned much the company's asset-base from further use.

Thus beyond the need for a "very liquid" working capital cushion, Ford does indeed need to fund the VEBA and by doing so be seen to be good corporate citizens for doing so when all its Detroit counterparts can do is offer questionable equity swaps. But more so Mulally will have been keeping a close eye over the Administration's reported/alleged bias toward the UAW - given its importance to the Democratic Party's recent support, Obama's election and the need for present-day public support during these tough times. Hence there is a possibility that Mulally et al saw an emergent trend, given the Administration's actions, that could envoke even Ford to provide for the VEBA via a debt for equity swap.

Given FMC's undoubted hard work to maintain traction over the last few years woth efforts like ONE Ford, and a concomitant investor confidence, such a politically enforced action would have been problematic indeed - partially lumping FMC in with its 'bad-egg' Detroit counterparts. Such an eventuality had to be avoided, hence the very rare event of a Ford issuance of new stock.

There has been commentary that able to metaphorically 'lurk in the shadows' vis a vis GM and Chrysler that Ford is not as unincumbered as first seems given its obligations. But even so, it does appear to be, for the moment at least, along with Toyota, VW (and the smaller Hyundai), one of the global Big Players with maintained momentum as the ongoing headwinds continue to buffett.

Ford's bankers, themselves in a mixed bag of fortunes, recognise that fact and equally wish to generate welcome commisions which will contributes to their own income streams and so given the recent stress tests improve their capital ratios, to in turn provide the liquidity for cross-sector industrial lending. And so a strong uptake for these FMC shares will benefit the company's supply chain across Delphi, other Tier 1s & 2s, the dealer-base and of course Ford Credit.

The FMC announcement generated a relatively heavy stock sell-off (from $6.25 to $5.01) in a day and a half as inevitable concerns regards stock dilution grew. Mulally et al will be seeking to re-envigourate the markets tomorrow at the AGM, hoping to see a quick 'V' pull-back to a higher price and so action an 'LSD effect' within the 'Detroit Differential' ; the key to its own traction.

Serendipitous indeed that Ford took 3 of the top 4 places at the recent Darlington round of the NASCAR series. And it was Matt Kenseth running a CitiFinancial sponsored Ford Fusion that won. Serendipity and Fusion indeed!