Friday, 11 June 2010

Companies Focus – Ford Motor Co – Carrying Increasingly Heavy Debt Yet Still Maintaining Impressive Car & Truck Traction.

Unlike its US & European peers, Ford enjoyed its advantageous competitive position as the aftermath of credit crisis played out. Though enduring a historically low credit rating, the fact that Ford had a) slimmed itself considerably via divisional divestment and re-structuring, b) avoided the need for governmental financial assistance, and c) had executed required model shrinkage whilst exploiting a global platforms ideology; altogether highlighted its ability to ably survive tumultuous conditions.

The over-reactive stock-market drop valued FMC at just over $1 at its nadir, the dis-joint soon recognised as investors plunged back, to firstly park their cash against hard inventory-based assets and an untainted brand. Since the March 2009 low, FMC has led the mainstream auto manufacturer's pack by virtue of its own efforts set against the meaningful absence of any other (fiscally healthy) Detroit player on the NYSE, and enjoyed the tailwind of the previous scrappage scheme. FMC now hovering at around $11.10, producing a MktCap of approximately $40bn, dragged down slightly over the week's nervous trading.

Of course the latter-day entity that Ol' Henry left behind is not the globally dominant industrial leviathan it once was, given the growth of foreign competition over the last half century. And now in terms of MktCap sitting behind others: the FT's Global 500 ranks it at 161st place, behind Volkswagen (154th), Daimler (134th place), Honda (87th), Toyota (32nd), yet ahead of Nissan (179th), BMW (263rd) and Hyundai (316th). But of course whilst a prime indicator, MktCap figures alone do not tell the whole investment story.

Having avoided the Washington 'hand-outs', and streamlined its global operations to an increasingly singular corporate organism, the FMC's Board's task now at hand is to demonstrate keenness and ability in paying down the heavy debt burden so that it may both boost its lowly credit rating and direct a greater amount of future income toward improving stock dividends and of course mid-term future investment plans. However, given concerns about wholesale liquidity constraint that has emerged over the last 6 weeks or so, the Board may now be re-focused on maintaining a fluid working capital liquidity position.

Q1 2010 Performance -

The major news was the return to profitability of all FMC's regional divisions, a notable achievement given the differing regional speeds of the global economy.

Q1saw more of the positive Q4 same as YtD sales rose over 30% and YoY monthly sales were up over 20%. As has been well digested by the market, Ford returned to profitability for the Q1 period, beating expectations yet still advising caution regards future expectations given the ending of the US & EU scrappage schemes and the still tenuous state of the real economy. CEO Mulally typically trying to balance optimistic enthusiasm with maintained caution.

The Q1 figures happily illustrated a disappearance of last year's negative parenthesis across many of its reporting lines. Breakthrough came as 1,253,000 sales provided a Revenue of $28.1bn, versus the previous Q109 comparison period of 986,000 sales giving $24.4bn. That $3.4bn additional revenue making all the difference in providing an impressive result. Of that $28.1bn, Autos conferred $1,195m (vs $-1,963m) showing the level of traction gained over the preceding quarters, whilst like-wise, the Financial Services division benefited at $815m (vs $-62m). PaT was $1,761m (vs $-1,793m). Although the allocation of positive contribution Special Items declined by approximately two-thirds to $125m, Net Income reached $2,085m (vs $-1,427), and importantly the Auto units' broad liquidity rose to $25.3bn (from $20.9bn YoY, and up $700m from YE09).

This sits against the increased debt level now at $34.3bn, up $700m since YE09. April saw FMC pay-down $3bn of its (2013) revolving debt facility, directly from income & working capital liquidity, the presumable aim to stabilise and improve its credit-rating ahead of what could possibly prove a second bout of wholesale credit retrenchment, thus providing access that may otherwise be unavailable or achieved at greater cost of capital.

Latter-day results running into June show the continued demand for cars such as Fusion sedan, Edge cross-over etc at that high-water 20%+ rate, but of particular note has been a renewed up-tick in truck sales. The stalwart F-series up 49% and the Super-Duty series up 82%; reflecting the resurgence of confidence by SME's and corporates in the US economy from expectations of trickle-down of governmental stimulus spending and YtD soaring stock market.

On a region by region basis... NA's improved volume, model mix and dealer-floor net pricing capability saw Revenue rise to $14bn (from $10bn in Q109), and Pre-Tax Operating Profit improve to $1.2bn (versus $-665m). S.A. experienced increased input costs, but these were outweighed by a net pricing ability and favourable FX rate, Revenue at $2bn (from $1,4bn), Pre-Tax Operating Profit
at $203m (vs $63m). The EU division experienced higher volume sales, reduced costs and improved parts sales, Revenue reaching $7.7bn (from $5.8bn), Pre-Tax Op Profit at $107m (vs $-585m). Asia-Pacific & Africa saw a raised profit contribution from China JVs, improved volumes elsewhere, better net pricing of vehicles (presumably especially so of commercials) and good FX effect with deflationary west versus inflationary east; Revenue reached $1.6bn (vs $1.2bn), Pre-Tax op Profit was $23m (vs $-97m)

Strategic -
Having suffered decades of market-share decline, with periodic big-hit products over-shadowed by poor product management, Ford badged cars came into their own over the last 18 months. The internal tidying-up programme 'ONEFORD' benefited from a perfect storm of (company positive) external force effects, which effectively left Ford as the only credible mainstream US player, within which domestically loyal car-buyers maintain confidence.

Its shrunken portfolio of well positioned, improved quality, globally relevant vehicles struck the right rational chord with cautious buyers in the US, Canada, the EU and were seen as strong contender mid-market cars for new and replacement upwardly mobile Asian and Latin American owners.

Through judicious product planning and exploitation the original 2000 Focus NA platform (C170 merged into C1), Ford has seemingly enjoyed boosted profitability given the absorbed investment costs, typically reached by year 3. However given the 2002/3 faltering marketplace investment-auto-motives suspects breakeven was reached in 2005. Thus Ford NA has been able to extend the use of the base mechanical platform and prime vehicle systems over an additional 5 years. This cost-absorption and post-postponement of typical heavy NPD CapEx cycle, then enabled concentration on not the mechanical but electronic, thus the integration and up-grading of customer-facing 'in-car' sub-systems to stay competitive in a marketplace that is e-techno savvy and expectational.

Since Ford2000, under Nasser's reign, a prime ambition has been cost control of the lower-value core mechanical systems. This to in turn provide the project & group budget flexibility that can be used add weight in the higher-value realm of in-car electronics. Thus FMC co-developed the critical electronic media inter-face platform – Microsoft Auto - on which various inter-connectivity systems run: ie 'Sync' (comms) [in place], MyFord (vehicle set-up) [2011 model-year Edge, and 2012 Focus], Pandora (music capture) etc.

Importantly, the lessons learned from the evolutionary development of the C1 'international' platform with intended NA application (ie integration), thereby allowed FMC to create the foundations for future 'global platforms' / 'systems sets'. The first of these being 2009/10 B-segment Fiesta, released initially in Europe, N.A, and subsequently Asia-Pacific. This presently in place B-segment offering, presently still at the start of its volume cycle, is to be followed by new 'global' Focus in 2011 across most markets (Asia-Pacific in 2012).

Having ridden the high-margin business of SUVs and Pick-Ups for so long, unlike its more cumbersome US peers tied up with greater legacy and operational problems, Ford was well placed and critically able to quickly react to industry recognition of the prime global small and compact car market that must be satiated with cost-effective near-homogenous product to boost profitability.

A key element to attracting sales across the product-range has been the segment attuned styling strategy. Moving beyond a typical narrow corporate design palette, Ford NA (perhaps with the greatest challenge) has managed to incorporate subtler aspects of its Euro-derived 'Kinetic Design' ethos (typically in the body-side) with alternative vehicle 'faces' that reflect the prime visual attributes accordant to each specific segment. (ie small car 'peppy', compact car 'familiarity' , mid-size car 'techno', large car 'mature' and 2 cross-over personas in 'psuedo-luxury-utility' (akin to Range Rover and previous era station wagons) and 'pseudo-sporty-utility'). Additionally able to inter-weave cross-segment likenesses through proportion and detailing to add visual cohesion to the range. Such accomplished inter-range styling of very different product groups has historically been hard to accomplish successfully, and although intentionally low key and virtually unrecognised, is a far harder task of greater corporate significance than 'hi-style' designwork.

Thus, Blue-Oval has with aplomb managed to subtly balance both cost-pertinent 'engineering extraction' and quality-conveying 'styling signification'. It is this dualism that underpinned brand gravitas as other US players struggled, and so boosted sales.

The ONEFORD initiative is typical of the operational re-centralisation requirement that is undertaken by multi-national producers in economically constrained periods; Ford has been here time and time again, even if Mulally talks as if it is a new achievement. The challenge is similar but the execution has been necessarily improved. However, this time round, with such a debt strain, to the hilt mortgaged assets, heightened global competition, and the existence of an e-connected global client base, the corporate stride forward had to be greater and more meaningful; both internally inside FMC and externally relative to car buyers.

The dedication to achieving truly global B & C-segment products – especially regards EU & NA convergence - appears convincing. But investment-auto-motives had hoped for that the (Mulally quoted) 80-85% commonality achieved on new Focus, had been equally achieved on new Fiesta, quoted at 65%. The 15-20% improvement may demonstrate the ongoing improvement but parts commonality is all the more important on the smaller car with its typically lesser unit margins.

Critically, the subtle product specification variations across different markets (in powertrain, chassis set-up, materials use etc) must be 'restraint managed' to prohibit unnecessary latter-day proliferation of model-spec variability: something typically argued by middle management as a knee-jerk requirement to chase sales relative to competitor product actions.

Ultimately, the Q109 results demonstrated the traction gained by previous NPD, procurement, manufacturing and logistics savings enabled by ONEFORD; the per unit marginal contribution of Fiesta and latterly new Focus set to rise as both products climb higher up their respective sales curves. Add to this the new-found corporate credibility regards F-series and the FMC rebound is set on these two diametrically opposed product pillars targeted respectfully at the world and NA.

However, whilst positioned well in still fragile western markets, FMC perhaps faces a greater uphill challenge in the BRIC+ regions where others such as VW, GM, FIAT and Renault appear to have greater profile and presence. Brazil, now the world's 5th largest national car market, is a good case-study example, with FIAT (joint #2 with 23% share), VW (joint #2 with 23%) and GM (#3 with 18%) historically intrenched as its top 3 players. Ford as its #4 must recognise, as it did in its early days under Henry, that buyers in 'young value-relative economies' tend to stay loyal to the most established and proven brands, or switch to the most value-effective newcomer brands, in S.A's case the likes of Hyundai and Kia; as seen by incursion in other similar EM markets like Turkey, the Baltics and CIS states, with Ford in reality set against the likes of Toyota, Honda and Nissan.

This picture seems to also run true in China and India, although less so in Russia. So although the Ford brand is of course well recognised across the world it needs effective re-polishing in EM regions through insightful product and marketing actions to once again 'get under the skin' of the regions.

Operational -

Ford (Blue Oval):
Focus, Fusion, Taurus and F-150 performed well in the US, providing a 2.7% boost to combined private & fleet market share at 16.6%, whilst private sales market share reached 14.1%. Canadian marketshare grew to 15.5%, showing a 29% YoY increase. Latin America saw 14% increase, with new record sales hit in Brazil. In the EU Ford reached 9.4% market share, showing as top-seller in the prime 19 nations. Asia-Pacific saw sales improve by 39%.

Ironically in the small car era, the US's May sales show an increase in SUV and Pick-Up sales as the low gas price, boosted US economic confidence over the last year and eased credit conditions provided tailwinds for recession-fatigued small business owners and private individuals. As part of this renewed confidence, domestically, $400m has been allotted for future Explorer production in Chicago.

In the EU, it was announced that a $2.3bn injection would be made into the UK as part of its low CO2 product development and manufacturing efforts,

Development of BRIC+ markets interest is of course an important pillar in FMC's global ambition, with an additional $450m budgetary increase in investment in Latin America (Brazil, Argentine), bring the expenditure by 2015 to over $2.5bn. Ford's 2 Mexican plants are being better utilised by adding capacity given the massive labour cost differential between it and US UAW plants – reportedly $4 per hour versus $50 including benefits. India saw the SoP of Figo in Q1, the car effectively a face-lift of old generation EU Fiesta-Fusion, assembled in Chennai. South Africa sees $400m for the Puma diesel engine upgrade and the face-lift of Bantam the compact pick-up (colloquially known as a 'bakkie').

Its no secret that this once venerable, now decayed division will be discontinued, reportedly by Q4. Three decades of 'right-sizing', the increasing stretch (ie cost-benefit) on internal limited resources, and the preferred 'bet' on Lincoln Cars, means the end was always nigh. Invented by Edsel Ford – the founding father's son – in 1939, the brand has served as the aspirant brand for blue-oval owners for decades, and for those with deeper pockets, pitched as a stepping stone to Lincoln. That 70 year old ambition was successful for 40 years but the writing was always on the wall as the baby-boomer generation moved on to typically better-made Japanese vehicles. Thus for 30 years Mercury has perceptively been little more than the Blue-Oval's division upper-level trim-line or at best a lacklustre sub-brand, and treated as the company's “poor-cousin” as seen by its to and fro 'hot-potato' handling between Lincoln and Blue-Oval divisions to being taken into the Blue-Oval fold in 1990, briefly operationally resuscitated with Lincoln again and once again taken back; today with only 4 models, less than 90,000 sales p.a., and only 1% of the N.A market.

Lincoln has seen its sales boosted in recent time, what with FMC's general recent success, aggressive frontal styling and seemingly inescapable incentive packages via generous trade-in offers or new customer ploys. Either way aided funding still plays an invisible role in luring on its mid & large size cars, and SUVs, and for Ford thankfully the demographic of the typically older buyer-set means reduced credit risk when providing lease and loan deals. However, with 6 vehicles in the range a reduction of old-stock inventories has been key, whilst simultaneously efforts to create new realms of customer attraction have emerged, no doubt through new staff training regimes, that try to reflect a 'concierge' type service as seen with Nissan's revitalised Infiniti and similar others.

Of course FMC has been here before, notably back in the early part of the decade when it sought to vie against a regenerated Cadillac. But today the stakes are higher given the amount of government funding GM and so Cadillac receives to resuscitate them, and the supposed 'good news' story GM will tell of its remaining core brands via (in actuality US tax-payer funded) sales success. That means Lincoln has a battle ahead that will ultimately witness a test of Lincoln's perceived product value versus Cadillac's ability to effectively buy its market share. Lincoln of course wishes to replicate the Germanic premium business model, but this has been an age old ambition which has yet to materialise.

Mercury's demise should theoretically benefit Lincoln sales as the Ford Board will expect many ex-owners of large car & SUV Mercury's to naturally cross-over to smaller but price comparative new Lincoln models in three or so years time. (ie 7 new or updated models over the next 4 years).That is the theory. Lincoln will have to work both imaginatively and hard to make it a reality, which will be a test given the probable reduced moral of a reduced 'Lincoln-Mercury' staff. Creating the right internal conditions to enthuse staff and mid management and of course clients will be crucial.

However, extinguishing Mercury undermines the sales-base of many of the Lincoln-Mercury dealers, who have been advised to in large part co-develop Ford-Lincoln showrooms. Whilst this undoubtedly aids Ford's Blue-Oval presence and future sales growth, Lincoln as a supposedly premium brand in actuality requires a Ford-divorced, ideally solus (single-brand) dealerships. So the Ford coupling does not bode well for supposedly building brand differentiation. The big-picture logic appears to be that ultimately the Lincoln business will in reality become a bolt-on to Ford's own. To do so replays previous era recessionary cost-control initiatives that generated Lincoln's demise. It is of course it is an operational 'catch 22', cost control versus premium ambition. But with ever increasing incursion in the 'near luxury sector' ranging from Hyundai's 'Genesis' to Lexus move into small cars the competition simply grows stronger, a bad omen for a possibly under-funded Lincoln, and raises the concern that good NPD efforts are simply undermined at the dealership.

Lastly although the old duchess of the range the TownCar (derived with Grand Marquis & Crown Victoria) ironically has played a vital role in providing a small but steady income stream for the division given the level of tooling amortisation. It is worth watching to see if the tooling for this vehicle is sold and 'lifted and shifted' to Asia given the relatively high labour content involved.

The $1.8bn sale of Volvo Cars to China's Zhejiang Geely Holding Co appears to continue on track after 2 years of talks were finalised in late March. Lewis Booth (FMC CFO) has obviously been keen to divest of the division and allow the extra-ordinary income to be nested on the balance sheet. , presumably as of Q3 2010 when deal completion is due.

Given the $6.5bn paid by FMC for Volvo in 1999 in the heyday of global sales promise, the present sale price appears weak, but is of course the result of what has been limited trade of PE interest in the car unit and in reality Ford's wish to forge stronger business links with China's largest privately run automaker (see comment on Mercury and Lincoln TownCar).

Financial Services:
As with other manufacturer's FS divisions, the corporate remit for Ford Motor Credit Co has been to both help gain cost-effective funding access for portions of the group so as to prop-up general liquidity, and to de-risk the credit-lines on FMCC's own loan books.

FMC also recognised that debt and equity investors would wish to see greater transparency in Ford Motor Credit Co, so furnished greater details about FMCC's own loan book. YoY FMCC's PbT moved from $-36m to $828m, showing a much reduced 'loss to receivables ratio' at 0.58% (vs 1.28%) and reduced level of credit purchasing leverage at 8.7:1 from 12:1, so accordant with typical banking practice. Net income rose to $528m (vs $-13m).

Looking at the FMCC 'walk through', although the size of the loan book was reduced by $130m, off-setting improvements came from improved Financing Margin giving $50m contribution, reduction in Credit Losses providing an additional $440m, Residual values on returned/returnable Lease vehicles improving giving another $440m and 'Other' providing $64m.

Mulally and co were keen to show how the impact of credit default and erosion was abating, showing a timeline of diminishing worldwide 'charge-offs', with high focus on NA improvement, and an inference that the Mercury division – now to be extinguished – had played a role in the earlier high metric for credit loss. This unsurprising given its previous marketplace fight using less strict consumer credit rating criteria to shift metal. Thus the Board made an effort to highlight its deep knowledge of credit generated problems and thus highlights the size of advantage gained by closing Mercury.

As expected, just as credit losses have been stemmed, so with a recently retracted market, so Ford Credit receivables have reduced QoQ, recently stood at $87.9bn, from $92.5bn at YE09, and from $104.2bn in Q109.

The saving grace was a 0.2% reduction in wholesale credit access, by end Q1 available at a generalised 4.8%.

Financials -
As we've seen with GM and FIAT efforts across Europe, Ford likewise has started to apply for national banking licenses so that its Financial Services arm can better access wholesale funding on a region by region basis. Thus a Canadian application has been made and seemingly granted to run Ford Credit Bank in Oakville, Ontario. Given the recently emerging constraints on EU wholesesale liquidity (as seen with VW SEAT's flailed Spanish bond offering) and the new concerns regards sovereign-debt contagion, car-makers including Ford have and will continue to ply efforts in broadening their wholesale funding tentacles; recognising many smaller national sources are better than reliance on a few major capital markets.

Thus Q1 onward proved FMC to be running well on both cylinders – cars & trucks. Ordinarily economists and analysts would have expected to have seen that demand pull in a reverse order – trucks prior to cars - but the special circumstances of recent years effectively threw the sector cyclical rule book out of the window.

In order to paint a rosier hypothetical picture, FMC highlighted the drag-effect of Volvo by stating that without the Swedish company, Automotive Revenue would have delivered not a $3.8bn rebound but a $7bn rebound – over 30% improvement. (Exactly how this figure was arrived at is open to interpretation and debate). Counter-pointing such ethereal comment, the FMC Board recognises investors' desire to see accounting clarity, and so has stated that it will display Volvo's contribution (or otherwise) as special items separate from the core Group's operating figures.

Recognising that investors will want to see Ford's working mind and approach to liquidity, its Q1 description of the general is short but concise, highlighting set portions of liquidity & cash blocs, with substantial reserves attitude, and reminding that it accessed $8bn worth of ABS and unsecured debt in the period; with an additional $3bn in April, thus completing $11bn worth of term funding

Importantly regards debt maturation only $5bn of its outstanding $29bn facility matures by end Q1 2011, and as to be expected there has been a shift in funding sources over the last 3-4 years with the previously large sums gained from private sources diminishing as the increasingly healthy public markets offer more competitive rates and T&Cs.

There is $32.2bn in committed capacity (if relative ABS approved) and $20.7bn in cash & equivalents, so totaling $53.0bn in overall liquidity. Against these backstop numbers, $17.3bn appeared at the time in use, with $21.1bn available, and over and above this $38.4bn was a further $9.0bn from non-direct receivables sources, and $5.6bn in cash (this latter sum to be used only as a ballast device on the Balance Sheet).

What is noticeable however is the diminished Cash Flow from Continuing Operations, at $0.7bn versus $3.1bn a year earlier, when presumably the full effect of international scrappage schemes was being visibly fed directly into the Income Statement. After full consideration of all line items including reduced CapEx against higher Pension and Staff Retrenchment costs, the Operating-Related Cash Flow dropped to $-0.1bn from $3.4bn a year earlier.

This reduced self-funding ability, the mixed fortunes of EU sovereign debt concerns, the fall-off of global stock-markets and inter-related slow-down in corporate bond issuance has undoubtedly put greater strain – though far from unmanageable - on corporation's ability to access previously unsecured liquidity. Thus FMC's attitude of taking full advantage when the taps were open reflects its cautionary approach and has proven efficacious.

Lastly, to the important matters of the US division's 'Debt drag' and Credit Rating

Regards Debt, s mentioned, the mix of secured vs unsecured, and so typically private vs public, portions of debt have increasingly altered over recent quarters. There has been no pay-down of unsecured notes since YE09, yet to presumably show goodwill from the UAW to Ford, a small increase of outstanding unsecured VEBA debt and similar has occurred; so over the Q1 period Total Unsecured Debt rose to $15.4bn from $15.2bn. On a secured basis, VEBA debt was static at $3bn, Term Loan decreased to $5.2bn from $5.3bn, the Revolving Credit Line was static at $7.5bn, US Energy Dept Loan increased to $1.5bn from $1.2bn; leaving Toatal Secured Debt at $17.2bn. Combine the 2 Deb t types together and US Debt reached $32.6bn from $32.2bn.

Add International divisional debt and Overall debt increased to $34.3bn from $33.6bn.

Regards Credit Rating, a mixed bag outlook from the major 4 agencies, with general recognition that Ford must improve as soon as possible. S&P offers 'Stable', Moodys offers 'Review', Fitch offers 'Positive', whilst DBRS (Dun & Bradstreet) offers 'Positive' with a caveat of 'Stable' on short-term loans.

Mulally et al recognise investors desire to see FMC's current levels of indebtedness versus equity ('leverage') reduced, and this is why the Board have generated 'home-baked' ratios that try to demonstrate both transparency and the debt reduction progress: these being 'Financial Statement Leverage' (reduced from 12:1 to 8.7:1 for comparable Q1 quarters) and 'Managed Leverage' (reduced from 10:1 to 6.9:1).

Moreover, the Board wants to ease investor concerns by demonstrating that FMC (broad definition) asset-base (including receivables and leased lands) is valued consistently higher than incurred debt levels over the 2010 – 2013 period.

What of course is not shown is modeled earnings and so liquidity availability to: encourage a stock buy-back, align heavy investment in EM regions when the global economy is back to health, improve dividends (after possible buy back) and critically pay-down debt.

Of course there are various scenarios regards the liquidity's ultimate use that can be played out relative to market and investor conditions, but investment-auto-motives assumes both the Ford family with its power of voting rights, and FMC's investment bank creditors will create a scenario that returns back to Henry's idea of a stable industrial entity with increasing global reach that offers much needed investment returns stability in this new and very different era of value-creation.

Conclusion -

Alan Mulally has maintained his typical upbeat attitude ever since joining from Boeing. Installed by the Board and Ford family for his previous industrial achievement and enthusiastic persona, his previous promises have come to finally bare fruit. Thanks in most part to the efficiency seeking efforts of his executive team that were realistically underway many years ago and part and parcel of the almost normative FMC operational contraction mechanism.

Of course part of his role is as the outward-looking face of the company, their as the FMC ambassador. Yet interestingly, in pertinent debates such as the May 28th Sell-Side conference Call, he tends to speak in re-echoed generalisations. Modus operandi a mix of charm, warmth and anecdotes that offer replies without plainly stating the facts of the matter requested. A well evolved ploy with exacting details left to his financial lieutenants of Lewis Booth and Neil Schlosser. But even they, whilst inwardly wrapped in detail and numbers, appear to have honed the ability for surface explanation; thus leaving answers to be extracted by sell & buy-side analysts from a mixture of presented materials/figures and generalised implications.

Thus the investment community appears to be betwixt between lack of meaningful 'drill-down' detail from the horses mouth, the apparent deep detail of presentations which partially remain unexplained, and the impressive reality of Ford's traction as seen in Q1 figures; and the expectation of Q2-Q4 performance.

The completion timing of the Volvo deal in Q3 2010 should also buoy not only the balance sheet as it feels the post spring/summer sales decline, but also boost FMC stock price as investors return to the archetypical Q3/Q4 buying mode.

Yet looking ahead from the present in June, the economic optimism that reigned in Q409 and Q1 2010 has cooled markedly in the EU, and had an undoubted knock-on effect to Asian and US capital markets which in turn set the tone for B2B and B2C commercial confidence.

The optimistic outlook presented in Q1 for the remaining year is now starting to look somewhat overdone. Market resilience should prevail in the US, China, Brazil and South Africa, but investment-auto-motives expects EU sales levels to stay effectively flat at Q1 levels as long as financing credit conditions are not markedly changed. Whilst impacting the presumed growth hoped Ford et al can once again align EU manufacturing capacity to conservative estimations, and in the process create yet another round of incremental internal cost savings. Furthermore, the BP oil spill in the Mexican Gulf that has enraged US citizens creates an atmosphere of reduced oil supply and increased pricing which thus benefits Ford's small & compact car launches across 2010 & 2011.

Mulally also highlighted his ambitions to see Ford as an industrial 'Integrator' – similar to Daimler's role – with part of its business model gaining income from the sale, licensing of internally developed technology solutions and feasibly contract manufacturer.

First positive signs come from the nature of the Ford – Microsoft relationship, and although exacting detail is confidential, the question that naturally arises is to what degree Ford can leverage its competitive advantage in this field?

Though Mercury is to be discontinued, it is probably a case of 'watch this space' as FMC may be seeking to divest the brand to a Chinese manufacturer, notably Changan Motor given the FMC-Changan JV links in China. Thus providing Changan with a Buick competitor on its home-soil, a recognised small but meaningful future foot-hold in the N.A market, and for FMC, either JV manufacturing income or pure product licensing income, with in the future possibly a cost-effective platform engineering 'bridge' from which to component source for Lincoln.

[NB Furthermore, as investment-auto-motive's has proffered previously, FMC could feasibly 'rest' the brand for some years, before re-introducing it back to N.A and possibly world markets as its 'Youth' brand (in a Toyota Scion vein) given its predominant historical association with affordable (used market, hotted-up) Coupes for the young. This would require a full re-invention of the brand and if undertaken after exhaustive research to support the hypothesis should be done in a low-key, low-cost guerilla/viral manner].

Relative to the macro-headwind and input cost headwinds that are re-fracturing the business models of those less well placed in the western auto-sector (especially GM Opel), FMC itself is undoubtedly a lead western volume manufacturer. It right-sizing and pertinent product re-invention depicts a simple, well positioned business model which will provide the ongoing traction necessary to produce improved per unit margins, so RoS and thus RoI & RoE for creditors and equity-holders alike.

However, newly emerged testing market conditions may see revenue growth slow over Q3 2010 and that in turn may have FMC 'treading water' a while longer regards its current sub investment grade credit-rating, unless the Board decides that the reality of its internal – possibly partially hidden – strength allows it to pay down debt from its liquidity cushion – effectively turning over lending sources to pay Peter from Paul.

More likely is maintained liquidity levels given the seemingly ever ongoing recognition that this is the prime investor indicator of a defensively run yet possibly opportunistic company.

[NB investment-auto-motives sees a possible scenario emerging where Ford and FIAT vie or co-operate to purchase the Microsoft Auto rights; given respective MyFord and Blue&Me in-car systems interests, both presumably keeping close eye on each others level of product integration]

But ultimately FMC is, whilst still a large organism, structurally nimbler and simpler than many of its peers, and can focus management on extracting yet greater value from scale and cost leverage to battle near-term headwind concerns on input costs; a reality even in this supposed era of deflation.

Longer term FMC is headed toward evolving into a different beast that sits higher up the value chain, and it is a combination of present relative simplicity, global reach and long-term technical value generation that maintains investor belief. So though it carries a heavy back-pack it is lean, fit and headed in the right strategic direction – and that is what puts it ahead of the remainder of the mass market pack.