Wednesday, January 25, 2006

Can Ford Find Its Way Forward

On Monday, Ford announced sweeping changes to its business model. Dubbed "Black Monday" by the UAW Ford cut wide and deep. They axed 14 plants and 25K workers and 4K "white collar" workers from the payroll. Bill Ford Jr. (current Ford Scion) made the case in plain English to all who were listening: the old Ford was broken and he was going to fix it. No longer would Ford build cars based on capacity availability, it would build cars based on what the customer wanted. What a novel concept.

One can hardly blame Ford for making the changes. North American operations lost over $l.4 Billion last year alone. The company's cost structure has spiraled out of control and is only getting worse. Onerous contracts with the UAW (agreed to by previous Ford managment I might add) have handcuffed the company's ability to be nimble in the everchanging auto market. In the end it was "rip the bandage off" time at Ford and Bill was just the guy to do the pullin'.

So where does this leave Ford now? The rank and file response to Ford's plan is positive but of course it would be when a company with a bloated cost structure hacks off a significant chunk of SG&A. However, a company cannot cut its way to success. Even Jr. mentioned that in his speech to the press.

The bottomline is Ford is losing for the same reasons any company loses in a marketplace: complacency. Ford's problems stem from poor designs and hooking its wagon to SUVs and trucks. They made no attempt to manage their risk against rising gasoline prices. And, most importantly, they stopped listening to their customers.

Can they rebound? Of course they can. And, most importantly, management will have time to do so. The Ford family controls this company and Bill and his cronies are going nowhere. They can ride this long term plan out and not worry at all about losing his job. In effect, if Ford is the right guy to turn around the company (and many feel he is) he will get it done.

Hawk's View: Personally, I'm not a Ford fan. I've never liked their designs and found their cars to be somewhat staid (the Mustang notwithstanding). However, I actually think Ford Jr. can turn it around. As stated before, unlike GM he's the man in charge and is going to be there as long as he wants. This might be bad if Ford Jr. was a lightweight but I don't think he is. As a result, The Hawk thinks Bill Ford's Way Forward Plan will rebound the company and probably make great granddad proud.

Author's Note: If interested in reading more about the auto industry, click on the link in the title of this article. It will take you to Forbes.com and to Jerry Flint. Mr. Flint has been covering the auto industry since the Model T (OK, not really but close). His contacts and insight are second to none. Enjoy.

Wednesday, January 11, 2006

GM Gets More Free Advice

Yesterday, Jerry York (Kirk Kerkorian's bobo), weighed in on GM's woes during the Detroit Auto Show. Specifically he highlighted GM's needs to cut their dividend in half, slice executive pay and dump Hummer and Volvo.

According to Mr. York this is only the beginning of what GM needs to do but it would be a good start. And, he coyly promised that Mr. Kerkorian would consider purchasing 24MM GM share to help drive up the price and instill investor confidence.

Kerkorian has been a thorn in GM's side since he ponied up for millions of shares this past Summer. Maybe because he's approaching his 300th birthday (I kid, he's actually 89) or maybe it is because he wants to ruin a second member of the Big 3 (read, Taken for a Ride, the tome that traced Chrysler's spin out into the arms of Daimler Benz, aided by Kerkorian). Regardless, Kerkorian has a motive. And a good one at that, he wants to see the shares rise because he owns a boatload of them. But his move to suggest cutting the dividend is pure genius. By doing this he is putting himself out there that the biggest GM shareholder would rather sacrifice the sureness of a dividend for the potential of long term benefit (not bad for an 89 year old). The questions is will GM bite and will it help?

Hawk's View: Tough spot for Ric Waggoner and frieds. They could use a share boost. However, if they follow any of Kerkorian's public comments they could be seen as even more weak than they already appear. Cutting the dividend in half would no doubt lead to a sell off from angry shareholders who rely on the dividend for income. Mr. Kerkorian's share purchase may do little to offset the sell off. In the end, look for GM to continue with their own plan to right the ship and for this soap opera with Kerkorian to continue.

Monday, January 02, 2006

Putin Gasses the Euros

Russian "elected" leader Vladimir Putin looks harmless enough. He's got a geeky veneer about him but if you look closer you'll see that it is all a ruse. Underneath is the steely way of a former KGB agent turned leader. He's the kind of guy you'd pick a fight with to impress a gal and then he would in turn mop the floor with your head.

Which is why this whole issue around the natural gas feud with Ukraine is scary for the residents of Europe. See Europe get a significant amount of gas from Russia. 90% of which flows through a pipeline in Ukraine. Now that Vlad has cut off the pipeline due to a price dispute, the Euros may have to storm the local Ikea for various sensible designed wood products to burn during the dog days of winter.

Up until now Russia's reputation as an energy supplier was quite good. But that has all changed. First off, Putin clearly has a goal of consolidating power to the point where elections are shams and he is in effect the new Czar of all the Russias. This move with the pipeline only makes the trembling Euros even more uncomfortable (and cold) because this may only be the beginning. Will Putin seek to put Russia back in the Superpower category with the US (with China and India not far behind)? If so, Putin will continue to rule over the world's largest country with an iron fist. He will look to make more deals with "rogue states" (Russia is supplying Iran with all the necessary materials to get their nuclear weapons system online). Never mind the fact Russia sits on a vast amount of natural resources that could tip the global market in their favor.

Hawk's View: I have no illusions that Putin has crowned himself Czar and will continue to make his mark on the world stage. He's made it clear that Ukraine should pay higher prices (in line with what the Euros are charged) versus other former Soviet states, because of the advancement of their economy. That would be correct if that were truly the case. It's not. Putin is punishing the Ukraine people for last year's Orange Revolution when his pick to run the country was beaten out in an election. In the end, Putin will likely make a quick ending to this mess because he has made his point. The Russians are back and we want our seat at the table opposite the US.

Sunday, January 01, 2006

AT&T's Next Move?

Apparently, buying everything they can get their hands on over the past few years has not deterred AT&T (formerly SBC, formerly Southwester Bell, formerly, well, AT&T). Cnn.com reports a deal may be in the works for Echostar Communications (AKA Dish Network).

It is hard to believe that Echostar Chairman Charlie Ergen would want to sell out fully. He's too competitive, but a deal where retains control over the operations could become palatable as he attempts to take Dish to the next competitive arena: High Definition TV service.

The upside of this for AT&T is that they would be in the video business from day one and would not have to roll out an expensive fiber optic service as other telcos (Verizon, BellSouth) are planning. Also, AT&T and Dish have been working together for a couple of years selling bundled services.

The downside of the deal is AT&T is still swallowing two huge acquisitions and the idea of taking on another may make investors a little queezy. Never underestimate Chairman Edward Whitacre's zeal for making a deal and with The Chairman retiring in two years he may well want to make one big huge score before riding off to the nearest Texas Tech University football game (he's a big alum and, funny, Tech's stadium is named Jones AT&T Stadium).

Hawk's View:
If AT&T wants to make another acquisition the logical one is to by BellSouth. BellSouth owns 40% of Cingular (with AT&T owning the other 60%). Buying BellSouth would not only give Whitacre's gang wider distribution but it would give them full control over Cingular. However, that acquisition still does not get AT&T in the TV game. In the end the question is whether or not Whitacre wants his final score to be wireless or TV. Only he knows but we are soon to find out.