Ford Bear's Den
by Rick Aristotle Munarriz ([email protected])

Like a Ford Mustang on the Autobahn, let's dispense with the formalities and kick things into high gear, shall we? Ford, despite its colorful history, looks to be a financial clunker from here on out. You might be enamored with the legacy of Henry Ford, or even your new Ford Expedition, but if we take a look under the hood we see nothing behind this four-letter-word. Horsepower? Neigh.

We'll start where all good fiscal journeys end -- the bottom line. Last year Ford earned $5.54 a share. This year the company is projected to make $5.10 a share. Next year? $5.09. It would be bad enough if earnings growth was stuck in neutral. But, hey, we're going in reverse.

That is why we can't let Paul dangle the low P/E multiple carrot in our faces. Check the gauges. The E is sinking lower and The P is bound to follow. And I even think that the analysts are sugarcoating the malady here.

As we speak, the 1999 Ford Taurus sedan is rolling off the assembly line priced $1,000 less than it was the year before. The wagon version is being marked down even more. Even in this perfect car buying climate, with low finance rates and buoyant consumer confidence, we are dealing with a deflationary car market. Ford did not materialize a grand worth of cost efficiencies. It just doesn't really have a choice here. Lowering prices and tacking on record dealer and manufacturer incentive rebates is the only way to remain competitive. A surplus of new automobiles and cheaper imports has stripped away any and all pricing flexibility Ford may have once had.

The glut of new wheels in the marketplace was really the industry's own doing. By offering shorter-term leases to move inventory it has created a dynamic used-car market. The breed of second-hand cars is now much more attractive; the selection is better and they are less further removed from their new car smell days. The popularity of Republic Industries' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RII)") else Response.Write("(NYSE: RII)") end if %> AutoNation USA and Circuit City's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CC)") else Response.Write("(NYSE: CC)") end if %> CarMax has created a wave of used-car superstores where automobiles are reconditioned and resold with all the glitz and confidence of a car fresh off the assembly line. For every new car being sold nowadays there are three used cars exchanging hands. Ford, and the rest of its automaking brethren, naturally are losing out on this trend since they only make money on the initial sale.

Calling Doctor Detroit? Call off the medic and wheel in the hearse. The prognosis does look bleak and the slide after last year's cyclical peak may be steeper than even the analysts are projecting. According to CNW Marketing Research, for the crucial first half of September foot traffic at new car dealerships was off by an amazingly low 18%. Domestically it appears as if this is a great time to be a car buyer and a dreadful time to be a seller.

Internationally, things look even worse for Ford. In Argentina. In the United Kingdom. Ford factories have been forced to slow production dramatically at least through the end of the year. Overseas production, where the company figured it could thrive off of cheaper labor, has not panned out. In Argentina, specifically, the company thought it had a logical South American partner where the currency is pegged to the US dollar. Big mistake. Most of the production from the plant is targeted to Brazil -- where the freefalling currency there has made the Ford vehicles cost-prohibitive. In Europe it's not the currency -- it's the Ford Fiestas. Sales of Ford cars in Western Europe are down this year, despite a slight uptick for Ford competitors.

Maybe that is why Ford's chief, Alex Trotman, has decided to retire early. Might as well give up the keys before the cliff is apparent to everybody else. I would hate to think that my fellow Fool Paul has been the designated driver for this joyride -- his judgment is usually so much better than this. Quite simply, Ford's future is the way Henry Ford first marketed the Model T -- it can come in any color you want, as long as it's black.

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