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

Did Pauly think my entire bearish argument would consist of me rearranging the letters of Ford to spell D-O-R-F? I imagine so, because that is what I would have to be if I were to buy his bullish scenario. He dismisses the international concerns as a "flat tire," but I think he should check the other three because they all have squeezed out their last breath of hot air. Pity there's no spare either since that would probably be as flat as his contention that the market stateside is doing so well.

It isn't. The showroom is just that, showing a whole lot of room. Ford is charging less and paying out more in incentives than ever before. But, despite all these margin crunching tactics, the cars just aren't selling. Unless Ric Ocasek has plans of getting his band back together, The Cars are history.

I'm glad Pauly brought up the financing aspect of Ford Motor Credit. Recently, Ford was looking to raise $8 billion in additional debt. By the same token, in a competitive automotive market, Ford has had to offer absurd finance rates to move the fleet. "0.9% financing!" Here is a company borrowing money at prevailing interest rates and giving it away. What we have here is the anti-bank!

Then we get into what may have been Pauly's biggest coup, or is that coupe this week: Ford would be a Dogs of the Dow woofer if it were to break into the 30-member club of Dow Jones Industrial stocks. If he had you scratching your chin, feel free to move a few inches higher and start scratching your head. His point is valid until you realize that Ford is a company that is going to be showing an earnings decline from here on out. Cyclical companies often cut dividends, sometimes suspending them indefinitely.

My articulate partner then goes on to quantify Ford's valuation. If Pauly ever longs for a career change, I suggest he try to be a car salesman because he's pretty good at selling you this lemon stock. I think even he had to snicker as he was trying to sell you that rare dud of a company, one in which the trailing P/E ratio was lower than the forward-looking P/E ratio. Then he tried to make a relative comparison of Ford's P/E and Price-to-Book to that of the S&P 500 -- oh, sure, tack on the rustproofing, the extended warranty, and while we're at it, how much for the floor mats? You just can't compare Ford's depreciating earnings and assets to those of an index consisting of growing companies.

In closing, my fellow Fool makes the ultimate endorsement by saying that "Ford isn't going out of business." That's comforting. So maybe we don't see zero. But why buy a lose-lose company? If business is good, you have the union to contend with. If business is bad, as it is now, you have the shareholders to contend with. Ford? Tough.

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