Ford goes it alone, and some investors like what they see

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Ford Motor Co. has always maintained that a bankruptcy filing by General Motors Corp. and/or Chrysler would be a blow to its own survival. But there’s increasing reason to think that the damage wouldn’t be life-threatening for Ford.

Investors seem to be betting that way: While fresh bankruptcy rumors drove GM stock to a five-week low on Monday, down 33 cents to $1.71, Ford’s shares edged up 2 cents to $4.26, their highest level since Oct. 2.

The conventional thinking is that because Ford shares parts suppliers with its rivals (and to some small extent, through joint dealership lots, also shares distribution), a bankruptcy by one of the other Detroit giants could disrupt the supply chain and hinder or halt production for everyone.

What’s more, in bankruptcy court GM or Chrysler would be able to break contracts with the United Auto Workers union, not to mention reneging on billions of dollars in debt, giving them an instant cost advantage over Ford.

Despite those threats, Wall Street is giving Ford credit for taking a series of steps to improve its financial footing.

First, Ford decided against asking for bailout loans. That turned out to be a P.R. coup, not only because it kept Henry Ford’s auto company away from the meddling hands of President Obama’s auto task force, but because it also sent a message to the American public that Ford was different -- a message that has gotten through in numerous public opinion polls.

Increasingly, people don’t think of the Big Three; instead they lump GM and Chrysler together, and either think of Ford on its own or, even better, compare it to Toyota Motor Corp. and Honda Motor Co.

Over the last few months GM and Chrysler scrambled to come up with restructuring plans (which were ultimately rejected by Obama’s car squad) and comply with terms of their original government loans calling for them to reduce debt and obligations to retiree health plans (which they failed to do). Now they have until June 1 and May 1, respectively, to finish the job and then some, or face bankruptcy.

Meanwhile, Ford, out of the media glare, has been succeeding where GM and Chrysler have failed -- quietly renegotiating its own union contracts, cutting legacy costs and reducing debt. Ford announced last week that it has retired nearly $10 billion in debt, or almost 30% of its total automotive debt. It also has crafted a new agreement with the UAW that will substantially reduce labor costs, while at the same time getting the union to agree to accept equity in lieu of as much as half the company’s $13 billion in cash obligations to a trust fund established in 2007 to pay for retiree healthcare costs. . . .

Ford’s treasurer said this month that even if car sales overall stay at very depressed levels (on target for only 9.5 million vehicle sales in the U.S. this year, compared with 13.2 million in 2008), the company can stay liquid. And, as a testament to that cash situation, Ford is rolling out a slew of new cars this year and next, including some that may compete seriously with the best Toyota and Honda have to offer.

Still, Ford faces a tough climb. The company lost almost $15 billion last year, and, as many point out, the only reason it hasn’t taken government cheese is because it borrowed $23 billion in 2006 -- a move that at the time provoked harsh criticism of then newly appointed CEO Alan Mulally. And Wall Street still has bones to pick with the company’s capital structure, as seen by its still-dismal debt ratings.

For its part, Ford talks endlessly about ‘the Plan,’ which is, essentially, the script for cost-cutting and corporate simplification the company has been pushing since Mulally was recruited from Boeing Co. in 2006.

The plan involves cutting brands (Ford sold Aston-Martin, Jaguar and Land Rover in the last few years and has indicated it may sell Volvo as well, while also significantly reducing its stake in Mazda Motor Co.), paring down its 4,000-strong U.S. dealership body, boosting quality and developing a worldwide manufacturing and distribution structure that will lead it to sell mostly the same models of cars everywhere in the world. The first of those global cars, the Fiesta, is due in the U.S. late this year.

If a lot of that sounds like Toyota -- which has few brands, sells the same cars everywhere (albeit sometimes with different nameplates), and has a tight dealership network -- it’s hardly unintentional. Not long after Mulally’s arrival, Ford brought in a top Toyota executive, Jim Farley, to head sales and marketing. Two weeks ago, on a monthly sales call, Farley let slip with a telling piece of Toyota jargon: ‘kaizen,’ or continuous improvement, which not only says a lot about Ford’s new mind-set but also sums up what ‘the Plan’ is really about.

That carefully nurtured message apparently is being heard by investors, as Ford’s shares climb despite the risk of a fair amount of dilution in the wake of the company’s deals with bondholders and the UAW.

Although at $4.26 the stock is a fraction of its peak of $64 in 1999, it still gives Ford a market value of $10.2 billion -- 10 times GM’s market value.

-- Ken Bensinger