I’m being asked the following question quite frequently lately,
 
“So how much Ford stock have you been buying?”
 
My gut reaction is to say, “Ford Stock, are you crazy?  That investment is toxic!” 
 
But I’m a Michigan guy, and I’m a Ford guy, (I just bought a Ford last Friday…a Focus…39 MPG, sticker price of $17,000, but a crazy amount of rebates).  Half my family works for Ford, or has retired from the company. 
 
Here’s the deal.  When you live in Michigan it is hard for you to imagine a world without Ford.  I share that feeling, but I believe that Ford will not survive in it’s current form.  I believe that the company will go bankrupt, use the bankruptcy to get huge amounts of debt off it’s books, and reemerge from bankruptcy court as a lean, mean auto-making machine.  Ford is a great brand with a TON of smart people at the helm.
 
The problem with this scenario is that everyone who owns common stock when this happens will probably lose everything.  Here is why.
 
  • Ford had $170 Billion in sales last year, but lost billions of dollars in the process.  I’ve read that Ford losses over $1000 dollars on every car that it sells in the U.S. and barely breaks even on overseas auto sales.
  • Ford currently has over $160 Billion in debt on it’s books.  HOW IS A COMPANY THAT IS LOSING SO MUCH MONEY EVER GOING TO PAY OFF THAT DEBT?
  • Even if the government extends new loans to Ford, GM and Chrysler, this is only a band-aid.  It is going to take years (and probably bankruptcy to get rid of that mountain of debt) before Ford ever makes significant profits.
  • Less than a year ago, Billionaire Kirk Kerkorian invested $1 Billion to own a bit over 6% of Ford Motor Company.  Two weeks ago he decided that it was not a good investment and started selling his shares which are now only worth about $250 Million…it appears that he DOES NOT believe that Ford stock will be going up in the future.  He is taking his $2.00 a share that he can still get, and running away from Ford.
  • According to their second-quarter results, Ford and GM each are burning roughly $1 billion in cash per month. Citing cash burn, JPMorgan Chase & Co. analyst Himanshu Patel on Tuesday widened loss expectations for Ford and GM in 2008 and 2009.
  • Ford, like GM and Chrysler, has been the subject of bankruptcy speculation recently. None of these companies have been able to tap debt markets. (Who would want to give them more debt, they already have too much?  Oh wait, the government would). That, plus sliding revenue, is forcing them to make ends meet by using fast-diminishing stockpiles of cash. If Ford continues to burn cast at the rate of $1 Billion a month, it will not last two years, and the stock will continue to fall.

Anyways, these and many more reasons are why I’m not buying Ford stock.  There are way too many AWESOME companies with no debt that are selling for amazingly cheap valuations. 

THAT BEING SAID, I understand why people are buying Ford stock.  Who knows, between now and bankruptcy, it could bounce between $1 per share and $3 per share.  I would love to buy at $1 and sell at $3 over and over again…but that is not risk that I’m willing to take.

Be Sociable, Share!