For Ford, Going It Alone Looks Like a Good Strategy

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Paul Sancya / AP

Ford Taurus' at a dealership lot in Sterling Heights, Michigan over last year, fueled by the government's Cash for Clunkers program.

For many years, Ford Motor Co. was considered the sickest of Detroit's car manufacturers. But conventional wisdom was stood on its head last fall when Ford parted company with General Motors Corp. and Chrysler Group LLC by forgoing federal help during the most perilous times for automakers.

By the end of that crisis, GM and Chrysler had received a total of $64 billion, while Ford got nothing — though like other automakers, it is receiving federal aid to develop green technologies.

Now, nine months later, Ford appears to be well along on the road to recovery and in many ways is in a stronger position than its longtime rival GM. While Ford's senior executives say the company won't reach sustained profitability until 2011, the company surprised analysts by posting net income of $2.3 billion in the second quarter and followed that with healthy sales increases in July and August thanks to an assist from the federal cash-for-clunkers program. For its next sales boost, Ford is counting on a marketing blitz, which will be well in evidence in the days ahead, as Ford is a primary sponsor of NBC's new Jay Leno show.

Wall Street is growing more optimistic: Moody's Investor Services recently raised the company's credit rating two notches, to Caa1, its first upgrade in 14 years. "The rating actions reflect Moody's belief that after a period of intensive restructuring of its operations and balance sheet, Ford's business viability has significantly improved," Moody's report notes.

Van Conway, a turnaround expert with the firm Conway and McKenzie in Birmingham, Mich., says Ford's $26 billion debt could still prove troublesome, and hefty interest payments will cut into the company's ongoing profitability. But one antidote to heavy debt is a healthy stock price, which Ford increasingly enjoys. The stock is up from about a buck last November to a recent price of $7.30 per share, and in May, Ford was able to raise $1.6 billion through a common-stock offering of 345 million shares. GM, by contrast, is hoping to do an IPO next year.

Moody's also cites a number of recent changes at Ford that should give the automaker's comeback extra kick in the future, including restructuring wages, work rules and retiree health-care elements in its agreement with the United Auto Workers (UAW), as well as some reduction in debt, the maintenance of a sizable liquidity position and a more competitive product portfolio. (Ford obtained concessions on wages identical to those the UAW approved at GM and Chrysler, though Ford is now negotiating for additional work-rule changes and a no-strike clause.)

Moody's qualified optimism is echoed by Ford chairman William Clay Ford. "In terms of our industry, I don't think I'll feel better until I see people going back to work. Clearly people without jobs aren't buying vehicles. But having said that, there are encouraging signs of a pickup," he told TIME.

"We've pulled ourselves up by our bootstraps and we feel very good about that," the Ford chairman added. "There are always competitive issues, but I like the fact that we are the master of our own destiny, and I like the fact that our products are getting rave reviews. I wouldn't trade places with either [GM or Chrysler]."

Jesse Toprak, an analyst with, says that while GM and Chrysler carry smaller debt loads than Ford, the advantage seems rather slender, given Ford's rising stature in the eyes of consumers. A new survey by Consumer Reports shows that potential buyers prefer Ford products to those of either GM or Chrysler. Further, in the latest initial quality studies done by J.D. Power & Associates, Ford was tied statistically with Toyota in terms of overall quality — it's best showing ever.

"That Ford was able to survive this harsh environment on its own is impressive, though much of the feat owes to a savvy decision in 2006 to mortgage all of its assets right down to its blue-oval trademark in exchange for $26 billion," says Toprak. "Taking out the mortgage proved remarkably prescient and allowed the company to avoid bankruptcy as the financial crisis swallowed its domestic rivals."

McKenzie's Conway puts it more bluntly: "Ford was lucky, and sometimes it's better to be lucky."