With United Auto Workers union leaders having endorsed a new agreement, and the company also announcing it had agreed to pay $15.4 billion to create a health-care fund with the UAW, it's appropriate to evaluate Ford's (NYSE: F) progress and prospects.
One has to view the (tentative) contract agreement, and any fully-ratified deal, as a positive data point. Among other contract features, if ratified the agreement would enable Ford to hire up to 20% of its work force under a lower-tier wage structure that would substantially reduce its hourly wage structure, Reuters reported Monday, in exchange for Ford's sparing from closure six plants it had planned to close. In short, if ratified, Ford will have made considerable progress in three key areas: labor costs per hour, work rules, and health insurance cost containment. Ford's shares closed Monday down 28 cents to $8.67.
Still, that's only half of the global auto manufacturing equation: the other half involves product development and innovation. Here, the progress is less clear-cut. Ford has made some strides regarding quality and curb appeal - - the revised Mustang is a success - - but on the whole the company still seems to be at least one or two cars away from turning the corner. And as Lee Iacocca, the father of the Mustang, will tell you, for an automaker one or two in-demand cars can be the difference between success, and an unpleasant result. The Reuters F2007/F2008 EPS consensus estimates for Ford are an 85-cent per share loss and a 35-cent per share loss.
Put another way, would your teenage daughter list Ford as her favorite car company? Would your teenage son? And how about a mid- to late-20s something, middle-income couple: would they put Ford at the top of their vehicle choice list? Until Ford finds answers to these questions, not to mention the growing consumer demand for more fuel-efficient and environmentally-friendly vehicles, the jury remains out about the company's future.
The First Call mean rating for F is: Hold. [14 firms.] Mean 2007 target: $8.50. [high: $11, low: $5.00.]
Stock Analysis: Ford is a high-risk stock not suitable for moderate- or low-risk investors. Sell / Stop Loss: $5.70.
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