Ford strongest of Detroit Three, risks remain

The Ford logo is seen on the back of a car in Detroit, Michigan December 7, 2008.

DETROIT (Reuters) - With its rivals near collapse, Ford Motor Co finds itself in a position to challenge for a role it has not held since the heyday of the Model T -- leadership of the U.S. auto industry.

A perennial No. 2 since General Motors Corp took the industry's top spot by market share in the 1920s, Ford has emerged as the strongest of the Detroit automakers at a time when all three are seeking government aid.

U.S. Democratic leaders in Congress neared agreement Monday on emergency loans of about $15 billion, mainly to keep GM and Chrysler alive into early next year. Ford does not want immediate cash but has asked for access to a $9 billion line of credit in case its rivals fail.

Although it too has been badly battered by the downturn, Ford retains a market value of $7.8 billion, more than two and a half times the remaining equity value of a bigger GM, which has a U.S. market share near 22 percent compared with just 15 percent for Ford.

Shares of Ford have more than tripled on renewed optimism for a government rescue of the industry, from a 26-year low it hit in November when lawmakers refused initial aid requests.

Ford shares jumped 24 percent to $3.38 Monday on the New York Stock Exchange, but were still down 50 percent this year, compared with an 80 percent drop in GM shares in 2008.

Ford put some distance between itself and rivals by borrowing more than $23 billion two years ago by mortgaging nearly all of its assets down to the familiar blue-oval logo.

As a result, Ford has said it has enough liquidity to get through next year -- if the economy does not worsen and its rivals avoid failure.

"The biggest risk to Ford in the short term is a GM (bankruptcy) filing," Fitch Ratings managing director Mark Oline said. "Over the intermediate term, it is the risk that no one really knows how long this downturn is going to last."

Even in a prolonged downturn, Ford has advantages, including an improving reputation for quality as scored by the influential Consumer Reports survey.

The focus on quality could serve Ford well, with the U.S. economy heading into year two of a recession and automakers now expecting U.S. sales to be even worse in 2009 than in 2008.

"In a downmarket, where people are possibly doing more of a thoughtful buy than an emotional buy, then reliability is one of the keys they are looking for," said David Champion, senior director of the auto test center for Consumer Reports.

Ford last held the top spot by share in the U.S. market in the early 1920s when the Model T dominated and Detroit was an automotive boomtown. But Ford held on to the Model T for too long while rivals -- led then by a resurgent GM -- developed a range of new models.

RISKS ABOUND

Ford's decision to borrow heavily in 2006 when credit markets were still open was key. Analysts say that move under then new chief executive Alan Mulally left it about six months extra wiggle room with U.S. auto industry sales running at quarter-century lows.

"I don't even want to talk about a recovery at this point," Oline said. "Ford has the liquidity through 2009, depending on how deep the recession is."

Ford has said it does not need a federal bailout unless one of its rivals collapses. In that case, it has said it would need access to a $9 billion credit line. If the market worsens, it could need up to $13 billion, the company has said.

"As we told Congress, Ford is in a different position. We do not face near-term liquidity issue, and we will not be seeking a short term bridge loan," Ford said in a statement on Monday.

But Ford said it fully supports an effort to address the near-term liquidity issues of GM and Chrysler. The industry is highly interdependent on a network of parts suppliers and dealerships.

"They have to walk the line. They are being frankly honest with their disclosure," IHS Global Insight analyst Aaron Bragman said of Ford.

But the automaker has built into its plan the expectation it would get about $5 billion of low-interest government loans under an energy bill that mandated fuel economy improvements. The temporary support being negotiated this week would siphon money from the energy bill funds.

Ford's captive finance arm also has aimed to establish an industrial loan company to open up another avenue for credit.

"In the worst-case scenario they will have to dip into the federal money," said Bragman, who added that he thought it likely.

Sen. Christopher Dodd of Connecticut, who chairs the Senate Banking Committee, described Ford as "fairly healthy" on CBS's "Face the Nation" on Sunday and said the three automakers should not be branded the same way.

But with parts supply and dealer networks intertwined with GM and Chrysler, a failure by either of its Detroit-based rivals could put huge pressure on Ford, analysts have said.

Ford CEO Mulally told Congress last week that Ford had closed 17 plants and cut 44,000 hourly and 12,000 salaried employees in its restructuring. It has also trimmed hundreds of dealers and cut its supplier base in half.

In more robust times, Ford acquired luxury brands such as Jaguar, Land Rover and Aston Martin, purchases that never panned out in profitability and left the automaker unfocused. Those three brands have been sold off.

Ford also has cut back a controlling stake in Mazda Motor Corp and now is considering selling its Volvo cars unit, the last remaining element of its Premier Auto Group.

The sale of Volvo has been anticipated for months by analysts, but the public announcement was only made in recent days and the actual transaction could take several months if a buyer can be found in the current financial climate.

(Editing by Tim Dobbyn)