Ford appears strongest of struggling U.S. automakers

By David Bailey

DETROIT (Reuters) - Ford Motor Co (F.N) may be a $2 stock, but the company looks the strongest of the three U.S.-based automakers and has options for raising more cash if needed to buy time to complete its turnaround plans.

Revelations the past few days that General Motors Corp (GM.N) has had preliminary merger talks with Chrysler, and that Ford rejected an overture from the biggest U.S. automaker, underscore Ford's strengths relative to its peers in Detroit.

Under Chief Executive Alan Mulally, Ford raised more than $23 billion two years ago in the capital markets to support its turnaround and has moved faster than GM and Chrysler in improving its vehicle lineup.

"They are ahead of either GM or Chrysler," said Erich Merkle, lead auto industry analyst at Crowe Horwath LLP. "GM is getting there, but it is slow in coming. They are much farther along than Chrysler, Chrysler has a long way to go."

Ford saw the borrowing as insurance against the possibility that a sales decline in the U.S. auto industry would deepen. In fact, U.S. light vehicle sales have been running at the lowest rate in 15 years and are expected to worsen in 2009.

"We tried to anticipate that we needed a cushion in case the economy continued to slow down," Mulally told Reuters in an interview on Friday.

Progress on its turnaround makes it possible for Ford to sell part of its stake in Mazda Motor Corp (7261.T) and could allow it to sell its Volvo brand, though Volvo has provided an edge in auto safety equipment Ford may not want to give up.

The value of Ford's one-third Mazda stake has dropped by half in about two months amid the global auto downturn to $1.36 billion. It has committed to improving the money-losing Volvo brand, something likely necessary to find a buyer.

As long as Ford can maintain a collaborative approach with Mazda to share future development costs, selling off a share of its stake is a viable option to raise cash, said Aaron Bragman, an analyst at Global Insight.

Ford also intends to apply for loans under the $25 billion program just recently signed by President Bush to help automakers meet a mandated steep increase in fuel economy standards by 2020.

"At the time no one knew what the credit markets would be like, so to be able to do this is really an important part of the government's plan and our plan," Mulally said.

Billionaire investor Kirk Kerkorian - who owns a 6.5 percent stake in Ford - gave the turnaround plan and Ford management a strong endorsement and has expressed willingness to provide additional capital to help Ford complete it.

STILL A ROUGH ROAD AHEAD

A long-time activist investor in the auto industry, Kerkorian has remained publicly silent on his Ford investment even as the global financial crisis deepens.

Kerkorian held a nearly 10 percent stake in GM two years ago, but did not remain silent then. He dropped the GM investment when that automaker rejected his recommendations. He was a major Chrysler shareholder when it was independent and made a failed bid for Chrysler last year before Cerberus .