As GM and Chrysler fell into bankruptcy, Ford was the strongest U.S. automaker by default. But its competitive position is about to change.
By Chris Isidore
NEW YORK (CNNMoney.com) -- For much of the last year, Ford Motor has been the strongest U.S.-based automaker.
But with Chrysler already out of bankruptcy and General Motors possibly six weeks away from its own exit from bankruptcy, Ford could soon find itself in the weakest position of the traditional Big Three.
The problem for Ford is that its strength was only relative to the greater problems at GM and Chrysler. Ford built its cash reserves not through profits, but by mortgaging most of the company's assets before the credit crisis of 2008 cut off funding for the other automakers.
That pile of cash gave Ford (F, Fortune 500) the ability to ride out the sharp plunge in auto sales without turning to the government for help -- at least so far. But it also left Ford with about $32 billion in debt on its books at the end of the first quarter.
With GM (GMGMQ) and Chrysler using the bankruptcy process to shed much of their own debt cheaply and quickly, Ford has gone from the automaker with the most cash on hand to the one with the most debt on its books.
GM will have only about $17 billion in debt if it can follow its planned emergence from bankruptcy. Chrysler left bankruptcy with about $11 billion in debt, and a new partner, Italian automaker Fiat, it did not have previously have.
Ford also hasn't been able to cut its manufacturing capacity or its bloated dealership network as Chrysler and GM through bankruptcy reorganization.
Ford officials insist the company remains in a strong competitive position against its Big Three rivals -- despite all the help they got from the government and the bankruptcy courts.
"We don't know what the implications are going to be, but one thing's for sure: I like our position," said Ford Chairman Bill Ford at a conference in Detroit Monday.
But others worry that Ford's debt level could soon become the same kind of burden that plagued GM and Chrysler before their bankruptcy filings.
"It's a huge issue," said David Cole, chairman of the Center for Automotive Research, a Michigan think tank. "GM and Chrysler are showing how you can do things in bankruptcy you can't get close to outside of bankruptcy."
Other auto industry experts say that even if Ford can manage its debt level, it will soon find itself in need of a bailout or possibly bankruptcy if auto sales don't start to rebound in the next year.
"Leverage is a concern, but it's not the primary concern. The greater concerns are low sales and underused capacity," said Gregg Lemos-Stein, credit analyst with ratings agency Standard & Poor's, which rates Ford's corporate credit as CCC+, deep into so-called "junk bond" status.
Lemos-Stein said while the company still has a better cash position than its rivals, "they don't have an indefinite supply of cash, especially since we expect the outflows of cash to continue."
Still, some experts believe Ford's future looks brighter than its rivals because it has a better lineup of vehicles in the showroom and its pipeline. While GM is busy shedding weaker brands and Chrysler is shifting away from trucks towards smaller cars, Ford has already adapted to changing demands from customers.
"They've managed their product portfolio pretty well. That's very important," said Tom Libby, president of the Society of Automotive Analysts.
Libby said that product development at GM and Chrysler took a hit as the companies rushed to slash costs in recent months. That could leave Ford with newer, more attractive products for at least a few years.
"They are not being forced to make changes at gunpoint," added Subroto Banerjee, a partner at business research firm Frost & Sullivan. "They've done it very smartly, without all the problems and distractions of the process at GM and Chrysler."
Libby conceded that some of the market share gains Ford has achieved in recent months came because buyers were worried about the future prospects at GM and Chrysler.
If those concerns are now put to bed by those companies' quick trips through bankruptcy, Ford will lose a marketing advantage it once had.
And all three Detroit rivals face the problems that brought the U.S. industry to its current crisis -- a weak economy, an historic plunge in auto sales and a decades-long trend of losing market share to importers like Toyota Motor (TM) and Honda (HMC).
So even if Ford is still stronger than GM or Chrysler, it may not be strong enough to buck those three powerful headwinds.
Chrysler set to reopen most plants
Production at 7 of 11 assembly lines will restart later this month, sending most employees back to work for the first time since Chrysler filed for bankruptcy.
By Chris Isidore
NEW YORK (CNNMoney.com) -- Chrysler announced plans to reopen 7 of its 11 assembly lines later this month for the first time since the day after the company filed for bankruptcy in April.
The company said two plants in Michigan, one in St. Louis and one in Toledo will reopen during the week of June 29. Two factories in Ontario, Canada will also reopen as well as one in Mexico.
The seven plants make a variety of Chrysler vehicles, including the Dodge Grand Caravan, Jeep Wrangler and the Chrysler Town & Country.
In addition, the company is reopening several factories that make powertrains, axles and other components used by the assembly plants. Chrysler's parts distribution centers, which supply parts to both plants and dealerships, will also reopen.
Three assembly lines -- one in Illinois, one in Detroit and another in Mexico -- will remain shut for the time being. Those plants employ about 5,000 workers between them.
All told, Chrysler currently has about 38,000 production workers in the U.S., both hourly and salaried, and employs another 9,000 in Canada and 5,000 in Mexico. So most of Chrysler's workforce will be returning to their jobs later this month.
But virtually all of Chrysler's plants are due to shutdown again for normal summer retooling, which will take place during the weeks of July 13 and 20.
And four of the company's 30 plants are slated to close permanently by next year as Chrysler makes permanent reductions in its capacity. Chrysler has said one of those plants scheduled to close, the one in St. Louis, could be shut down as soon as this September.
Chrysler filed for bankruptcy on April 30 and halted most operations a day later as it sought to reorganize its operations, complete a combination with Italian automaker Fiat, and work through an excess inventory of vehicles. The bankruptcy court approved its deal with Fiat last week.
So far, the only assembly line that has been restarted was the Conner Avenue Assembly Plant in Detroit, where 115 people make the Dodge Viper niche muscle car. Chrysler is looking to sell that facility.
An auto startup in Louisiana - What the heck?
V-Vehicles, founded by former Oracle executive and funded in part by T. Boone Pickens, will build cars at former headlight plant bringing jobs to small Louisiana town.
By Peter Valdes-Dapena
NEW YORK (CNNMoney.com) -- A largely unknown car company is planning to open its first factory in what used be a headlight plant in a small town in northern Louisiana, state officials announced on Wednesday.
Louisiana economic development officials are enthusiastic about the endeavor which they say will create thousands of jobs. But for now, executives with California-based V-Vehicles, which has backing from activist billionaire T. Boone Pickens and the venture capital firm Kleiner Perkins Caufield & Byers, are not saying exactly what type of vehicle the company plans to build.
Pickens has been active in promoting natural gas for use in automobiles, but it isn't clear what form of energy will fuel these cars.
An auto industry startup. The company was founded in 2006 by former Oracle executive Frank Varasano who has spent 26 years working for the consulting firm Booz Allen Hamilton where he led the firm's engineering and manufacturing practice, according to the Louisiana economic development council's Website.
"He watched, we all watched, as the auto industry stumbled," said V-Vehicles spokesman Joe Fisher of V-Vehicles founder Verasano. "He thought he could do something to fix it."
Fisher said Varasano came up with a plan to build a profitable auto company and presented his plan to executives at Kleiner Perkins.
Fisher declined to say what was unique about V-Vehicles' business model, citing the competitive nature of the businesses.
Fisher also declined to provide details about the vehicle the company intends to produce at the site. A Website about the venture hosted by the Louisiana Economic Development council showed only a round headlight in one photo and, in other, one corner of a clay mock-up of a car.
Design of the cars is being led by former Mazda designer Tom Motano, who is credited with designing the Mazda MX-5 and RX-7 sports cars
Big jobs boost for Louisiana. The plans were revealed in Louisiana, by the state's economic development council on Wednesday.
"Today, we are here to announce that through quick, aggressive action to pursue a transformative opportunity, we have a chance here in Louisiana to reenergize the entire U.S. auto industry," Louisiana governor Bobby Jindal said in a prepared statement.
V-Vehicles plans to retool the former Guide Corp. headlamp factory in Monroe, La., according to the announcement.
The plant will employ approximately 1,400 people and will create another 1,800 jobs outside the factory, according to the state. The project involves a capital investment of at least $248 million, according to the announcement
Full production of the vehicles is scheduled to begin in early 2011, Fisher said.
