Being an investor in Ford Motor (F) or General Motors (GM) over the last two years has probably been a ride as wild as Six Flags (SIX) New Jersey’s famous Kingda Ka roller coaster. Towards the end of 2005, I picked up Ford for my personal portfolio and also decided to feature it in the January 2006 edition of my investment newsletter, which was based on the Dogs of The Dow theory.
I picked Ford as a contrarian bet given the extreme negative sentiment surrounding the company and because I felt that there was a lot to like about the company at that point. Sales of the redesigned Mustang were very strong, the coveted GT supercar was launched to great acclaim, sales of the midsize Fusion were encouraging and Ford had a stable (pun intended) of premium brands like Aston Martin, Jaguar, Land Rover and Volvo. Apart from sitting on a sizeable cash position of $17 billion, Ford also had stakes in Mazda and car rental company Hertz. Ford’s international operations were growing in Europe, India and China and their finance arm was profitable. The expectation was that Ford would eventually return to profitability through its “way forward” restructuring program and I did not mind collecting a 5.1% dividend while I waited for Ford to achieve said profitability.
But a lot has changed since then. Ford has continued to lose market share, pushed out the profitability target beyond 2008 and completely eliminated its dividend. Ford has also hired ex-Boeing executive Alan Mulally as CEO and while some may view this as a positive step, I am not sure an outsider to the automotive industry was the required fix. Much to the dismay of car enthusiasts, Ford also decided to stop production of the $150,000 Ford GT after just two model years.
All this talk about a possible merger with Nissan (NSANY) and General Motors (GM) also does not make any sense. GM faces many of the same problems faced by Ford such as high healthcare costs, rising retirement obligations and a product lineup that is still highly dependent on large SUVs. It is beyond me how Carlos Ghosn, the current CEO of Nissan Motor and Renault, can also effectively manage Ford.
Based on these recent developments, I have finally thrown in the towel with Ford and will shortly sell my long position. If an investor wants to invest in the automotive sector, international stocks like Tata Motors (TTM) or the commercial division of Volvo (VOLV) offer much better opportunities.
For additional reading, check out the healthy discussion sparked by my earlier articles about Ford here and here.
Voluntary Disclosure: I am currently long shares of Ford, but not for very long.