Hello MD,
I've made a point not to make any overtures in my automotive posts that might lead someone to actually purchase common. I have a number of reasons for this thinking.
About a month ago one of oldest friends called me regarding F. He worked at F in the mid 90's (I helped get him the job), and he walked away from a very nice promotion to the first ladder of "real" management to start his own company. He knows Ford and has retained many of his inside contacts for more than a decade. We both traded F for years, albeit most of mine where on the short side. Anyway, he has started buying and wanted to know my opinion on if he should keep adding and ultimately build a monster position for the potential turn. Here is what I told him.
1. Ford claims that they may not need TARP funds, but that position was based on surviving at a 12 million annual production rate. We know now that 12 million is extremely unlikely, and thus at some point, Ford may need funding. I asked him to name any common that has seen a significant improvement in share price after drinking from the tainted TARP wellspring. Part of that deal was the government got in line before the common holders with their preferred.
2. Ford already screwed the common holders when they went and did a bond offering more than a year ago for 20 plus billion.
3. If Ford ends up being half the size it was from it's peak, but the number of common is the same, when do you think real fundamental value might return to holders of common?
4. If this is a mini-depression and not mega-recession, there is a risk that Ford might not make it. I believe that is unlikely, but looking at the upside in the stock relative to the unknown risk about the depth of this down cycle, I would not be interested in any major position in F.
5. If you have bought it, then trade it on every uptick and buy it back when the first bit of disappointing news wacks the market again. My point is that F for a rumor or news driven trade might be interesting, but there is no way it would be a longterm hold I would buy and hold. The risk for zero for the common is just too high.
6. As much as I like Mulally, I do not believe that he can actually predict what is going to happen in the industry. None of the OE predicted the depth of this downturn, so my confidence they can predict an upturn is zero. Turnaround plans will be written and rewritten several times before this is over, and holders of common will be first in line to be screwed.
I'll have an automotive update this weekend. One of my service people got a call yesterday that Chrysler plans to increase our releases by 40%. I said, "40% above zero is still zero", and told our service person to go back to the customer and have them send me a forecast and hard release in writing. It does appears that Chrysler might start building again soon. More this weekend, including a story about a supplier that GREW sales last year (only one I know of that did this in 08, and I'll be interested if anyone on the thread can guess how they did this).
GT
TH |
