Model T - INTERNE - Ford Motor Company - Brief Article

Kiplinger's Personal Finance Magazine, April, 2000 by Brian P. Knestout

STOCKS | Maybe FORD'S foray into the Internet will help its ailing stock.

WHAT exactly does Ford Motor have to do to get investors to buy its stock? Obviously, racking up the best sales of its storied 97-year existence wasn't enough.

Ford--which holds car brands Aston Martin, Ford, Lincoln, Jaguar, Mazda, Mercury and Volvo, the Hertz rental-car business and a profitable credit department under its hood--saw sales grow by 13% last year (to $163 billion) and profits by 10% (to $7.2 billion, or more than any other car company in history, by Ford's reckoning). That's no clunker.

Ford's truck and sport utility vehicles are in tune with current buying trends. Carmakers set an all-time record for U.S. sales in 1999, and Ford made one-fourth of all new cars and trucks sold in the U.S., second only to General Motors. Ford's F-series trucks were the best-selling vehicles in the U.S., and its Ranger pickups, Windstar minivans and Explorer and Expedition SUVs all landed among 1999's bestsellers, as did its Escort and Taurus passenger cars. No other automaker boasts so many successful lines.

Yet the trajectory of Ford stock is anything but stellar. In fact, after its record-breaking results were announced in late January, the stock fell to $48 a share, nearly 29% below its all-time high reached last April. Ford's total market value is grinding along at $56 billion. Some recent expeditions into Internet territory, however, may help the company's stock recover some spark.

Reasons to invest. Behind Ford's Internet effort lies a simple but major change, says Warburg Dillon Read analyst Saul Rubin: a switch from a dealer-based, supply-driven sales model to an Internet-compatible, demand-driven one. "Manufacturers must adopt build-to-order processes over the next five to ten years to remain competitive," says Rubin. "Build-to-order improves efficiency, lowers costs, and creates more value for customers."

Led by chief executive Jac Nasser, Ford took a major step toward build-to-order by joining with logistical specialist United Parcel Service in an effort to track its products and speed delivery from the factory to dealers and customers. When operating at full tilt, the system could help cut 40% off the time it takes for a vehicle to make it from the production line to the buyer's driveway. Quicker delivery is vital, notes Rubin, because "fast order fulfillment to satisfy consumer demand for speedy gratification is requisite before the shift to build-to-order can be successful."

Ford also established AutoXchange, a business-to-business cybermarket where suppliers of goods from paper clips and pens to hubcaps and fenders can sell their products directly to Ford and other companies. Rubin says AutoXchange could become a successful stand-alone business, pulling in $1.1 billion in sales by 2002 and adding about $7 of value to each Ford share.

Of equal importance to Ford, though, is that AutoXchange should help bring down its costs for materials and parts--one reason the company is preparing to spin off its Visteon auto-parts business later this year. The lower sticker prices that would result from lower component costs, combined with an Internet-ready build-to-order system, should make Ford's vehicles more attractive to consumers and protect its market share.

Ford has some less-technological cards to play, too. It's readying itself for a bidding war with GM over South Korean automaker Daewoo. If successful, the acquisition would give a healthy boost to Ford's overseas sales and could help it seize the crown of world's largest automaker.

Risks to consider. All the Internet buzz in the world can't alter the fact that automaking is a cyclical business. Even in the current good times, Ford's sales are under pressure overseas. It's having problems staunching a loss of European and Latin American market share, where cutthroat competition has dropped Ford's sales volume. As oil and gas prices rise to highs not seen in years, Ford's truck and SUV sales may take a hit in the U.S., too.

Most irksome to investors, however, may be the company's decision to sit on top of a king's ransom of $24 billion in available cash. Ford management steadfastly refuses to discuss using the cash to buy back shares, which would help boost per-share earnings. While it's understandable that Ford wants to keep its nest egg--having experienced tough economic times, Ford knows that such a cushion would help lighten a recession's heavy blow--investors would rather the cash be put to work.

Perhaps as a result, most analysts are less than fervent about the stock. With earnings in 2000 expected to grow a meager 3%, to $6.01 a share, and 5% in 2001, to $6.31 a share, Ford's definitely not an Internet flier. Yet with a dividend yield of 4.3%, Ford could attract more-conservative investors.

RELATED ARTICLE: SPOTLIGHT | Ford Motor Co.

* Founded: 1903, in Detroit * Symbol: F (NYSE) * Recent price: $47 * Price a year ago: $56 * Dividend yield: 4.3% * Annual sales: $163 billion (1999) * U.S. market share: 25% (second, behind General Motors) * Earnings per share: 1997: $5;62 1998: $5,28 1999: $5.83 2000: $6.01(*) 2001: $6.31(*) * Web site: www.ford.com