Ford's task: convince investors that peak not past
Wednesday, May 12, 2010 at 11:02AM 
(Reuters) - Ford Motor Co executives at the annual meeting Thursday in Wilmington, Delaware, will have to make the case that the No. 2 U.S. automaker can outperform rivals in a recovering U.S. market as it did during the crushing downturn in auto sales that began in 2008.
Ford's (F.N) stock price has quintupled since the end of 2008 and it posted a profit last year while U.S. rivals fell into bankruptcy, leaving Chief Executive Alan Mulally and other Ford officers with the task of convincing investors there is more to come.
"If they just keep doing what they are doing now, they should be able to do very, very well," said John Wolkonowicz, a senior auto analyst IHS Global Insight.
At Thursday's annual meeting, Ford will ask shareholders to approve a plan it adopted last September that would tie preserving tax benefits to limiting the potential for a change of control.
Ford, which posted net losses totaling about $30 billion from 2006 through 2008, accumulated net operating losses, capital losses and tax credit carryovers over several years.
Use of those tax benefits would be severely restricted if shareholders of more than 5 percent stakes collectively increased their Ford ownership to more than 50 percentage points over a rolling three-year period.
Shareholders have raised several proposals to be voted on at the meeting, including an annual request to revisit the Ford's ownership structure that gives the Ford family 40 percent voting control through ownership of nearly 71 million Class B shares. The family also holds some of the 3.3 billion common shares.
Trillium Asset Management, which holds a small position in Ford stock, has raised a shareholder proposal for "greater transparency and board oversight of the company's political spending" for the past three years.
But the bigger focus for investors will be the expected update on the automaker's strategy after a restructuring that lowered its break-even point without resorting to the government-backed bankruptcies that reshaped the other members of Detroit's traditional Big Three, General Motors Co GM.UL and Chrysler Group LLC.
One challenge for Ford is to show investors it has a management succession plan to keep its recovery on track beyond the tenure of Mulally, who turns 65 this year, analysts say.
Executive Chairman Bill Ford Jr. has talked down that risk, assuring Reuters in an interview in April that Mulally will be around for a while and that the automaker has a stable of capable in-house successors when he does to retire.
Ford hired Mulally away from Boeing Co's (BA.N) commercial airplanes business in 2006 and he has been given carte blanche to stay as long as he would like, Bill Ford has said.
Several aspects of the Ford turnaround plan, including borrowing more than $23 billion for a cushion, were in the works before Mulally arrived.
However, executives credit Mulally with a relentless focus executing the plan and driving Ford's global operations to work together to reduce costs by delivering global vehicles like the new Focus compact sedan.
"We haven't done that before," said Elena Ford, director of global marketing, sales and service operations and a great-great granddaughter of company founder Henry Ford. "We have phone calls every single week with Europe, South America, Asia and the U.S."
DEBT REDUCTION A KEY
"It's going to come together really in a phenomenal way; over the next 12 to 18 months you are going to see this company bringing out more and more and more cars," Elena Ford said in an interview at the Beijing auto show.
Ford has a far heavier debt load than GM or Chrysler after taking the more than $23 billion "home improvement loan," but has ridden a wave of goodwill by avoiding the government bailouts that supported its rivals in 2009.
The automaker also made deep sales inroads against Toyota Motor Corp (7203.T), which has stumbled over the recalls of millions of vehicles in the U.S. and overseas.
Through April, Ford was the No. 2 U.S. automaker by sales but had cut GM's lead in vehicle sales in half compared with the same period a year earlier, with just under 17 percent market share compared with nearly 19 percent for GM.
"I would suggest that Ford's reputation among consumers right now is higher than it has been in many decades," Wolkonowicz said.
Ford's automotive debt totaled $31.3 billion after a debt repayment in early April, but Ford posted a $2.1 billion first-quarter profit and forecasts a solid profit for 2010. It also reported a $2.7 billion profit last year.
The turnaround plan has included selling off luxury brands that formerly comprised a premium automotive group within Ford. Ford has sold Aston Martin, Jaguar and Land Rover brands and has agreed to sell the Swedish brand Volvo to China's Geely.
The automaker believes debt reduction will accelerate as it produces more operating profits and automotive cash flow.
Ford restored a 50 percent cut made in 2006 to annual compensation for outside directors, raising it back to $200,000 after studying peer companies including GM. Sixty percent of the compensation is in deferred common stock.
Since the close on April 26, the day before it reported a first quarter profit, Ford shares have fallen nearly 15 percent to $12.31. The stock had reached a five-year high at $14.57 that day before closing at $14.46.
(Additional reporting by Kevin Krolicki, editing by Gerald E. McCormick)
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