Ford’s Collapse (F)

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The Ford Motor Company’s share of the US market dropped to 14.8% in November. It is now behind GM, Toyota and Chrysler. A year ago in November its share was 16.9% according to auto research group Ward’s. Ford executives said that its share could drop to 14%, but not this early. It was assumed that it might hit that level next year before new model sale kicked in and as the company reduced it reliance on low margin fleet sales.

Of course, Ford is in the process of borrowing $18 million with a good portion of the company’s assets as collateral. The sum is on top of the roughly $23 million in cash and short term investments that the company had at the end of the September quarter.

All of this raises a critical question. Did management see a sharper drop in share coming, or was the $18 million needed to run the company at the 14% share level. If management saw the drop over the horizon, it may be that they believe that share could fall to 13% or even 12% next year.

The leaves Wall St. with this puzzle of whether Ford can survive on 12% of the market even with the new money coming in. The answer to that may well be "no", and that management was caught by surprise. If so, 2007 could be very, very ugly.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.