Worse Than You Think – Part 2

Yesterday I trashed GM pretty hard, and they deserved it. The short version for GM, is that the management is both clueless and dishonest, and if they manage to avoid heavy penalties from the SEC, it would only be because the government decided not to pick on the mentally handicapped.

Let’s move on now to Ford. Ford is just plain weird from the start, a two-tier company which on the one hand wants to be a big public corporation, but on the other refuses to allow the stockholders’ control of their own company, by keeping a level of stock in family hands, an effective oligarchy. Ford is also noteworthy for its selection of pyrotechnic vehicles, from the traditional Pinto to the more modern F150.

Looking at the 2007 Annual Report, we see that Ford received 154.4 billion dollars in revenue, on sales of 6.55 million cars and trucks, or $23,562 apiece. But the car part of the company lost 5.0 billion dollars on the year, or $763 lost per car or truck sold. Only a 1.2 billion dollar profit on its financial services made things a bit better for Ford.

The 2006 report shows a 17.0 billion dollar loss for the car and truck part of the company, and the 2005 report shows a 3.9 billion dollar loss for the car and truck part of the company – like 2007 the financial services helped the final numbers look better. The 2004 report shows a 200 million dollar loss for the car and truck divisions, so what we are seeing is a progressively poor performance as years go by. That trend has neither been effectively diagnosed nor addressed, and the fact that the board of directors at Ford is not directly accountable to stockholders. While Ford has managed not to commit apparent fraud with its books the way GM has done for half a decade, the letters to stockholders which start off every Annual Report show no sense of accountability or effective planning.

Stopping here for a moment, we can see a slight difference between GM and Ford. Ford managed to handle its financing well enough to avoid the catastrophic damage we see happening to GM, but both companies are unable to make an operating profit from their core products.

Now on to Chrysler. If the words ‘Chrysler’ and ‘Crisis’ sound similar, you may be remembering how these guys almost killed off the company before. At the end of the Carter years, Chrysler was doing pretty much what it's doing now - making cars that do not fit what the public wants, and headed full speed towards self-destruction, and therefore pleading for the government to save its sorry rear. The thing to note about that help that Chrysler got that time, was not only that it was much smaller than what they want now, it also left the company largely untouched. No management changes, no strcutural changes, it basically assumed that they were doing a good job and could be trusted not to screw up again. And here we are.

Chrysler's ownership has been a mess for several years now. This 'American' company stopped being a really American company some years ago when it became DaimlerChrysler, and was actually a foreign-owned private company until September of 2007. That's right, a company whose foreign owners dropped it like a flaming bag of turd, thinks it makes sense to ask for money from the U.S. government on the claim that it's a good investment. Anyway, looking at the 2007 numbers we see Daimler reporting that Chrysler lost $2.9 billion during the first 9 months of 2007; Chrysler denied losing that much but never released hard numbers to show how badly they actually did. Their new owners, Cerberus, are best known for cutting their investment in Chrysler by over 50% in the first half of 2008 - it appears they only dropped that much, because they could not find anyone willing to take any more of Chrysler after that. Cerberus had also been a big buyer in GMAC and they dumped that, too.

So maybe it was just one bad year? Cerberus' 2006 report shows that it was a good year for the company ... except for the 1.1 billion Euros ($2.4 billion) lost by Chrysler. Chrysler was doing all right before it, but the SUV and Jeep-heavy company started failing when gas prices began a sharp rise.

(to be continued in part 3)