Robert Walberg

Street Patrol11/29/2006 2:01 PM ET

Investors should leave with Ford's workers

That 38,000 hourly workers chose to take Ford's buyout offer means people closest to the company would rather run than take their chances on its future.  Investors should heed the lesson.

By Robert Walberg

Who better to know the health of a company than its employees?

So what does it say about Ford (F, news, msgs) that nearly half of its work force opted to accept a buyout package rather than stick around in the hopes of better days ahead? The message is clear: Those closest to the company would prefer to take what they can get now because they're afraid if they hang around much longer they may end up with even less.

That 38,000 hourly workers chose to take the money and run should tell Ford shareholders that it’s time to sell.

Cost savings

Some on Wall Street consider Ford’s announcement good news because nearly 8,000 more employees than expected agreed to the buyout. That means additional cost savings -- a good thing when you consider that Ford has already lost about $7 billion in 2006. Analysts project that the extra defections will save an additional $330 million in 2008.

But at some point the cuts are so deep that it's no longer just trimming the fat but cutting into the meat of the company. How can Ford rejuvenate sales growth and start gaining back market share while producing far fewer cars and trucks with roughly half of its work force? It can’t be done.

While Ford works feverishly to stem the bleeding, the company will continue to contract for at least another two years. Now the number two U.S. automaker with a 17% to 18% share, Ford is likely to fall to number four behind Toyota (TM, news, msgs), which controls 15.2% of the U.S. market, and DaimlerChrysler (DCX, news, msgs), which has 14.3%.

Unfortunately, Ford doesn't have much choice. It forecast losses of about $17 billion from 2007 to 2009, with most of that coming next year. The company also expects to lose another $3 billion in the fourth quarter of fiscal 2006, with restructuring charges draining an additional $500 million to $1 billion. Add it all up ($20-$21 billion) and you can understand why the company secured $18 billion in loans earlier in the week (giving it liquidity of nearly $38 billion by year end).

The question is whether a smaller Ford can eventually carve out a profitable niche in the highly competitive auto industry. Or are current measures merely delaying the inevitable demise of a once-great company? Based on the scope of the buyout plan, the rank and file obviously aren’t very optimistic. They see the "Way Forward" restructuring plan as a way out.

Challenges of definition

Both Alan Mulally, the new CEO, and Mark Fields, the president of the Americas region, are intelligent men with impressive track records. At least Ford finally has the leadership in place with the talent and experience to get the job done. And that job is not merely slashing costs, but rebuilding the brand through innovative design and improved customer satisfaction. Restoring employee morale will also be a big, but equally important task.

Yet even if management succeeds over the next two years in aligning production with demand, the truth is that Ford will be an increasingly smaller player on the domestic and world stage. It’s not that the company can’t succeed, it’s just that it can no longer be considered one of the "Big Three."

In fact, the whole "Big Three" term seems sadly out of date given the years of troubles at General Motors (GM, news, msgs), Ford and Chrysler. Maybe the best thing for the U.S. auto industry would be if the two remaining former industry stalwarts eventually joined forces to become the "Big One."

I will sell Ford out of the Street Patrol portfolio in our Expert Picks section as of today’s close. I will also take this opportunity to reduce exposure to the retail sector by closing my position in bebe stores (BEBE, news, msgs).

At the time of publication, Robert Walberg did not own or control shares of any companies mentioned in this article.

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