Ford Will Win This Race Against the Clock

When Ford Motor (F - commentary - Cramer's Take) issues a press release with a headline that blares "$8.7 billion Net Loss For Second Quarter 2008," you know it's pretty bleak in Detroit right now. Actually, that massive net loss is quite overstated, as about 90% of that is due to a one-time charge. But you get the idea.

The $1 billion operating loss would have been far worse were it not for the fact that Europe and South America remain profitable. The automaker now has about $26.6 billion in cash on the balance sheet on a gross basis.

That figure has dropped by nearly $6 billion in the first half of the year. In effect, Ford's equity is not in danger right now, but if the sales slump persists, then bankruptcy chatter will emerge in 2009. I think those concerns are overblown, but the "noise" in the stock could create trouble.

Baby, It's Cold Outside

To give you a sense of the magnitude of the current U.S. sales slump, second-quarter revenue fell from $19 billion a year ago to just $14.2 billion. By my math, Ford needs to generate roughly $16-$17 million in quarterly domestic sales to bounce back to breakeven.

That appears to be an unlikely target for either the third or fourth quarter, but it is a conceivable goal for quarterly results in 2009 -- IF oil prices keep receding. If that doesn't happen, look for more asset sales and capital raises.

Volvo is the most obvious asset that could be easily sold. The Swedish brand has about $17 billion in annualized revenue, but is currently unprofitable, and might not fetch more than $4-$5 billion. But that would be enough to tide Ford over through 2010 and 2011.

Ford is also scrambling to shift the sales mix away from 4,000- to 5,000-pound vehicles to cars and trucks that weigh far less and have smaller engines. The trouble is that these kinds of vehicles have often been associated with skimpier profit margins.

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David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.