Storm Clouds in Detroit: Part III

(This is the final column of a three-part look at the deepening crisis at Ford and GM. Part I of this series was an overview of the industry's troubles, and Part II focused on the outlook for GM.)

---

Ford (F - commentary - Cramer's Take) and GM (GM - commentary - Cramer's Take) are being slammed by the worst industry slump in recent memory. Many investors expect both companies to head into a death spiral, where shrinking sales lead to reduced investments, which in turn leads to diminished competitiveness against well-heeled foreign competitors.

Both automakers are scrambling to adjust to the new sales environment. But while GM's financial distress and plodding reaction could spell big trouble as cash runs out the door, Ford is transforming at a rapid clip and has the financial cushion to ride out the storm.

An investment in Ford is not for the weak of heart, as the company will likely lose gobs of money in the next two to three quarters. And since nobody wants to buy a stock with more bad news coming down the pike, the shares keep touching new lows. They are down 75% in the past four years and now trade at a 20-year low.

But if you look out into 2009, as I believe investors will start to do as the year winds down, you start to see an entirely different picture emerging: Even if the economy remains in a funk, Ford will be selling a sharply improved lineup of fuel-efficient cars and trucks that will compel consumers to trade in their aging, inefficient cars and trucks for vehicles that will save them money at every gas fill-up.

Ford is taking a multi-pronged approach to this aggressive revamp.

First, three plants are being retooled to make cars instead of trucks. Those factories will likely crank out Ford's new Focus, a new small car from Mercury, a new Fiesta, and perhaps the ultra-efficient Ka from Europe, which delivers hybrid-like mileage with a far lower cost of ownership.

---

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