(Please note that this story has been revised to reflect the fact that Jac Nasser and not Carlos Ghosn led Ford roughly a decade ago).


Ford Motor

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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.

For example, Ford has always sold the Focus at breakeven to meet fleet-wide fuel-economy standards and to bring customers in the door that would perhaps be persuaded to buy bigger, pricier vehicles.

As the accompanying chart shows, total industry car sales have held their own. It's the plunge in truck sales that is hurting Ford and other automakers. Currently, the company is transforming some manufacturing plants to build smaller vehicles rather than bulbous SUVs.

Auto/Truck Sales

Click here for larger image.

Company reports, TheStreet.com estimates

To its credit, Ford is developing a new breed of strong, yet efficient, engines that should hit the market in the next 12-24 months. These engines are likely to make use

of advanced turbochargers to continue to provide the power that many customers demand.

Cut to the Bone

In my view, the massive headwinds faced by Ford and other automakers will soon start to die down. And this absolutely brutal period has forced Ford and its brethren to shed fat, boost R&D and position product lineups for the coming decade.

But it would also help out if steel prices started to cool. Raw materials will be the key wildcard in Ford's return to profitability.

Also, count me as a big fan of CEO Alan Mullaly He has made all the right moves since taking the reins. Leadership does matter. Under Jac Nasser, Ford moved in the right direction. Under Bill Ford, the company lost its mojo. Mullaly looks like the best leader the company has had in decades.

Although investors will likely have to swallow a lot more tough headlines from Ford in coming months, the company -- and its stock -- could emerge from the cave in 2009. Moreover, few Fortune 500 companies have stocks that could double, triple or even quadruple if and when the outlook brightens. Sure there's risk, but there could be plenty of reward.

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