Despite selling its Kwik-Fit repair business for less than one-third of its 1999 purchase price, Ford ( F) is still on track to raise $1 billion this year from asset sales. But analysts say the company needs to move more aggressively in cutting costs if it really wants to restore investor confidence. In a press release Monday, the world's second-largest automaker said it has agreed to sell its U.K.-based unit to CVC Capital Partners for $500 million, a substantial discount to the $1.6 billion that it paid for Kwik-Fit just three years ago. Some analysts speculated that Kwik-Fit's accounting irregularities, which surfaced in June, pushed the price of the unit down -- although Ford has blamed weak market conditions for the lower valuation. "The asset sales are a sort of minor sideshow as far as Ford's turnaround program is concerned," said David Healy, an analyst at Burnham Securities. " They will help Ford's cash position modestly but I don't think it makes much difference to their overall restructuring program." Ford, which will record a one-time, after-tax charge of about $500 million in the third quarter related to the sale, also announced that it has completed the sale of Collision Team of America, a U.S.-based chain of collision repair shops.
The two units were originally bought as part of former CEO Jacques Nasser's diversification strategy. " He wanted to make it more of a consumer service company than a car company," said Josh Peters, an analyst at Morningstar. "In retrospect it didn't work." Ford won't continue pursuing the sale of Hertz Equipment Rental because it said capital spending in the U.S. hasn't recovered as quickly as expected and valuations remain low. Ford bought the remaining publicly held shares that it didn't already own in Hertz in January 2001 for $710 million, bringing its total stake up to 81.5%. "With industrial activity bouncing along the bottom, it would be a tough sale, and Ford can afford to wait until economy picks up," Peters said. "It's a very tough environment for business sales right now of any kind." Peters said while asset sales should help Ford to shore up its balance sheet, the money it hopes to raise this year from such a strategy -- $1 billion -- is merely "a drop in the bucket" for a company of its size. "What they really need to do is start taking costs out of products so they can stay competitive with General Motors ( GM), and so far it's been very, very difficult," he said. As a result of various missteps in the past, including product recalls and the Firestone tire debacle, Ford has been forced to spend more money on quality and has been locking in expensive designs with its Expedition/Navigator and F-Series. Analysts say they don't expect these costs to be recovered. In July, Ford reported its first profit in a year, as discounts and low interest loans boosted sales. But the company also said it was six months behind on its cost-cutting plans and projected a "small loss" in the third quarter. Ford also announced last month that it would offer cash rebates of as much as $3,000 and financing as low as 0% on some vehicles, fueling speculation that the company would raise prices on certain models next year.
Although Peters doesn't rate Ford's stock officially, he views the company as unattractive, noting that the restructuring process will be long and drawn out. He isn't expecting a huge cyclical upsurge and said the company must fight a potentially flat industry environment over the next couple of years. Healy is somewhat more optimistic. He believes that at its current price, Ford's stock is already reflecting much of the bad news. "It is extremely depressed and is probably an interesting buy as a recovery speculation over the next couple of years," he said. Analysts have said the weak dollar could work in Ford's favor going forward as foreign trucks and cars become more expensive to buy here in the U.S. In January, Ford announced a restructuring program that included 35,000 job cuts and the closing of least five plants to reduce capacity by 16%. The company has also made a number of management changes recently. In May, Ford replaced Chief Financial Officer Martin Inglis with Allan Gilmour, who had retired from Ford in 1995 after 34 years. Late last year, the company ousted Nasser, replacing him with William Ford. Shares of Ford, which have fallen 26% this year, were down 16 cents, or 1.5%, to $11.68.