Rather than accept a government bailout, as Chrysler and General Motors did, Ford hunkered down and literally pulled itself up by its bootstraps. Mulally will have reduced North American production capacity by 40% through 2011, while also having cut down salaried headcount. And after already simplifying Ford’s product development and manufacturing, Mulally’s taking it a step further. He plans to shrink the 25 major vehicle platforms Ford had in mid-2010 to 12 by 2013.
But what has Mulally done to take Ford this far? In addition to those manufacturing changes, two things.
First, a focus was put on making better cars, such as the award-winning Fusion and Fusion Hybrid models, with higher miles-per-gallon rates. The average fuel economy of Ford’s vehicles between 2004 and 2009 jumped 19.2 percent—the best in the industry—and the target for 2015 is for MPGs to be up 35 percent above 2005 levels. Ford also was the second-largest hybrid seller in the US for the first three quarters of 2010—even though it sells only two hybrid cars.
Now Ford’s beating the competition here in the States, making more money per car and selling more cars as the autos market continues to rev up. And overseas, the company is expanding production to keep up with the rising demand of the emerging-market middle classes in China and India.
The most important thing Mulally has done, though, as far as Cramer’s concerned, is clean up the balance sheet. He paid down $7 billion worth of debt in Q2 2010 alone, and expects to have positive net cash by 2011, which should further reduce his borrowing costs.
How so? Well, every time Mulally takes another step toward healthy accounting books, he earns a chance to have the ratings agencies upgrade his debt. That translates into those lower borrowing costs, which in turn means Ford will make even more money per car. In September 2010, the company was able to sell $1 billion in debt at a cost that indicates the bond markets believed Ford’s credit rating is still improving. So most likely, ratings agencies will in fact continue to upgrade Ford’s debt going forward.
“We care about this even though it’s not as sexy as the latest Ford Explorer,” Cramer said, “because cleaning up the balance sheet’s the key to unlocking the real higher earnings per share, and higher earnings, we’ve always said, are the key to a higher stock price.”
Cramer is bullish on Ford on any 3-percent to 5-percent pullback in the broader market.
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