Ford's Bad News Could Be Long-Term Good News

Perhaps the biggest industrial news last week was Ford announced disappointing earnings news.



Ironically, though, this 'crisis' may be the ultimate turnaround opportunity for Detroit- or what's left of it.



The facts are these. On Thursday, Alan Mulally announced that, due to high gasoline prices, truck sales are off in a major way. Mulally used the term 'tipping point' to emphasize that gas prices have, for now, shifted consumer buying away from trucks for the foreseeable future.



The company is cutting truck and SUV production by as much as 40% in the second half of 2008, according to a Wall Street Journal lead article in Friday's edition of the business paper.



The consequence of this gasoline-price-driven change is that Mulally said it's now "extremely unlikely" that Ford will, as he had earlier predicted, return to profitability in 2009.



This is huge news, because Mulally is seen as a very capable manager. Unlike the incompetent crew across town at GM, Mulally has proven his managerial expertise at Boeing, and already made a positive difference at Ford. The unexpected, though small, profit this quarter, and the shedding of Jaguar, have demonstrated this.

The nearby Yahoo-sourced price chart for Ford and the S&P500 for the past year bears this out.

But a longer-term look at the same data, using a five-year chart, tells a different story. Seen from this perspective, it's evident what a tough job Mulally has if he ever hopes for Ford to deliver at least the S&P's returns to his shareholders. Right now, on a five-year basis, Ford is about 60 percentage points behind the index.



But with gasoline-driven cars finally seeing their demise due to global oil economics, it's quite possible that Ford, Toyota, Nissan, et.al. will have a golden opportunity to replace all the cars in America's vehicle fleet with hybrids of various sorts. Or even mono-fuel vehicles that don't use gasoline.



GM might not make it out of the desert of gasoline-powered cars into the promised land of hybrids. But Ford stands a decent chance.

With Kerkorian aboard as an investor, it's not hard to imagine him brokering an alliance, or even merger, between Nissan and Ford, much like he tried to arrange for GM a few years ago, before that company's CEO, Rick Wagoner, fought to prevent it.

To me, the auto industry may now be in a position akin to the recent years of television set manufacturers. Like the giant digital television replacement cycle currently underway, automakers may be able to view high gasoline prices as their salvation, not their demise.

Like it or not, I think most intelligent Americans now expect to seriously consider owning a non-gasoline-only car by the end of the next 5-7 years. I know I do.

While environmental concerns might be trumped-up, there's no missing the obvious implications of much higher oil and gasoline prices on American drivers and the cars they use.

I wrote about them in this post last December.

Just when the conventional design and production of automobiles was causing havoc for Detroit, the appearance of widespread demand for non-gasoline vehicles could change everything.

Battery makers and developers of efficient, usable hybrid drives will reap windfalls. And they should. As will clever designers of uniquely desirable vehicles incorporating various new non-gasoline power systems.

Maybe it'll be electric vehicles, or hybrids. But whatever it is, it could well mean a new lease on life for Mulally's Ford in the years ahead.