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Goldman sparks a 12% move in Ford by telling you what I said weeks ago

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April 22, 2009 – Comments (6) | RELATED TICKERS: GM , F

 

The stock of Ford Motor Company is up over 12% today on the heels of an upgrade by Goldman Sachs (see article: Ford shares rally on Goldman Sachs upgrade to buy).  In upgrading Ford, the Goldman analyst said:

...Ford, which has avoided a government bailout up to this point, will get a boost in market share due to the "diminished presence" of both General Motors and Chrysler following likely bankruptcies in the coming weeks.

Hmmmm, this sounds awfully familiar.  Sorry Goldman, once again your equity research analysts are a day late and a dollar short.  Several weeks ago I ended my CAPS red thumb on Ford and wrote the following:

What's Bad for GM & Chrysler is Good for Ford

In any normal world where Uncle Sam didn't feel the need to prop up every failing company, both GM and Chrysler would be complete toast.  Their existence outside of bankruptcy depends solely upon the kindness of government at this point.  One way or another, whether GM and Chrysler are forced to file for bankruptcy or not they are going to have to seriously reduce their production and get major concessions from the UAW and probably bondholders as well. 

No matter how this plays out, clearly GM and Chrysler have too much production capacity right now.  In order to survive or emerge from bankruptcy these companies are going to have to get leaner and meaner.  Substantial production cuts by its two domestic rivals is very good news for Ford as well.  Ford will be happy to gobble up whatever market share GM and Chrysler are forced to give up.

Furthermore, if GM and Chrysler are able to win major concessions from the UAW either now or after bankruptcy, there is a good chance that Ford will be able to negotiate similar terms without having to go through nearly as much pain. 

Increased market share and lower labor costs are a good thing for Ford.

What a mess.  As someone who earns his livelihood in the auto industry and knows countless people at both the manufacturer and dealer level, these events sadden me to know end. I can't say that I'm surprised.  My first two picks in CAPS were to give GM and Ford the red thumb.  I am seriously considering ending my Ford short pick in CAPS though.  As I just mentioned, much of the bad news that is out there about GM and Chrysler is actually good news for Ford. 

I'm not exactly saying that I am a raging Ford bull.  I still am very afraid of anything in the auto sector and I would never put real money there.  However, I see enough positives coming from GM and Chrysler's problems for Ford to consider ending my CAPS short of it. 

OK, I'll stop before I break my arm trying to pat myself on the back, but if there's one thing that I know it's autos.  Besides, if I was really good instead of just ending my short I would have used the fact that I figured this out before the major analysts to flip the trade and go long F.  I'm sure that's what Goldman Sucks somehow secretly did this morning before its analyst issued the report.

Deej

6 Comments – Post Your Own

#1) On April 22, 2009 at 3:34 PM, catoismymotor (< 20) wrote:

*High Fives TMFDeej.*

Good call.

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#2) On April 22, 2009 at 3:36 PM, TMFDeej (99.25) wrote:

Thanks cato.

Deej

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#3) On April 22, 2009 at 4:38 PM, checklist34 (99.71) wrote:

nice work, deej

and, fwiw, i bought a little F (calls on it for jan 2011, actually) on your and another commentators recommendation along with my own lingering interest in the inevitable recovery in the auto sector... In general beaten down sectors, especially cyclic ones, are itneresting to me, and there will be fortunes to be made on auto stocks in coming years for whoever picks the right one.  In real life I'm much more of a GM fan (lover of caddys and vettes and respect the new pickups although I don't own one), but at the end of the day F is the only play in the american auto sector right now that I can live with.  There may well be some stable suppliers ... but i haven't had time to dig into them.  .

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#4) On April 22, 2009 at 4:55 PM, DemonDoug (34.83) wrote:

Just because USAir, United, and NWA go bankrupt, doesn't mean American also doesn't go bankrupt.

Yup, american auto industry is in the same boat as the airline industry, except they are worse.

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#5) On April 22, 2009 at 11:05 PM, RainierMan (74.28) wrote:

I don't see it as a game changing positive.

The market is likely to be substantially smaller going forward. Obviously Ford will be splitting the market share gains. This assumes we won't see GM or Chrysler brand vehicles which is unlikely.

Hyundai is coming on VERY strong in the U.S. market, so they also get a stronger competitor, one that is successfully encroaching on segments in which Ford is stronger (larger cars).

Ford is losing much of it's most profitable segment (trucks/suvs), and needing to get more profitable in segments it hasn't really thrived in (small cars). They've sold off a large share of Mazda. Critical product development funds have got to be much diminished at a time when research into things like hybrids is essential. I would be worried about the hit to their bottom line also limiting their expenditures for maintaining good exposure in critical markets like Asia. 

I'm not disagreeing, just suggesting that the benefits to Ford might be hard to detect given the new challenges. 

Reduced labor costs would be big benefit, but does the huge pension burden really go away? 

 

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#6) On April 28, 2009 at 7:01 PM, ChrisGraley (29.68) wrote:

Bought it at $1.73 on my birthday 03/09 on Caps and on the same day I sold $2.50 Jan11 puts in real life. Given the time value, I haven't rolled over yet, but I plan on it when Ford hits around $7.50.

On paper I've probably had the best results I could have ever thought of! I don't see it letting up for a while either. They have a promise from the government, that they will be caught if they fall.

Imagine a 3 bank scenario, where Ford was the only good bank.

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