Shareholders, UAW get same response from Ford

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DETROIT -- Ford Motor Co.’s management and board are staring down their shareholders, much as they stared down the UAW -- and for exactly the same reasons. The question is how long they’ll get away with it.

Ford has enjoyed a spate of good news over the past two weeks. The UAW ratified a contract that will raise Ford’s structural costs only 1 percent a year over its four-year duration. Standard & Poor’s raised Ford’s credit rating two notches to just below investment grade. And yesterday the automaker posted its ninth straight quarter of pretax operating profits, and 10th of net profits.

Yet disappointed investors drove Ford’s stock price down 5 percent yesterday, while the Dow Jones Industrial Average rose 1 percent and almost every other automaker’s stock rose.

Ford’s third-quarter results were pretty much in line with most forecasts. Net profits eased 2 percent to $1.65 billion, despite higher sales and revenues.

A drop in profits isn’t good. But as one autonews.com reader commented, “Any quarterly profit that starts with a ‘B’ can’t be all bad.”

Moreover, had it not been for some commodity hedging -- a prudent action that led to accounting charges when commodity prices slumped at the end of the quarter -- Ford’s net would have risen.

The turnaround continues

Overall, the phenomenal Ford turnaround under CEO Alan Mulally continues. Its market share is up and it continues to benefit from strong prices and limited incentive spending.

Its capital spending on new vehicles is coming in below budget, and not because Ford is cutting any programs. “We’re developing more vehicles with fewer platforms,” says CFO Lewis Booth. “We’re increasing our efficiency.”

But unhappy investors are looking for dividends, not positive direction. Ford hasn’t restored the dividend that Mulally cut shortly after arriving from Boeing Co. in September 2006. At the time, Mulally wanted to conserve cash for a restructuring.

Investors think the restructuring is complete. They want a payout.

Mulally and his team, plus Ford’s board, apparently feel otherwise. And they may have a point. It may be too early to declare mission accomplished.

Ford’s credit rating isn’t yet at investment grade. Huge questions hang over Europe -- and by extension over Ford of Europe. Lincoln is at best a work in progress, a brand that will require enormous investment to resuscitate. Ford admits that China is still sucking up investment dollars and won’t be a steady profit contributor until mid-decade.

Mulally faced this same “show me the money” demand from the UAW. Ford’s unionized work force hadn’t seen a wage increase since 2003. They wanted one in the new contract.

The union pointed to Mulally’s paycheck as proof the automaker could pay more. Ford’s profits prompted the board to pay Mulally $26.5 million in 2010, and to give him more than $56 million in stock this year for leading the company’s turnaround.

But Ford stared the UAW down. It offered jobs and a signing bonus, but didn’t reinstate wages to what they were before.

Shareholders vs. union

Now shareholders are making a similar demand. They haven’t been paid a dividend for five years. They want one. Ford says not yet.

Booth, pressed by analysts, wouldn’t say when Ford would resume paying a dividend, beyond repeating the company line: “Sooner rather than later.”

But he also made it clear that Ford wants the payout, once resumed, to be sustainable. In other words, don’t pay a dividend in the first quarter if there’s any chance you’ll have to suspend it again in the third quarter.

The reasons for Ford to hold onto its cash rather than pay a dividend are the same reasons Ford wouldn’t commit to a UAW contract that would have imposed higher costs on the automaker in what remains an uncertain economic outlook. Investors applauded that argument when it was applied to the union. Apparently, they don’t like seeing that same reasoning applied to them.

You can reach James B. Treece at jtreece@crain.com.

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