Analysts warn on shrinking Ford market share

Ford Motor Co's new restructuring plan may not stem its steady loss of market share, analysts warned, as investors balked at the automaker's announcement on Friday that it will not return to profitability until 2009.

An unexpected drop in truck sales and rising material costs forced Ford to accelerate a restructuring plan announced in January to increase the number of plant closures to 16 and to cut an additional 10,000 white collar jobs. The automaker is now set to eliminate a third of its North American workforce.

Ford vowed to use new products to halt its slide. It plans to renew 70 percent of its product line, measured by volume, by next year and to introduce five completely new vehicles by 2008.

"We've taken a sobering look at the industry and our own business, and the entire team in North America has a renewed sense of urgency and a clear view of what it will take to position this business for profitability," said Mark Fields, the Ford executive vice president responsible for the turnaround plan.

Analysts, however, expressed skepticism about what comes next at Ford, given that Fields also conceded the company's US market share is expected to drop to 14-15 percent from its current share of about 17 percent.

Ford shares closed down nearly 12 percent at US$8.02.

"Our ranking doesn't matter," chairman Bill Ford said in a conference call with analysts.

"You've seen companies chase share with disastrous results," he added. "I think our employees want to see a realistic plan."

The decision to become a smaller, more profitable company is logical, Goldman Sachs analyst Robert Barry wrote in a research note.

"But with little expected relief for the top line any time soon, cost cuts that may prove inadequate by the time they are realized, relentless pricing pressure, and ongoing mix shift to lower-profit cars, not to mention macroeconomic risk that could derail [Way Forward Two], we remain skeptical about what this smaller, more profitable company will look like," he added.

Analysts also questioned whether the amended plan goes far enough given that the company is expected to lose US$9 billion this year.

"We had hoped Ford would close additional assembly plants and make remaining ones highly more flexible, announce the exit/sale of several brands [maybe Lincoln Mercury, Jaguar and Land Rover], reduce fleet mix to a set lower level and hint at more warranty sharing with suppliers [where we see little accountability]," Bank of America analyst Ron Tadross said in a research note.

"We do not think any of the things announced today will help Ford fix its 3,000-per-unit dollar US vehicle resale value disadvantage versus Toyota," he said, adding that the plan was "inadequate on the capacity-reduction front and omits any bold steps to fix the business."

Fields, however, said Ford is focused on both cutting costs -- a new labor agreement will save the company US$600 million -- and developing new products.

"This remains a product-led turnaround first and foremost," he said. "As we made clear in January -- and as we will underscore today -- the future of Ford will be driven by bold, innovative products," Fields said.

The new vehicles Ford has brought recently are excellent, noted Alan Baum, an analyst with the Planning Edge in Southfield, Michigan.

"Product development at Ford hasn't been that bad. I think Ford gets it. The new vehicles are really very different from the products they're replacing. That isn't true at GM," Baum told reporters.

But Ford has fallen behind US rivals in the development of more efficient engines and transmissions, Sean McAlinden of the Center for Automotive Research in Ann Arbor, Michigan noted recently. General Motors and the Chrysler Group have new advertising campaigns, promoting the fact they have several models that get better than 19km per US gallon.