Credit analyst cheers Ford on some levels but says still avoid the paper

By Ronda Fears

Nashville, Jan. 22 - While Carol Levenson, director of research at Gimme Credit, applauded Ford Motor Co. (Baa1/BBB) on some points, she still recommends avoiding the paper.

"We realize Ford is late to the cost-cutting party, and its 'revitalization' plan has only just begun," Levenson said in a report Wednesday.

"But we simply can't bring ourselves to shout 'hurrah' over adjusted earnings of $150 million in the fourth quarter and $900 million for the year, despite the fact this represents a huge improvement over the losses posted in the prior year."

Levenson said she applauds Ford's ingenuity with joining the sale of whole loans with asset-backed commercial paper conduits as a means to diversify funding sources, thus reducing straight commercial paper to $3 billion from $42 billion in 2000.

"Thus while we have a myriad of concerns about this credit, refinancing risk is not chief among them," she said. "Nevertheless, we would continue to avoid this name."

"The plain, unvarnished fact is Ford's automotive operations continue to lose money," the analyst said.

"There are many moving parts here, but cost-cutting remains a positive theme."

North America narrowed its losses from the prior year but increased its losses sequentially. But Europe swung to a loss from a profit year-over-year, and also posted greater losses sequentially.

Almost as troubling as the losses is Ford's shrinking U.S. market share, she said, which slid in both cars and trucks year-over-year and sequentially.

Levenson said it is an ongoing struggle to conduct cash flow analysis regarding Ford, trying to isolate what would be considered the "real" operating cash flow from the automotive business.

Ford's earnings presentation showed "operating related cash flows" after capital spending to be negative in the quarter, even with a $700 million dividend from Ford Credit.

Net of divestitures, acquisitions and dividends, the cash outflow from the automotive operations was $400 million in the quarter.

"Our more traditional definition of free cash flow (excluding the purchases and sales of trading securities) shows a considerably higher deficit in the quarter," Levenson said.

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