updated 1/4/2007 3:00:44 PM ET 2007-01-04T20:00:44

Ford Motor Co. is heading into the new year with a highly regarded chief executive, $48 billion in cash, a new crossover utility vehicle expected to prove a hit and the projected savings from the departure of a third of its work force.

Then there is the bad news: the automaker is mortgaged to the hilt, struggling with the legacy of wobbly product plans and banking on its third turnaround plan in the last five years to deliver sustained profitability.

With Ford poised to lose its No. 2 spot in the U.S. market to Toyota Motor Corp. in 2007, analysts are weighing the potential payoffs of Ford’s painful restructuring against the risk posed by its heavy borrowing.

For now, the pessimism on Wall Street is waning, but analysts caution that it will at least two years before a recovery shows signs of traction.

“Ford is a deep turnaround situation,” Morgan Stanley analyst Jonathan Steinmetz said in a recent note for clients.

But the building blocks are forming, said Steinmetz, who sees sustainable positive cash flow from Ford’s auto operations as still four years away.

A key reason for a turn in Wall Street sentiment is Ford’s new chief executive, Alan Mulally, a restructuring expert who was lured away from Boeing Co. in September.

Since Mulally took over from Ford family scion Bill Ford Jr. in October, he has moved to streamline management, appointed a global product chief and raised about $25 billion in cash through liens, bond offerings and credit lines.

The company has also reached out to Toyota, the increasingly dominant Japanese automaker, which eagerly studied Ford in the 1930s when it was a maker of looms branching out to manufacture cars.

Analysts say Mulally’s trip to Tokyo earlier this month to meet Toyota Chairman Fujio Cho might prompt a partnership that would help Ford bring down costs in areas such as parts procurement, technology development and planned plant closures.

“You have to ask yourself what would be in it for Toyota. They are doing pretty well on their own. They are on their way to becoming the world’s largest automaker next year [2007],” said IRN Inc. analyst Erich Merkle.

“But a joint venture might work. There are some real possibilities there.”

Even before Mulally’s trip to Toyota, Wall Street analysts had been growing more cautiously optimistic.

Merrill Lynch analyst John Murphy raised his rating on Ford stock to “neutral” from “sell,” citing the company’s cash position of $48.3 billion, up from $23.6 billion at the end of September.

Steinmetz of Morgan Stanley also raised his rating on Ford to “overweight” from “equal-weight.”

“While this is not a one-man story, new leadership is a part of our call,” Steinmetz said in a note for clients.

Ford’s revised “Way Forward” restructuring, announced in mid-September, disappointed investors and touched off a sharp sell-off of its shares by steering clear of asset sales and failing to address the company’s liquidity position. But Ford’s current cash position has eased some of those concerns.

Brett Hoselton, analyst with Keybanc Securities, forecasts that the rapid deterioration of earnings in 2006 should end in 2007 as Ford generates more than $4 billion in savings — most of it in 2007 — from employee departures.

Precarious situation
Everyone agrees, however, that Ford is still in a precarious situation and 2007 is going to be a tough year.

Ford’s overall U.S. sales, unadjusted for the number of selling days, slipped 13 percent in December and 8 percent for 2006, partly because of lower demand for its best-selling F-Series pickup trucks.

The company’s stock fell 2.72 percent in 2006 and is down 50 percent since early 2005, when its most recent downturn began.

Ford lost $7 billion through September of last year with further losses forecast in the October-December period quarter and beyond. By Ford’s own estimate, its North American unit will lose money until 2009 and run through $17 billion cash in the next three years.

The key risk, according to most analysts, is Ford’s weak product pipeline at a time when rivals are pushing ahead.

“If you look out through 2009, they don’t have any new small-car products coming out,” said AMR Research analyst Kevin Reale. “Most of the products are basically refacing of SUVs and small trucks.”

Ford launched its new Edge crossover SUV in December and is gearing up for the arrival of three revamped vehicles in 2007 — the SuperDuty pickup truck, Focus sedan and Escape SUV. The company also has a larger crossover vehicle in the pipeline that will be based on its Fairlane concept car.

Ford is aiming to hold its overall share of the U.S. light-vehicle market at 14 percent or more from over 17 percent as it restructures by shutting 16 plants and cutting more than 50,000 jobs.

“If the company loses 4 more points of U.S. market share instead of the 2.5 points we are expecting, the turnaround is much tougher, perhaps impossible,” Steinmetz said.

Copyright 2012 Thomson Reuters. Click for restrictions.


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