Buy American? The Case for Owning Ford

I felt bad for the glamorous young women pitching new cars last week at the New York International Auto Show. If I hadn’t been there, the woman on the rotating platform at Buick would have been speaking into thin air. Even the woman at Infiniti, showing off the transformation of the new G37 convertible into a hardtop, had only a handful of gawkers.

On previous visits I came looking for performance, and last year, fuel economy. This year, the issue on my mind was far more elemental: survival.

After passing through the deserted aisles around Chrysler, Buick and Pontiac, I headed straight for the Ford/Lincoln/Mercury exhibit, since, as I’ve reported before, I remain a Ford (F) shareholder. I was eager to see Ford’s new products, especially the much-heralded small, fuel-efficient vehicles being adapted from Europe. I also wanted to interview some actual customers to see how they were reacting to the government bailout that Ford had thus far resisted, gyrating gas prices, and the financial crisis that has devastated car sales.

I was initially pleased to see the Ford area teeming with visitors, but it turned out Ford was giving out free T-shirts and offering people a chance to win the price of their admission ($14). I suppose it says something that a free T-shirt and a shot at $14 brought out droves of takers, but I couldn’t draw many conclusions about the popularity of Ford’s products. Nor were the innovative new models on which Ford has staked its future in evidence. A spokeswoman said that it was still too soon, given that it’s not yet clear when any of these import adaptations will go on sale in the U.S. A new Fiesta, Ford’s so-called “world car,” was there, and is set to debut in the U.S. in early 2010, with a not-yet-disclosed fuel efficiency rating that is expected to be high. It looks good, but no one was paying any attention to it, maybe because Ford didn’t have it on a turntable or otherwise seem to be promoting it.

But other products were impressive, if not revolutionary. Alone among the U.S. auto makers, Ford was making a big push for fuel efficiency, featuring the new Ford Fusion and Mercury Milan hybrids on turntables, with average city fuel efficiency of 41 miles to the gallon. They looked terrific. I was also impressed with the new Taurus, with dramatically improved styling and performance. I remain somewhat baffled by Ford’s continuing emphasis on large, gas-thirsty SUV-like crossovers, such as the Flex or the massive new Lincoln MKT. But they seemed to be attracting considerable attention (both have dramatic styling and plenty of luxury features) from families with children in tow. I spoke to several potential Flex buyers, all of them parents with at least three young children, who impressed on me that room for multiple kids, friends, and all their gear is essential. I guess Europeans don’t have carpools. In any event, Ford’s got this market covered.

No one told me they were looking at Ford because it had shunned a government handout, but nearly everyone criticized GM (GM) and Chrysler and said the government should have let them fail. So, by implication, Ford seemed to be benefiting. The shoppers I spoke to weren’t comparing Fords to GM or Chrysler offerings, but to Honda and Toyota. In this regard, Ford still has its work cut out for it, for several customers said flatly that the Japanese offered better quality and reliability (even though Ford recently surpassed Honda in one initial-quality survey, and overall is in a “dead heat” with Honda and Toyota, according to Ford’s web site). Despite the recent decline in oil prices, fuel economy remained a top priority. Many of the people I spoke to were buying a new car for the specific purpose of improving gas mileage, the experience of last summer’s $5-a-gallon gas still seared on their memories.

No one, and especially investors, should be under any illusion that Ford is fundamentally healthy just because it didn’t take a government bailout — yet. Ford is still burning through cash at an alarming rate — $5.5 billion in the last quarter — and could run out of operating cash within a year if sales don’t improve. But my conversations with shoppers did indicate some glimmers of hope. Several said they were still driving 1990s vintage vans getting 12 miles to the gallon or less and felt they had no choice but to buy, economic downturn or not. A few said they were holding out hoping for still better deals, but even they conceded they couldn’t wait much longer. This is just anecdotal evidence, of course, but it bears out estimates I’ve seen suggesting that a typical replacement rate of obsolete vehicles in the U.S. is probably in the range of 12 million a year — far more than the paltry nine to 10 million rate that has recently prevailed. Given pent-up demand, the rate could be considerably higher once consumers get a little more confidence. Still, if the sales numbers for Ford don’t show some improvement in the next quarter, all bets are off, no matter how attractive the products or promising the future lineup.

With GM possibly headed toward bankruptcy and Chrysler into a merger with Fiat, there’s going to be turmoil ahead for the auto industry. But my gut feeling remains that Ford can pull through and its stock can go higher. I admit my confidence was badly shaken when it got to near $1.50 in February. But I’d rather lose my entire investment than sell for a paltry buck. Is this just sentimental nostalgia from a professed car lover? Maybe. If you don’t share these feelings, and aren’t prepared to risk your Ford investment, then sell now. At least you’ll be getting about $4 a share at recent prices after Ford’s remarkable recent rally. As for me, I’m still along for the ride.