Shifting Gears at Ford

High gas prices, then considered a temporary, post-Hurricane Katrina aberration, have gotten higher, and are widely expected to hit $4 a gallon this summer. Sales of Ford's profitable pickup trucks and gas guzzling SUVs have plunged. The U.S. economy, if not already in recession, is on the brink, with consumers retrenching. Ford sales dropped 14% in March from a year ago.

I could have gotten out at a profit. Ford shares hit $9.70 last summer, which would have represented a nice 20% gain. Then again, I could have realized a big loss. They were $4.95 just a few weeks ago. On both occasions, I seriously thought of bailing out. Why didn't I?

I kept reminding myself why I bought the shares in the first place: Ford's promising new product introductions, and the arrival of former Boeing executive Alan Mulally as CEO. This was a long-term bet. You can't expect positive results to show up in a quarter or two, or even a year. That was the rational part of my decision. The irrational part is that I love cars and I can't give up on the promise of the U.S. auto industry.

Lo and behold, just weeks after the skies seemed darkest, against all odds, Ford produced a first-quarter profit of $100 million. The stock jumped nearly 10%. And then this week, recidivist billionaire auto investor Kirk Kerkorian surfaced with 100 million Ford shares, saying his Tracinda Corp. would tender for another 20 million. Though Kerkorian is known as an activist investor and a thorn in management's side, he was effusive in his praise for Mulally, suggesting he's more of a Ford cheerleader than a hostile presence. Still, he didn't get to be a billionaire by sitting on his hands. Ford stock jumped again on the news, to $8.21, which means the roller coaster has pretty much brought me back to where I started.

Still, I feel my patience has been vindicated. Mulally already has a long list of accomplishments to his credit, from the sale of Jaguar and Land Rover, to reducing labor costs, to launching the new global Fiesta to considerable acclaim in Europe. If he can do this much while producing a modest profit in what everyone concedes is a terrible environment for auto makers, imagine what he can achieve with just a few breaks, like lower oil prices or a healthier economy.

The principle here is an important one: Remember why you bought a stock in the first place. If circumstances change, be flexible. But don't be swayed simply because the market turns against you. Do your homework, but if you remain convinced, stay with your convictions.

Mulally still has his work cut out for him. I spent some time last month at the Ford display at the New York International Auto Show. I can't say it was exactly stopping traffic. New this year is the Ford Flex, a boxy, seven-passenger crossover vehicle that reminded me of the Country Squire station wagon my mother used to ferry our family around town. In a world of $4 a gallon gas, the Flex struck me as just about as outdated. But to its credit, Ford seems better positioned for high gas prices than many other manufacturers. Ford offered one of the first hybrid SUVs (the Escape, which gets an impressive average 32 miles to the gallon) as well as the stylish, popular Edge and Lincoln MKX crossovers, which, like the Flex, get better gas mileage than the typical SUV. And the Focus gets an impressive 35 miles to the gallon on the highway (manual) and 33 (automatic). Both the Taurus and Fusion now come in all-wheel-drive options and get good mileage for their class (22 and 29 mpg respectively).

New product development takes years, so it's too soon to judge Mulally in that regard. But if what he's done with operations so far is any indication, car buyers will have much to look forward to. I can readily understand if you've given up on the U.S. auto industry, in which case you might want to sell Ford shares on the recent good news. But I'm in for the long term. I'll be happy to have Kirk Kerkorian along as a passenger.

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