Ford's Big Liability Could Be Shrinking

Many Ford (NYSE: F  ) fans tend to focus more on the company's new models and sales results than they do on the sometimes-arcane financial challenges of running a giant global business. Those things are important, but, for investors, the numbers matter a lot -- and one number that has worried many investors is the size of Ford's pension liability.

The hot-selling Fusion Hybrid sedan is important to Ford's financial success, but this pension issue might be even more important to the price of Ford's stock. Photo credit: Ford Motor Co.

Ford's old pension plans lost ground in the wake of the economic crisis, and many big investors have worried that Ford might be forced to add billions of dollars to keep them going -- a move that could drain the company's coffers and expose it to big trouble in the next recession.

But lately, it's looking more and more like those worries are unfounded. In this video, Fool contributor John Rosevear explains the concern, why things have improved, and why all Ford investors should be paying close attention to this issue over the next year or two.

A neat resolution to the pension issue could give Ford's stock a big boost. But in order for Ford's stock to really soar, a few more critical things need to fall into place. In The Motley Fool's special free report entitled, "5 Secrets to Ford's Future" we outline all of the key factors every Ford investor needs to watch. Just click here now for your free report.


Read/Post Comments (10) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On August 28, 2013, at 12:12 AM, AmericanFirst wrote:

    John,

    You and Miller both know that GM's Pension debt is a minimum of 30% greater than Ford's, but you choose to highlight Ford's. Could Obama be sending you guys a check?

  • Report this Comment On August 28, 2013, at 10:50 AM, TMFMarlowe wrote:

    @AmericanFirst: We talk about GM and we talk about Ford and we talk about VW and we talk about BMW and we talk about Toyota and Tesla and lots of other companies.

    What we do NOT do is harp on unfavorable comparisons to GM in every single story just to humor your skewed political worldview. Get used to it.

    John Rosevear

  • Report this Comment On August 28, 2013, at 12:19 PM, AmericanFirst wrote:

    John,

    Well, where is your specific article on GM's Pension Plan and articles of the same on the other mfg's. that you mentioned? Maybe you should compare them all and not just Ford's. John, you are a sensationalist and I'm going to call you out.

  • Report this Comment On August 28, 2013, at 3:38 PM, SkepikI wrote:

    JR- I refuse to listen to MF videos, even if they are yours when there is no transcript. Its just too frustrating and irritating. So excuse my repetition if you covered this. Among the many things I appreciate about Ford's management is their aggressive and relentless execution in solving their problems, pension plan included. They are far ahead of GM in terms of cash contributions in excess of requirements to reduce the liability and they started out at a lower number, which is really quite startling considering the relief GM got courtesy of us taxpayers.

    While I recognize pension plan liabilities are a 'moving target' dependent on many moving parts like buy outs, excess cash contributions, and portfolio returns which are improving, it seems to me Ford is handling this as fast as is prudent, and faster than most, me included expected. If Banker Bernanke stops oppressing bond rates by tapering off QE, a very large chunk of the ESTIMATED liability will decline as if by magic (market magic as it were ; -))

    I am hopeful your unviewed (by me) video gives credit where credit is due, even if you don't do a proper comparison w GM.

  • Report this Comment On August 29, 2013, at 2:08 PM, TMFMarlowe wrote:

    @AmericanFirst: I haven't done much on GM's pension gap recently because there haven't been any big developments. This new Reuters bit showing Ford's gap likely to close was worthy of some comment, so it's here now. But it's not like I've ignored GM's pension issue, see here for starters:

    http://www.fool.com/investing/general/2011/09/15/this-is-why...

    There's plenty more in the Fool archive; Google is your friend.

    John Rosevear

  • Report this Comment On August 29, 2013, at 2:12 PM, TMFMarlowe wrote:

    @AmericanFirst: Also, I wonder why you are so emphatic in complaining about an article that is actually quite favorable to Ford as an investment -- suggesting that this big issue that has been a source of concern for people who are actually invested in Ford stock, such as myself, might go away without major spending on Ford's part.

    Of course, I also wonder why someone calling himself "AmericanFirst" spends so much energy complaining that my coverage of one of America's most prominent global companies (and a fascinating turnaround story in progress) isn't skewed and negative enough, but whatever.

    John Rosevear

  • Report this Comment On August 29, 2013, at 2:16 PM, TMFMarlowe wrote:

    @Skepikl: GM's current management team is actually doing quite well with their own efforts to fortify GM's balance sheet. I would not say that Ford is "far ahead"; both management teams are playing the hands they were dealt pretty well at the moment. Ford is farther along, however.

    To your point, yeah, that's the gist of it. It is a black box from an investor's perspective, but it's fairly clear that if interest rates continue to rise slowly, Ford's eventual liability is likely to be something more like $1 billion or less rather than the considerably larger amounts that some had feared.

    John Rosevear

  • Report this Comment On August 29, 2013, at 2:33 PM, TMFTwoCoins wrote:

    @AmericanFirst

    You say we highlight Ford, and that is correct. But did you have time to view the video?

    If this were a negative video regarding Ford's pension I could see your gripe about not mentioning GM's higher pension obligations -- but that isn't the case. It's largely pro Ford so a quick bash on GM doesn't seem necessary -- although that's my opinion.

    I emphasize both sides here so it's not like it hasn't been covered. http://www.fool.com/investing/general/2013/07/29/fords-pensi...

    Daniel

  • Report this Comment On August 29, 2013, at 10:25 PM, SkepikI wrote:

    ^ I will take your word for it Daniel, as I refuse to view MF videos without transcripts....

    I did not consider the brief text to be bashing Ford. I am just not at all sure MF is giving Ford the credit it is due for the progress its made to date while taking very good care of its customers, shareholders (Ford 4% yield, GM...ummm zero) and balance sheet. I have and will give them lots of credit.

  • Report this Comment On August 31, 2013, at 6:12 AM, TMFMarlowe wrote:

    @Skepikl: I've been calling Ford a buy since January of 2009, way BEFORE most of Wall Street caught on -- in fact, Wall Street had pretty much left it for dead when I started writing about it. One of my fellow Fools had named Ford the "worst stock for 2009"; my very first article was kind of a riposte to him, and everything I optimistically predicted came to pass -- in fact, much of it came to pass faster than I had expected. Search the Fool archives, everything is there.

    Likewise, Ford stock has been a recommendation of our flagship newsletter since, I think, December of 2009 -- again, well before the "smart money" caught on. I personally have held Ford shares since March of 2009. It's not a small position, and it has put a ton of money in my IRA. If and when I ever sell it I will tell you why, in detail.

    I have written thousands and thousands of words on One Ford, on all of the recent new models and on how well they compete, on Ford's efforts in Asia, on how the Focus and now the Fusion have cut into Toyota's market share in the US and elsewhere, on the company's long-range strategies in green cars and global markets, et cetera, et cetera. I've had several great conversations with Alan Mulally and Bob Shanks and reported them here, at length. Of course we raise concerns from time to time; that's my job -- to view the company as a skeptical investor and to share that view with readers. But I don't see how you can say that we're not giving credit to the company's efforts. It's just not a statement that is supported by the evidence.

    The fact that I also like what GM's current management is doing (mostly, most of the time) does not reflect AT ALL on Ford. I don't know why certain readers insist on looking at this as a two-company universe, where if one is up the other must be down. It's not. The world is much bigger than that.

    John Rosevear

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