March 31 (Bloomberg) -- Ford Motor Co., the only U.S. automaker not taking federal aid, could lose its competitive edge if President Barack Obama is successful in slimming down General Motors Corp. with lower labor costs, debt and dealers.

Obama gave GM 60 days to devise a new strategy to cut costs with its union, slash debt with bondholders and reduce dealers and brands. If GM does all that, it may have significantly lower costs than Ford, said Lexington, Massachusetts-based auto analyst John Wolkonowicz of IHS Global Insight.

“This really pulled the rug out from under Ford,” said Wolkonowicz, a former Ford product planner. “The government wants to have GM survive as a leaner and greener company and Ford is going to need further restructuring in order to compete.”

Ford has been viewed by analysts and investors as the healthiest among the Detroit Three. It is the only U.S. automaker to secure concessions from the United Auto Workers union, which Ford said will get its labor costs competitive with Toyota Motor Corp.’s by 2011. It also is making progress in reducing $25.8 billion in debt by as much as 44 percent.

Now Obama is asking GM to go beyond the gains Ford has made in labor costs and debt reduction. The administration has raised the prospect of putting GM through a so-called quick rinse bankruptcy of as few as 30 days so that it can tear up contracts with car dealers to reduce a glut of stores and brands.

‘Now What?’

“When all is said and done, you could have Ford standing at the government’s door saying, ‘Now what do I do?’” said consultant Laurie Harbour, president of Harbour-Felax Group in Southfield, Michigan. Ford Chief Executive Officer Alan Mulally “has done all the right things, but it could all turn negative if GM gets in a competitive situation that’s dramatically different.”

Ford is prepared to do whatever is necessary to remain competitive, including going beyond the cost-cutting efforts already under way, spokesman Mark Truby said. Tomorrow, Ford will offer buyouts valued at as much as $75,000 to all 42,000 of its U.S. hourly workers.

“Our goal is to be fully competitive and not disadvantaged,” Truby said in an interview. “The fact that we’re going ahead and doing what we’re doing now does not preclude us from doing what we need to remain competitive.”

March Sales Plunge

Ford may report tomorrow that U.S. March sales plunged 45 percent, according to the average estimate of 7 analysts surveyed by Bloomberg. The U.S. auto market overall probably contracted for a third straight month, with sales falling to a seasonally adjusted annual rate of 8.8 million, according to 8 analysts. February’s rate was 9.1 million.

Ford fell 13 cents, or 4.7 percent, to $2.63 at 4:15 p.m. in New York Stock Exchange composite trading, extending the decline over the past year to 54 percent. Ford posted a record net loss of $14.7 billion in 2008.

Ford bonds have gained 38 percent this month on average as the second-biggest U.S. automaker seeks to reduce its debt by as much as $11.3 billion, or 44 percent.

GM and Chrysler LLC received $17.4 billion in aid since November to avoid bankruptcy as auto sales reached a 27-year low. The carmakers have been trying to shed debt and workers and trim health-care costs to win as much as $21.6 billion in more assistance. Obama said Chrysler can’t survive on its own and gave it 30 days to forge a partnership with Italy’s Fiat SpA.

Fuel-Efficient Cars

Obama has ordered GM and Chrysler to come up with a cost and product structure that focuses on making money on small, fuel-efficient cars, traditionally a losing proposition for U.S. automakers.

“This is a coordinated effort to achieve, through GM, what the administration considers important political objectives: energy independence and environmental improvement,” Wolkonowicz said. “Ford needs to find a way to match GM without having to declare bankruptcy to do it. It’s not going to be easy.”

Ford is bringing smaller models from Europe, such as the Fiesta subcompact, to appeal to consumers’ growing interest in fuel economy as gasoline prices remain volatile. It also has sold brands, such as Jaguar and Land Rover, and reduced dealers.

With a government-backed bankruptcy, GM has the opportunity to cut its retailers deeper and faster. State franchise laws prevent automakers from eliminating independent dealers quickly or inexpensively. When GM closed the Oldsmobile division, it cost more than $1 billion to buy out the dealers.

‘Elephant in Room’

“The elephant in the room is that there are too many dealers,” said analyst Michael Robinet of CSM Worldwide in Northville, Michigan. “Fixing that problem has to be one of the tenants of a successful GM, which means Ford will have to look at its dealer count, too.”

Ford, though, won’t have the power of the president or a bankruptcy judge to consolidate its dealers.

“Getting rid of dealers is the hard part,” said analyst Maryann Keller of Maryann Keller & Associates in Stamford, Connecticut. “Bankruptcy handles that for you because you can cancel franchise agreements.”

Ford also may have to go back to the UAW to gain deeper concessions if GM gets the labor savings Obama is demanding. Ford said the deal it reached with the UAW March 9 saves $500 million annually and reduces labor costs, including health and pension benefits, to $50 an hour by 2011, almost par with Toyota’s $48 hourly U.S. labor costs.

Ford also persuaded the UAW to accept half the payments to a union retiree health-care fund in stock, instead of funding it entirely with cash. Known as the Voluntary Employee Beneficiary Association, or VEBA, the fund is central to U.S. automakers’ efforts to slash labor costs that once ran at $74 an hour.

Cutting Expenses

“The question is can Ford cut its VEBA and union expenses as much as GM,” said auto analyst Brian Johnson of Barclays Capital in Chicago. “It depends on what the union is willing to do outside of bankruptcy.”

Ford, undertaking its largest debt restructuring ever, might have to go farther to match what Obama expects from GM, said Harbour, the analyst. The first phase of Ford’s debt restructuring was oversubscribed. Bondholders have until April 3 to tender notes in a cash-and-stock deal valued at 28 cents on the dollar.

“Ford may have to go back to the bondholders, the union and the dealers,” Harbour said. “They should do it now and not wait for GM to come up with its own great deal.”

To contact the reporter on this story: Keith Naughton in Southfield, Michigan at Knaughton3@bloomberg.net

Last Updated: March 31, 2009 16:36 EDT