Ford’s Mulally Plans to Stay Amid Work to Restore Dividend

Ford Motor Co. Chief Executive Officer Alan Mulally said he plans to stay with the automaker as it works to regain its investment-grade credit rating and restore the common stock dividend it suspended five years ago.

“I’m just absolutely thrilled and honored to serve Ford,” Mulally, 65, said after the automaker’s annual meeting in Wilmington, Delaware, when asked by a reporter if he had plans to retire. “I don’t have any plans besides that.”

Executive Chairman Bill Ford joked, “We’re not going to discuss that until 2025,” when Mulally would turn 80.

Mulally, recruited by Bill Ford from Boeing Co. (BA) in 2006, turned around Ford by focusing on fuel economy and quality in new models such as the Fiesta subcompact. Ford, which earned $6.56 billion in 2010, now faces the highest U.S. gasoline prices since 2008. That’s a contrast to the $30.1 billion it lost from 2006 through 2008 as rising fuel costs sank sales.

“Ford is in a much, much better place than it was in 2008,” said Bernie McGinn, president of McGinn Investment Management in Alexandria, Virginia, which owns 330,000 Ford common shares. “Ford’s story has changed from a great turnaround story to the story of a viable company in a very competitive industry.”

The second-largest U.S. automaker will consider restoring payment of a dividend after it achieves an investment-grade credit rating, said Bill Ford, the great-grandson of founder Henry Ford. The last payout on the common shares was Sept. 1, 2006.

Dividend Discussion

“Our goal is to get back to investment grade,” he said. “As we get close to that, the dividend discussion will be part of the mix.”

Ford may resume paying dividends in the fourth quarter, starting at 5 cents a share, according to Bloomberg Dividend forecasts, which considered the company’s balance sheet, earnings expectations and ability to generate cash.

Ford may reach investment grade by the end of this year, Bruce Clark, senior vice president and analyst at Moody’s Investors Service, said in an interview last month. Moody’s rates Dearborn, Michigan-based Ford Ba2, two steps below investment grade, with a positive outlook. A two-level upgrade is possible, even if it’s not typical, Clark said. Ford is rated BB- by Standard & Poor’s, three steps below investment grade.

Ford, which climbed 68 percent in New York trading in 2010, has dropped 9.1 percent this year as commodity costs gained and General Motors Co. (GM) and Chrysler Group LLC revived their products and profits. Ford rose 11 cents to $15.26 at 4:15 p.m. in New York Stock Exchange composite trading.

‘Headwinds’

“We remain cautious on Ford shares,” Joseph Amaturo, an analyst with the Buckingham Research Group who rates Ford “neutral,” wrote in an April 27 research note after the company posted better-than-expected first-quarter profit of $2.55 billion. Rising fuel prices and pending labor negotiations are “increasing concerns about future headwinds adversely impacting the company’s financial result.”

Regular unleaded gasoline averaged $3.98 a gallon in the U.S. yesterday, a 38 percent gain from a year earlier, according to AAA. U.S. gasoline prices peaked at $4.11 in July 2008.

Mulally today reiterated his pledge that Ford will improve on 2010’s pretax operating profit of $8.3 billion. He has said Ford may not make as much in the latter half of the year because it faces $4 billion in higher costs for commodities, new-product development, engineering, manufacturing and advertising.

‘On The Bandwagon’

“Ford has had a lot of good news, but they haven’t been able to push the stock higher,” said Jeffrey Spotts, a New York-based portfolio manager at the $250 million Prophecy Fund who took a short position on Ford May 9, betting the shares will fall. “It was a momentum stock from the start of 2009 until the start of this year, but now everyone is on the bandwagon.”

Mulally said he expects the stock will rise if the automaker continues to improve profit and performance.

“As we demonstrate quarter after quarter and year after year viable, profitable growth, then you’ll see the stock price absolutely reflect that,” Mulally said.

Investors betting on Ford’s turnaround drove the shares to a nine-year intraday high of $18.97 on Jan. 13 from a low of $1.01 on Nov. 20, 2008. The stock’s 19 percent decline from this year’s closing high of $18.79 on Jan. 27 compares with a 3.8 percent gain for the Standard & Poor’s 500 Index in that time.

“Ford used to be a relative outperformer and now it’s a relative underperformer,” said Spotts, who sold his Ford holdings last year for an average return of 275 percent and said he would buy the stock again if it falls to $14. “There is nothing wrong with the fundamental picture of Ford.”

Hiring Plans

Mulally, appearing at his fifth annual meeting as Ford’s CEO, was lauded by Bill Ford as “a great leader.” In his first four years, Mulally cut Ford’s North American workforce by 47 percent. Ford now plans to hire 7,000 workers by 2013 for its U.S. factories and to engineer battery-powered cars.

“Last year, Ford Motor Co. (F) completed a remarkable turnaround,” Ford told an audience of about 100 at the shareholders meeting. “We face uncertainties in many areas, from the price of fuel to the global economy. Despite those facts, I’m optimistic.”

United Auto Workers President Bob King will negotiate new contracts this year with Ford, GM and Chrysler. While the agreements don’t expire until Sept. 14, King has said workers must be rewarded for the $7,000 to $30,000 in concessions they each gave since 2005 to help the automakers survive.

Labor Costs

Ford has said its U.S. labor costs are still $8 an hour higher than those at the U.S. factories of foreign automakers. Ford said it pays about $58 an hour in wages and benefits to its 40,600 U.S. hourly workers, while labor costs average $50 an hour at the U.S. plants of international automakers such as Japan’s Toyota Motor Corp. (7203) and South Korea’s Hyundai Motor Co. (005380)

“I’m looking forward to having the discussion on how do we enhance Ford’s competitiveness further,” Mulally said, noting the “dynamic has changed” in contract talks since the last round in 2007 because the company is now profitable and growing.

Ford avoided the bankruptcies and bailouts that befell its U.S. competitors by borrowing $23 billion in late 2006 before credit markets froze. The automaker put up all major assets, including the Ford name, as collateral to build a cash cushion to withstand losses while developing new models.

Shareholders for the seventh straight time rejected a proposal, opposed by directors, to strip the founding Ford family of its 40 percent voting control of the automaker.

The proposal won the backing of 31.5 percent of the shares voted, the highest ever. Last year, 29.2 percent supported it. The board includes two family members, Bill Ford and his cousin Edsel Ford II.

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

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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