Facing falling sales and a drain on its remaining liquid assets, Ford Motor Co. is looking to sell all or a piece of its stake in Mazda Motor Co.
Reports from Tokyo, confirmed by industry sources in Detroit, say Ford, which owns 34% of Mazda, could sell 20% to another automaker or Sumitomo Corp. With Mazda’s market capitalization standing at about $4.1 billion, a sales of a 20% stake, would net Ford around $830 million. That is roughly the amount of financing that Ford lost when Lehman Bros. recently filed for Chapter 11 bankruptcy protection. Ford’s overall Mazda stake is worth $1.4 billion.
Ford, which will report third quarter earnings later this month, is, like General Motors, in a race against the recession and Wall Street meltdown. The issue or the automaker is whether it’s cash reserves will outlast the losses it is incurring from falling sales and the credit crunch. Fitch Ratings Ltd. Last week issued a report saying that Ford would likely be down to $8 billion to $10 billion by the second half of next year, which is about the amount of liquidity that a company the size and scope of Ford needs just to keep the lights on.
Selling a chunk of Mazda is a bitter pill for Ford, but a necessary one as it looks to leverage every asset for cash. Ford has owned a piece of the Japanese automaker since the 1970s. While it was a bumpy road of cooperation for most of that time, the two companies have hit their stride in the last five years, sharing vehicle development and purchasing. “We at Foird are basically implementing a strategy for success that was implemented at Mazda,” said Ford product development chief Derrick Kuzak in a recent interview.
Too, Mazda’s upside is looking better than ever. It just launched a new Mazda6 mid-sized sedan in the U.S., which is widely seen as its best mid-sized car in its history. It has has also had a string of successful designs both with customers and the worldwide auto-press—The CX-7 and CX-9 SUVs, as well as a popular Mazda3 small car.
Selling all of its Mazda stake would be problematic because of the intertwined operations of the two companies. The underpinnings of the Ford Fusion, Ford Focus and Ford Edge are all shared with Mazda. Mazda sells its Tribute SUV, which is a clone of the Ford Escape. And the twoi companies sell the same small pickup truck under their respective brands. Mazda, in fact, has become Ford’s de-facto small-car center of design and engineering. And Ford is banking heavily on future small cars to insure its survival.
Ford shares closed Friday on The New York Stock Exchange at $1.99.
Mazda share shave lost 38% in the past month as the Wall Street meltdown has bled into foreign markets as well. Mazda is Japan’s fifth-largest automaker by global output after Toyota , Honda , Nissan and Mitsubishi.