Commentary: In Fourth Gear, Ford Heads For First Place

The last time Ford Motor Co. was the world's largest auto maker, founder Henry Ford was still at the wheel and the Great Depression was just dawning. The automotive pioneer had clung doggedly to his beloved, but outmoded, Model T even as General Motors President Alfred P. Sloan Jr. outmaneuvered him with modern and stylish Chevrolets. By the time Ford introduced the Model A in late 1927, it was too late. General Motors Corp. overtook Ford in 1931 and never looked back--until now.

The auto industry is on the brink of a new world order. GM today is trying desperately to reverse more than three decades of decline. Meanwhile, Ford is signaling its intention to pass. Its $6.45 billion purchase of Volvo, announced on Jan. 28, gives it the momentum to pull ahead. And if Ford follows through on plans to buy the two-thirds of Mazda Motor Corp. that it doesn't own, the longtime No. 2 auto maker will be No. 1.

CAR TALK. Here's how it adds up: Start with Ford's 6.8 million annual sales of cars and trucks, then add in 400,000 from Volvo and 1.1 million from Mazda. In two or three years, that could add up to 8.3 million cars and trucks annually, passing GM's current 8.2 million.

What's even more impressive, analysts now believe Ford, simply by adding Volvo, could outpace GM. That assumes the company can live up to CEO Jacques A. Nasser's predictions that Ford's luxury car sales will jump from 250,000 in 1998 to 1 million by 2003. In January, Ford's U.S. sales soared 8%--twice expectations--thanks to record sales of pickups, sport-utility vehicles, and minivans. GM sales rose a modest 3.7%. "Ford is putting its foot on the gas," says Schroder & Co. auto analyst John Casesa. "One company has a headwind, and the other has a tailwind."

Such bright prospects might feel like dynastic vindication to Ford's new Chairman, William Clay Ford Jr., great-grandson of Henry Ford. But Ford says he's keeping his eye on a prize that he already has. "What I like is that we're the most profitable car company in the world," he says. Ford took that title in 1997 and has outearned GM in the last two years by a score of $12 billion to $9.3 billion.

Whether it's the chairman's goal or not, Ford is expected to surpass GM on another important measure this year: revenue. Ford will likely become the industry leader--and possibly the largest company of any kind--if annual sales, combined with Volvo's, simply hold steady at $157.4 billion. While GM had 1998 revenue of $161.3 billion, it will lop off $28.5 billion in annual sales when it divests its Delphi parts unit this year.

The one question outstanding: Is Ford in danger of overextending or taking its eye off the ball? With $17.4 billion left in its cash kitty after the Volvo purchase, Ford is still shopping. Among possible candidates: BMW, Honda, and Fiat, which is said to be considering selling its car business. "I don't think we can rule anybody out," acknowledges Ford. "But we can be very selective as we look through the pantheon of choices." The Volvo deal, for example, will immediately add to Ford's bottom line and contribute as much as $1.2 billion annually within three years, predicts analyst Scott Merlis of Wasserstein Perella Securities.

GM, for now, appears to be sitting out the takeover derby. Instead, it is vowing to reassert its leadership with new models like the Chevrolet Silverado truck. But GM has haunting similarities to the Ford of the late 1920s--aggressively trying to revive its faded product lineup while the competition speeds off in new directions. Declares GM's marketing chief, Roy S. Roberts: "We're going to the wall."

Such rhetoric is in contrast to the calm confidence displayed by Henry Ford's 41-year-old heir. Bill Ford steadfastly refuses to predict if or when he might defend the family honor and vanquish GM. "If you do everything else well, size will follow," says Ford. "But I don't get my kicks from the No. 1 title because it can be fleeting." Maybe so. GM managed to hold onto the top spot for 70 years, but complacency can strike at any time.

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