Kerkorian Waives Condition Tied to Ford Tender Offer

Taking the concept of dollar cost averaging a bit further than most investors, Kirk Kerkorian's Tracinda investment arm said it would continue with its tender offer despite a more than 10% drop in Ford's stock price. Since Tracinda's initial offer to purchase 20 million shares of Ford at $8.50, investors have punished the stock, causing it to drop below the 10% threshold required by the terms of the tender offer. Apparently, that crazy old coot is still bullish on the US auto industry. While it's true that Ford did post a meager $100 million in profit on about $40 billion in revenue in the first quarter of 2008, the company has recently claimed that it no longer expects to be profitable for the year due to an "unexpected" slowdown in US vehicle sales. The problem with the auto industry is that it is tied to the fortunes of the housing market. Most people who purchase new cars require financing of some kind. Home equity loans were a huge source of financing for purchases of autos during boom times. How huge? Nearly two million new cars were purchased with home equity loans in 2007. In California, 29.83% of new sales were made with home equity loans. In Florida, the percentage was 19.72%. Guess how many people will get to tap home equity loans this year to purchase cars? If you said anything over zero, keep guessing.
Ford Motor's credit unit is suffering, despite largely avoiding the mortgage market mess. While this makes it a safer bet than General Motors, whose struggling mortgage lending operation ResCap just missed a bankruptcy filing by the hair on its chiny chin chin, Ford's credit unit is still facing a bleak environment. Ford used to collect hefty dividends from the unit, but not anymore. The lender is suffering from increases in repossessions, delinquencies, and a dramatic decline in the resale value of used vehicles. Average prices for used pickup trucks were down almost 16% from a year earlier. As a consequence, the loss that Ford Credit took when it resold its repossessed cars was $2,200 more per vehicle than the year earlier period. Ford Credit earned only $36 million in the first quarter, making it extremely unlikely that the financing arm will hit the company's initial estimates of a $1.2 billion profit for the year. The upshot? If you're in the market to buy a used Ford pickup truck, you're going to get a great deal, despite the fact that it may cost you $75 every time you need to fill the tank. However, if you're looking to buy 20 million shares of a beat-up US auto company, you may get a much better deal at a later date.