Ford Reports Its Best-Ever Quarter in North America

story first appeared on usatoday.com

Ford reported a third-quarter net income of $1.6 billion, driven by its best-ever quarter in North America.

Pretax profits of $2.3 billion in North America more than made up for a $468 million pretax loss in Europe, but the drag left the net results down 1% from the quarter a year ago.

Revenue was $32.1 billion for the quarter, down 3% from a year ago, and operating profit was $2.2 billion.

While Ford remains very dependent on North America, the company said it reported a profit in Asia and Africa, and remained in the black in South America.

Ford this month had said its losses in Europe this year could exceed $1.5 billion -- up from a $1 billion forecast that surprised analysts in July. Some of the additional loss is related to costs to its plan also announced this month to shutter three operations in the U.K. and Belgium, starting next year. Ford is cutting 5,700 jobs in addition to offering 500 salaried buyouts.

It could take automakers years to right themselves in financially troubled Europe, and the costs will be staggering. Art Wheaton, auto expert at Cornell University's Industrial and Labor Relations School thinks it will cost Ford $1 billion to close those plants.

Wheaton says because of tough actions sooner instead of later, Ford will come out on top in Europe.

The U.K. plants close next year, and Ford plans to shut Belgium in 2014.

The earnings per share of 40 cents beat Wall Street expectations of 30 cents, and surpassed 34 cents a year ago.

The company narrowed its guidance for U.S. auto sales this year to 14.7 million. Until now, Ford gave a range of 14.5 million to 15 million.

As expected, the results were stronger than the second quarter when Ford reported a 57% drop in earnings of $1.04 billion with losses in Europe that reached $404 million. Pretax earnings were $1.8 billion.

South America saw modest operating income of $9 million, below a year ago.

In Asia-Pacific and Africa where Ford is investing heavily to get a bigger foothold in the market, especially China, the automaker had a $45 million pretax profit compared with a $43 million loss a year ago.

Ford's shift to smaller cars should get credit for much of Ford's success, says Jesse Toprak, senior analyst at TrueCar.com. He says North American sales indicate improved profitability for the company.

On Monday, Chrysler reported a third-quarter profit of $381 million, up 80% from a year ago.

General Motors is scheduled to report its earnings Wednesday.

GM, Ford Sales Fall, Chrysler is Up

Story first reported from USA Today

General Motors kicked off the second half of the sales year with a whimper, reporting a 6% decline in sales in July compared to a year ago. GM blamed lower sales to rental fleets.

But there was some good news. GM says its Cadillac unit saw 21% higher sales due to the popularity of its CTS, Escalade, SRX and the new XTS.

"Cadillac hit a home run and our newest Chevrolets and Buicks are performing very well," said Kurt McNeil, vice president in charge of U.S. sales in a statement. "Signs of a housing recovery and good news on consumer confidence and household income should help keep the light vehicle selling rate in the 14-million range and drive seasonally higher truck sales as we move toward fall."

GM says that it's sales of 201,237 vehicles reflected a 3% decline in sales to individual customers in showrooms and a 41% dropoff in sales to rental car fleets. Automakers generally frown upon rental-car fleet sales as low-profit arrangements.

GM touted other bright spots, too. Buick Verano sales have increased every month since the compact was launched in December. Sales of the small Chevrolet Sonic were strongest since its introduction, no small feat given lower gas prices. The even smaller Spark just went on sale.

Ford Motor

Ford's sales slumped 4% in July and like GM, it blames lower sales to rental and corporate fleets.

But there was good news in the showrooms: Ford's U.S. retail sales increased 2% in July versus year-ago levels, driven by strong retail customer demand for fuel-efficient vehicles.

Ford's Fusion midsize sedan, which is due to be replaced soon by an updated model, exceeded its best-ever July sales record last month. Just in time for summer fun, Mustang sales rose 8%.

The Explorer crossover SUV had its best sales month since 2006. And the big F-Series pickups had their 12th straight month of sales increases.

Turbocharged EcoBoost-equipped F-150s made up 42% of retail sales mix in July.

Chrysler Group

Chrysler Group sales rose 13% in July compared to the same month in the previous year, which the automaker says was its best performance for the month since 2007.

Rebounding Chrysler says it saw gains in each of its divisions --Chrysler, Jeep, Dodge, Ram Truck, and Fiat. It was the 28th straight month of gains.

"We again demonstrated our disciplined and methodical approach to growing sales and profits," said Reid Bigland, CEO of the Dodge brand and head of U.S. sales.

The gain was driven in part by two models that set sales records July: the Chrysler 200 mid-size sedan and the Dodge Journey full-size crossover. Sales of the award-winning Journey were up 69%. In a good sign for the U.S. economy, Ram pickup sales gained 17%. Pickup-truck sales are often a sign that construction is rebounding.

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Chicago Changes Look to Ford’s New Police Vehicles

First appeared in USA Today

Get used to searching your rear-view mirror for the telltale headlights of a 2013 Ford Taurus: The first Police Interceptor is being delivered today as more departments order them.

The latest police agency to choose the Taurus over the Chevrolet Caprice or Dodge Charger is the Chicago Police Department, which is taking a mix of the Taurus version and Ford Explorer SUV version. It ordered 500 total; the mix is yet to be disclosed.

No surprise that Chicago would pick Ford: The plant that makes the Taurus version of the Police Interceptor is in the Windy City. Another 1,200 smaller police agencies have placed orders for cars as well, and the first one went out the door today.

"We are pleased and proud Chicago has decided to purchase Ford's Police Interceptor vehicles," said Ken Czubay, a Ford vice president. "Ford has been the police pursuit vehicle market leader for 15 years, and we know these all-new vehicles can handle the rigors of police work."

The Police Interceptor sedan and utility vehicles started production at the company's Chicago Assembly Plant last month. It added 230 jobs at the Torrence Avenue plant.

Ford's new police car replaces the venerable Crown Victoria, which stopped production last year. The Crown Victoria was loved as a big, heavy, rear-wheel drive. Taurus has gas-saving turbocharging in the police version, but is front-wheel drive, which some departments may resist compared with the rear-drive Chevrolet Caprice, which is imported from Australia.

Lincoln Needs to be Good for Ford

First appeared in CNN Money

It's been a long time since the Lincoln car brand has been a serious luxury contender, but Ford Motor Co. hopes to change that, starting with new the MKZ sedan, a preview of which was unveiled at the Detroit Auto Show.

The MKZ concept car is sleek and elegant and, perhaps most importantly, looks like something you'd expect to pay real money for. It also sports some intriguing technology like automatic adaptive suspension that, Ford executives boast, will give the car a combination of smoothness and performance that will stand up against the best in the business.

Also planned will be a panoramic sunroof that actually opens wide over the entire cabin for a near-convertible experience.

Panoramic sunroofs aren't new, but most only open over the front seats.

Now that Ford (F, Fortune 500) has sold off the European luxury brands -- Aston Martin, Land Rover, Jaguar and Volvo -- and killed off the mid-level Mercury brand, the automaker wants to turn Lincoln back into a real luxury player.

Cool cars from the Detroit Auto Show

"We don't have the luxury of getting anything wrong," said Kevin Cour who's in charge of sales and service for the brand.

Others have gone down this path before and made it work. Ford needs only to look at GM's success with Cadillac and Buick, experts say.

In fact, Ford's task with Lincoln may be easier than GM's with Buick. Buick had a negative image with many car shoppers, having long been seen as a maker of cars for the elderly and infirm.

"With Buick it was like 'What? Are you getting me a fedora as well?" said Rebecca Lindland, an industry analyst with IHS Global Insight. "Well, guess what. Fedora's are back in style and so is Buick."

Lincoln, by contrast, is simply big question mark to many Americans.

And with younger shoppers now entering the car market, it's a good time to shape a new brand image, Lindland said.

"The consumer has a very open mind right now," Lindland said. "It's helping Kia and Hyundai and it could help Lincoln."

The image Lincoln is going for, said Jim Farley, head of marketing at Ford, is something different from what most other luxury brands have aimed at. Lincoln won't be targeted at those looking for a brash "get out of my way" luxury image.

Instead, Lincoln is looking at more of a "boutique image." Where other luxury brands have a few high-style models like the curvy Mercedes-Benz CLS or the bulbous BMW X6, Lincoln wants to do only high-style cars with nothing middle-of-the-road in the line-up.

To hone Lincoln's image, Ford hired designer Max Wolff away from GM where he had been in charge of exteriors for Cadillac.

But Ford is faced with somewhat of a conundrum with Lincoln, said Ed Loh, editor-in-chief of Motor Trend Magazine.

GM (GM, Fortune 500) turned Cadillac back into a player by tossing out the "platform sharing" playbook -- where the same bone structure is simply re-skinned to create "different" models.

Today's Cadillac cars, like the CTS, the SRX and the upcoming XTS, aren't Chevrolets -- or some other GM product -- with a different body. They're uniquely Cadillac products.

Today's best American cars

While Ford has reportedly invested as much as $1 billion into remaking Lincoln and has even given Lincoln car designers their own separate building to work in -- like Cadillac designers have -- they're unlikely to go so far as to make the cars truly unique under the sheet metal, said Loh. That would go against Ford CEO Alan Mulally's stated mission to cut costs by sharing as much engineering globally as possible.

The MKZ, for example, still shares its underlying engineering with the new Ford Fusion mid-sized sedan.

And without that, Lincoln is unlikely to be taken seriously as a big-league luxury player. It's not impossible -- Toyota (TM) pulls it off with Lexus -- but, more likely, Lincoln will be relegated to some sort of second-tier "near luxury" status similar to GM's Buick which, unlike Cadillac, openly shares engineering with brands like Chevrolet.

Not that that that would be the worst place in the world.

"I bet, secretly, they would die to have the resurgence Buick's had," said Loh.

Ford bets big in Digital Marketing Departure

Reuters

Forget the Super Bowl: Ford's marketing chief Jim Farley says he can get more for less on Facebook, Twitter and YouTube.

If Farley is right, millions of hits for Ford Motor Company on social media websites will dwarf the impact of ads broadcast during the National Football League's February championship game -- high-profile space selling for $3 million for 30 seconds.

"Customers are spending as much time with the mobile smart phone or online as they are watching TV now, so our advertising dollars have to flow to where the people are," Farley told Reuters in an interview.

Under Farley, 48, who joined Ford from Toyota Motor Co in 2007, the No. 2 U.S. automaker has bet bigger on the emerging category of digital advertising including websites and social media than any of its rivals.

Farley has taken the approach credited with the early success of the youth-oriented Scion brand he launched at Toyota and applied it to the makeover of an established auto brand.

He is betting Ford can use Facebook and Twitter to accelerate the word-of-mouth recommendations long familiar to the auto industry and help the blue-oval brand connect with younger and richer people.

Farley said he learned at Scion that the only way to push past consumer skepticism is "to break into their world."

"You have to shove your way in there. The way we do that is to break down myths. The great thing about Americans is they are always hungry for something new," he said.

Ford's U.S. sales are up almost 22 percent so far this year, twice the growth rate of the industry overall.

Farley's term at Ford has coincided with a sharp turnaround in its image. ALG, a firm that tracks consumer perceptions, said in a report issued on Monday that Ford cars and trucks lead all brands in gains in perceived quality since 2008.

FORD SEEKS FACEBOOK FRIENDS

Farley, who is seen as a potential successor to Ford Chief Executive Alan Mulally, called the Super Bowl, "a fantastic advertising opportunity" -- for unknown brands.

"If you are a company that wants to launch a new product that no one has ever seen before, it's a great venue."

Under Farley, Ford has spent 25 percent of its advertising budget on digital media in 2010, the same proportion as in 2009. That ratio is twice what J.D. Power and Associates says will be the average digital media spend in 2012.

Farley would not disclose the dollar amount of that spending.

One of the first experiments in Ford's new approach was its 2009 move to recruit Web-based "agents" who would help promote its launch of the Fiesta subcompact. In a follow-up, Ford used Facebook to reveal key aspects of the Explorer SUV rather than wait for an established auto show.

Now, Ford is seeking "bloggers, social media mavens and Facebook friends" to submit video applications to be one of 100 who will drive the 2012 Focus around southern France or Spain early next year, ahead of the car's launch.

The effort, called "Ford Focus Global Test Drive" seeks to create buzz ahead of the launch of a vehicle central to Mulally's vision for a streamlined product lineup.

Farley said that the Fiesta campaign had boosted consumer awareness of the Ford subcompact over direct competitors like the Honda Fit or the Toyota Yaris. At the same time, Ford only spent one tenth of what it would have through traditional media, including television, he said.

Farley's moves mark something of a contrast with the approach by cross-town rival General Motors Co.

Under its new marketing chief Joel Ewanick, GM is pushing back into advertising at the kinds of high-profile, high-cost events like the Super Bowl that it had abandoned in its slide toward bankruptcy.

In one example, last week GM rolled out a campaign for Chevrolet that plays to its base -- patriotic Americans with memories of the days when Chevy dominated.

By contrast, Ford is playing up the new elements in its product line-up, both new vehicles and new technology like the MyFord Touch system for navigation, entertainment and communications in campaigns that include videos for Google's YouTube.

Charlie Vogelheim, executive editor of Intellichoice, a consumer auto consultant, said Ford had pushed beyond its rivals in the way that it is building online buzz.

"Everyone is involved in digital marketing. The extent that Ford is doing it, wrapping it around events and utilizing the media with its launches, that is where Ford is taking leadership," he said.

October US Auto Sales to Be Highest in 2010: Ford Exec

CNBC

Ford Motor President of the Americas Mark Fields said October U.S. auto industry light vehicle sales will be near 12 million vehicles, which would be the highest monthly sales of the year.

The October sales rate shows the U.S. auto industry is slowly recovering, Fields said.

"My prediction is something around the 12 million range," said Fields, referring to a seasonally adjusted annualized rate for sales.

Fields was speaking to reporters after announcing Ford will spend $850 million for improvements to at least four Michigan Ford plants, spurred by $400 million in state tax relief.

If U.S. industry sales come in near 12 million on an annualized basis as Ford expects, "that would be another evidence point that the economy and consumers are slowly coming back," said Fields.

The U.S. auto industry experienced annual sales topping 16 million for most of the past decade, until 2008 when sales began to fall and in 2009 when they reached 27-year lows.

Last week, J.D. Power and Associates said 2010 annual sales would be near 11.5 million, up from 10.4 million vehicles in 2009. But it cut its 2011 sales forecast to 12.9 million from a previous forecast of 13.2 million vehicles.

"We had a good, balanced month in terms of our products," said Fields, which he said would continue what he termed a good mix of pickup truck and car sales in recent months.

Last week, Barclays said Ford's third-quarter earnings to be announced on Tuesday will be boosted by strong sales of profitable pickup trucks, including heavy duty pickups.

The plant improvements will mean jobs for about 1,200 people, Fields said. Of those, 900 will be hourly workers and 300 will be salaried. The salaried positions will mainly be engineers and at least 200 of the hourly workers are now laid off and will be called back to duty.

Fields said it was too early to tell how many hourly positions will be new hires working at the new, lower wage near $14 per hour. That would be about half of average wage of most hourly workers represented by the United Auto Workers union.

Ford says 40 mpg Focus Coming in 2011

USA Today

Ford Motor, masterful at milking its models for multiple media mentions, rolled out the whole line of next-generation, 2012 Focus compacts -- not just the hot-rod ST it had hyped and that we told you about in this earlier Drive On post -- at the Paris auto show Wednesday.

Of particular interest: A U.S. version that's supposed to get a 40 mpg highway rating. Sounds good, but is 40 mpg highway so high, really?

Hyundai Sonata, a bigger car, is rated a commendable 35 mpg on the highway. Volkswagen Golf and Jetta diesels are rated 42 mpg highway -- no need to wait if 40's your bogey.

The fuel-efficiency version of the Focus will come with an automatic transmission. Ford doesn't specify, but if it's the so-called DSG manu-matic, we'll need some convincing. That gearbox in the smaller Fiesta was unpleasant to drive, as we detailed in this Test Drive column.

Manu-matics are actual manual transmissions, equipped with clutches, but no clutch pedals. The transmission does the shifting; you don't. The solid connection between engine and transmission provided by a true manual gives better fuel economy than does the fluid coupling of a conventional automatic. But without the fluid-filled torque converter of a typical automatic, a manu-matic car can be a slug off the line.

Automatics are so sophisticated nowadays that they can get better mileage than manuals -- regardless of the the slippage in their torque converters -- if the vehicle-control computer babysits their shift patterns. No yee-hah revving or slam-bam passing gear downshifts.

Apply that same nanny-ish computer control to a manu-matic, and the fuel economy number gets even better, which is why Ford likes that gearbox.

U.S. cars all get a new-design, 2-liter, four-cylinder engine with twin variable-timing overhead camshafts and direct injection. Big words that should mean bigger power than you'd otherwise get from an engine that size. But Ford gives no power ratings.

U..S.-market, 2012 Focuses (Focii?) go into production late this year in Michigan and should be in showrooms early next year. The high-performance ST is due in 2012. Pricing and features won't be specified until next month, Ford says. (What did we say about Ford being able to milk its model rollouts?)

Ford says Hatchbacks Rising from the Dead

USA Today

It's easy to come up with a list of things that most Americans hate. Dandruff, mosquitoes, liverwurst, income taxes, room-temperature beer, shiny polyester, to name a few. Then there are hatchbacks, which Americans used to like, but now generally hate. But that could be changing.

Ford reports that 60% of the buyers of its new Ford Fiesta minicar are opting for the five-door hatchback. By contrast, Ford says that only 8.3% of all cars sold last year were hatchbacks. Could the stubby-car look be on its way back?

It's not just Ford. Other automakers are creeping cars without traditional trunks into their market with some success. Kia Soul for instance is hot. Or Honda Fit, the car that Ford set out to beat with Fiesta.

In Europe, hatchbacks remain popular along with station wagons, another body type that Americans have spurned. Ford says it's also going to take a chance on the next Ford Focus, and offer a hatchback version here as well.

"American car buyers have grown accustomed to the convenience of hatch body styles after years of owning SUVs and crossovers," said George Pipas, Ford sales analyst.

As Ford continues to roll out global vehicle platforms like Fiesta and the next-generation Focus, the company is investing in flexible plant capacity. The flexibility will ensure Ford is able to react quickly to changing tastes, providing a vehicle mix – hatchback or sedan, base model or fully loaded – to serve varied consumer demands around the world.

Also heartening for Ford, the automaker says buyers are opting for more options in the smallest of cars, odd given that the sour economy would usually lead buyers to take fewer options. Half of Fiesta buyers, for instance, want leather upholstery.

Fiesta is just getting started in sales after a setback involving a production slowdown at the Mexican plant where they are made due to a quality-control problem. Ford never disclosed what the issue involved.

So we'll see. Once Fiesta sales start to roar, hatches may go pop.

Ford, GM Brands Top Customer Satisfaction - Study

The Wall Street Journal

One year after chaos engulfed the U.S. auto industry, American consumers say cars built by Ford Motor Co. and General Motors Co. are the tops when it comes to vehicle satisfaction.

Ford's Lincoln-Mercury and GM's Buick brands took the No. 1 and No. 2 spots, respectively, in the American Customer Satisfaction Index released Tuesday. Lincoln-Mercury had an 89% customer satisfaction average while Buick was 88%.

This was the first time U.S. auto makers have held the two top spots in the survey. BMW, Cadillac and Mercedes-Benz all finished together with an 86% average.

"It was not long ago when Detroit's products were clustered at the bottom of the industry," said Claes Fornell, founder of the ACSI. "Although very few automakers improved this year, the domestic ones are either steady or have lost less in customer satisfaction compared to international competition."

The results are a boost to two of Detroit's Big Three auto makers. Both Ford and GM have endured their own challenges during the past year as consumer demand remains sluggish. GM took the hardest hit when it filed for bankruptcy last year. Ford is also planning to dissolve its Mercury brand by the end of the year.

Chrysler Group LLC. the smallest of the Detroit auto makers which also filed for bankruptcy and merged with Fiat SpA, didn't fare as well. Its Jeep brand finished in last place and its Dodge nameplate was second to last. The Chrysler brand finished 15th out of the 19 ranked brands.

Nissan Motor Co. showed the biggest customer improvement with a 5.1% improvement over the prior year.

"Although the near future looks promising for General Motors and Ford, at least in a competitive sense, the near term for the economy does not look bright," Fornell said. "Labor markets show no sign of improvement, financial markets are edgy and consumers are cautious at a time when more household spending would be desirable."

The survey breakdown has Lincoln-Mercury at 89%; Buick with 88%; BMW, Cadillac and Mercedes-Benz at 86%; Lexus with 85%; GMC, Honda and Toyota at 84% and Ford, Hyundai and Nissan at 82%.

Volkswagen had 81% followed with Chevrolet, Chrysler, Kia, Mazda with 80%. Dodge had 78% and Jeep was 77%.

ACSI's data are collected via phone interviews with respondents age 18 to 84. Each company's score represents an aggregate of 250 individual phone interviews. ACSI reports scores on a zero to 100 scale at the national level. It also produces indexes for 10 economic sectors, 45 industries, and more than 225 companies and federal or local government agencies

'Boss is back': Ford Mustang Boss 302 unveiled for 2012

USA Today

It didn't take Ford long to come up with the first special edition of its powerful new Mustangs. Today it announced the Boss 302, as throwback to the original of 1968.

The Boss 302 will be a 2012 model, the first one so far unveiled by the Blue Oval. It will be priced somewhere between a Mustang GT and Mustang GT 500 when it goes on sale next spring, says Ford Vice President Jim Farley.

To show off the new Boss, Ford bused a bunch of reporters covering the Pebble Beach Concours d'Elegance and the other car events around Monterey, Calif., today over to the Mazda Laguna Seca raceway to give them an unveiling and demo. Ford Honchos Mark Fields and Jim Farley roared in and in the third Boss 302 -- Parnelli Jones, who set racing records with the original car 40 years ago.

"The Boss is back," Fields said. "We developed this vehicle to live up to the original."

For power -- and that's really what this is all about -- a Ford team tinkered with the 412 horsepower 5-liter V-8 from the 2011 Mustang GT:

By adding more intake, revising camshafts and tuning the twin independent variable camshaft timing, Ford was about to coax out 440 horsepower and 380 lb.-ft. of torque. Yet it says the Boss offers a smooth idle and low-end torque for comfortable around-town driving.

"The decision to build a modern Boss was not entered into lightly," said Derrick Kuzak, a Ford group vice president. "The entire team at Ford felt the time was right and with the right ingredients, the world-class 2011 Mustang could support a successful, race-bred, worthy successor to the original Boss 302. For us that meant a production Mustang that could top one of the world's best – the 2010 BMW M3 – in lap times at Laguna Seca. We met our expectations."

The new Mustang has a race-inspired clutch with upgraded friction materials transmits power, and a short-throw, close-ratio six-speed manual transmission.

To set Boss apart looks-wise, each car will have either a black or white roof panel, coordinated to the color of a side stripe. The Boss will come in Competition Orange, Performance White, Kona Blue Metallic, Yellow Blaze Tri-Coat Metallic and Race Red.

Other differences, Ford says, are aimed at reducing drag:
 

Up front, a unique fascia and grille are highlighted by the blocked-off fog lamp openings and aggressive lower splitter, a version of the design used – and proven – on the Boss 302R race car. The front splitter is designed to function at high speeds by efficiently managing the air under and around the car. It helps to reduce underbody drag and front end lift while more effectively forcing air through the Boss-specific cooling system. At the rear of the car, the spoiler was chosen to complement the front aero treatment and minimize overall drag.

    As if it weren't exclusive enough, Ford plans to offer some Boss 302 Laguna Seca editions. An edition of an edition. whew.

Ford Motor Preferred Stock: Take the A Train

USA Today

 

Q: What is the difference between the various preferred securities issued by Ford Motor? Which one is better?

A: Investors who never heard of preferred stock just a few years ago, are trying to get up to speed quickly.

Preferred stock is a unique security that combines characteristics of bonds and stock. Like bonds, preferred shares make a specified cash payout to owners. But these payments aren't required, as is the case with bond coupon payments. Payments on preferred shares can be suspended by the company any time, like a stock dividend.

Preferred shareholders, however, get some protection. If preferred stock payouts are suspended, the back payments must be made before the company can pay a dividend to common shareholders. You can read more here about preferred stock.

Preferred shares can generate sizeable income, usually much larger than the dividends paid on regular common stock. Yields on preferred shares also can be higher than yields on a company's bonds.

Ford Motor's preferred securities are particularly popular. Now that the company's earnings have stabilized and the company has reduced its debt, payments on Ford's preferred securities would appear more secure.

But be careful. Ford Motor has two separate preferred securities that are quite different. These Ford Motor preferreds are in addition to preferred securities issued by Ford Motor Credit.

Both Ford Motor preferred securities issue payments quarterly, and are both callable, an important detail that I'll explain later. But other than these two important similarities, the two preferred securities are different. You'll want to make sure you understand the differences before investing:

•Ford Motor Co. 7.5% Notes (F.PRA). This preferred security is often referred to as the class A Ford preferred. You can get up-to-date information about its price here.

This preferred was issued at $25 a share at a yield of 7.5%. It's due in 2043. Currently, these shares are trading for $25.68 and as a result have a yield of 7.3%. You can read about the structure of this preferred security here. This is the Ford preferred security that's best for most investors, as I'll explain in a bit.

• Ford Motor Co. Capital Trust II (F.PRS). This preferred security is often referred to as the class S Ford preferred. You can get up-to-date information about its price here.

The Capital Trust II preferred was issued at $50 a share with a yield of 6.5%. It's due in 2032. You can read about the structure of this preferred security here.

The class S preferred has one important difference vs. the class A preferred: It is convertible. Each share of class S or Capital Trust II shares can be converted into 2.8249 shares of Ford common stock at any time. This right, however, comes at a cost, as I'll explain.

But first, another important aspect of the class S. During its financial crisis, Ford in 2009 suspended paying the dividend on Capital Trust II securites. The company later paid back the suspended dividends and resumed paying a regular dividend.

On both shares, you need to keep an eye on the callable option. Ford at any time can call either one. That means no matter how much you paid for the shares, the company may force you to sell the shares back at prearranged prices. Specifically, Ford can buy back the Capital Trust II securities at $50.65 in 2010, $50.33 in 2011 and $50 a share in 2012 and beyond.

Which preferred shares are better? For most investors, the Ford preferred A shares are best, says Ken Winans of financial advisory Winans International and author of Preferreds: Wall Street's Best Kept Income Secret.

Winans prefers the A shares for two reasons: First, the yield on A shares is higher than the yield on the S shares because there no conversion option. If you want the option to buy Ford shares, you should just buy the A shares and then also buy a special options called Long-Term Equity AnticPation Securities, or LEAPS, for short. Combining the Ford Preferred A shares with a Ford LEAP would give you a higher yield and the same possible upside, he says.

Meanwhile, remember that preferred shares, like stock, trade on stock exchanges. Prices of preferred securities rise and fall as investors determine how safe the preferred payments are, and yields move up and down accordingly. In this regard, Ford's class A preferred shares have been less volatile than shares of the S preferred securities.

The S preferred security's price crashed 72% from its peak during the downdraft of 2008, Winans says. The price of the A preferred security fell 59% during the same period.

So if you're looking to own Ford preferred, and want to limit your volatility and get the higher return, go for the A shares.

Ford Overcomes Alien Status in Silicon Valley as Carmakers Clamor for Apps

Bloomberg

When Ford Motor Co. came to Noah Shanok’s San Francisco startup about using his technology, he expected it to be like meeting strangers from another planet.

“We thought we might have been like aliens,” said Shanok, the 35-year-old chief executive officer of Stitcher, whose software lets users collect talk-radio programs on one custom channel. “It became quickly clear when talking to the leadership at Ford that we were smart people looking at problems together.”

The meeting, which led Ford to add Stitcher to its voice- activated Sync entertainment system, typifies Detroit automakers’ new approach to technology. Ford, Chrysler Group LLC and other car companies are counting on Silicon Valley to help boost sales and shake off their image as slow adopters of innovations. That means working with startups on iPhone-style apps, adding staff in the Bay Area, and giving drivers freer range over the software and hardware that go into their cars.

The three biggest sellers of vehicles in the U.S. --General Motors Co., Ford and Toyota Motor Corp. -- are all banking on so-called infotainment technology to help them gain market share, said Jim Hall, principal with consulting firm 2953 Analytics Inc. in Birmingham, Michigan.

While Ford has been selling Sync for three years, the company stepped up its focus on technology as it tried to pull out of the recession. Ford buyers cited the Sync system as critical to their purchase 32 percent of the time, the company said in January. The technology, available as a $395 option on some models, also helps make cars more profitable. It’s included standard on higher-end vehicles.

No Winner

“The winner on this ain’t known yet,” Hall said. “The company that can accommodate as many different mobile devices as possible, and integrate them in the car -- they’re the guys who are going to win long term. But it’s a very difficult job.”

It’s harder for automakers to take risks with car software than with smartphone apps, because people keep their vehicles longer -- and their lives depend on them. Infotainment technology, which lets customers use social networking, search for nearby businesses and access the Internet, also has to be designed to avoid distracting drivers.

“Do you think Apple cares if your iPod works four years after you buy it?” Hall said. “With a car, you have to.”

Correcting a glitch in an iPhone app usually just requires a software update. Fixing a flaw in a vehicle can cost millions, require a recall and damage a company’s reputation. Toyota is trying to burnish its image after recalling more than 8 million vehicles for defects linked to unintended acceleration.

‘An Expensive Phone’

“The car is an expensive phone,” said Sal Dhanani, co- founder of Sunnyvale, California-based TeleNav Inc., a maker of software for global positioning systems on mobile phones. TeleNav is working with Ford to handle navigation on Sync.

Ford has been touting its new technology features in commercials, showing drivers customizing touch-screen buttons to get directions, portable music and text messages. Getting to this point took the company at least a decade, said Doug VanDagens, director of Ford’s Connected Services Solutions.

“We had all kinds of stodgy and frumpy management,” VanDagens said in an interview. “At best, we were a fast follower with regard to technology.”

Now the company’s executives fly out to Silicon Valley once a month to meet with startups and software developers. Ford is working directly with companies such as Stitcher, TeleNav, Oakland-based Pandora Media Inc. and Emeryville-based Gracenote, while inviting others to its developer network site for instructions on how to make an app work with Sync. The latest version of the system will debut later this year on the company’s 2011 cars.

Better Reputation

Ford’s image is already improving, according to Standard & Poor’s. The ratings service raised the automaker’s debt grade two levels earlier this month, citing expectations the company will remain profitable and signs that customers have a better impression of its vehicles.

“They are trying to eliminate what’s been a perception gap about the vehicles and just the general brand, and we think they’ve had some success over the past few years,” said Gregg Lemos Stein, an S&P analyst in New York. While quality of the vehicles has been the biggest contributor to Ford’s improved image, “certainly some of the technology offerings haven’t hurt,” he said.

Market Share

The Dearborn, Michigan-based company aims to make gains on GM, which remains the top seller of cars in the U.S. following its bankruptcy last year. Detroit-based GM has 19 percent of the market so far this year, compared with 17 percent for Ford and 15 percent for Japan’s Toyota.

The infotainment trend may face challenges from groups such as the National Safety Council, which is concerned it will distract drivers. Doing activities that take a driver’s concentration off the road isn’t something manufacturers should encourage, said Dave Teater, a senior director at the council.

“Any automaker who’s making it easier for the driver to do those things is probably doing a disservice to the driver, and the rest of the motoring public,” said Teater, whose 12-year- old son died after a car crash with a driver using a mobile phone.

Ford’s Sync system is less distracting than what drivers already do in the car, the company said. It relies on hands- free, voice-activated technology to ensure that drivers don’t lose concentration.

German Presence

Ford wasn’t first in cozying up with Silicon Valley. Bayerische Motoren Werke AG established its Technology Office in Palo Alto more than a decade ago. The lab works on improving the interface between humans and cars, as well as infotainment and driver-assistance technology.

Another German company, Volkswagen AG, opened a research lab in the area in 1998. The office is working on such innovations as autonomous driving -- the idea of a car navigating itself.

“We’re here to bridge the two different worlds,” said Chuhee Lee, head of infotainment for Volkswagen’s Electronics Research Lab in Palo Alto. “They expect us to surprise them.”

Chrysler, now run by Fiat SpA, worked with San Francisco- based Autonet Mobile Inc. to put Wi-Fi technology inside vehicles. The Auburn Hills, Michigan-based automaker also is using Qualcomm Inc.’s Flo TV to provide live television.

“Silicon Valley is a hot spot and we have relationships with companies in that area as well as others to integrate the newest technology into our vehicles, such as streaming Bluetooth audio and live mobile TV,” said Chrysler spokesman Nick Cappa.

Microsoft Corp., the world’s biggest software maker, is taking a bigger role in the market. The company helped Ford develop Sync, and it worked on an in-car infotainment system for Hyundai Motor Co.

The auto industry also is mimicking the way technology companies introduce features, said Ford’s VanDagens. Rather than heralding innovations years in advance at auto shows, companies are keeping more of them under wraps, he said.

“We’re not going to announce our future products until the day we release it,” VanDagens said. “We don’t want to help our competitors catch up.”

New 2011 Ford Explorer priced from $28,190

USA Today

Having spent much of the day chasing news about the new Ford Explorer, we thought we should clear up some of the remaining questions about the vehicle.

Price: On Explorer's Facebook page, the prices are listed as $28,190 for the base V-6 version. The plusher XLT trim level will be $31,190 and the plushest Limited will be $37,190. Ford is yet to disclose prices for the four-cylinder version with the turbocharger, what Ford calls EcoBoost. But it will cost more than the V-6, even though it's a smaller engine. The 2011 Explorer goes on sale this winter.

Towing: The V-6-equipped Explorer can tow up to 5,000 pounds. The turbocharged version will tow less, but Ford wasn't saying how much less.

A crossover or a SUV?: Ford Explorer goes from being a body-on-frame style vehicle like a truck to a car-like unibody, where the frame and body are combined. Unibodies aren't as heavy, so they save more fuel. Normally, that would classify it as a crossover. But Ford officials insist otherwise. "One-hundred percent sirloin SUV," says Mark Fields, Ford's president of the Americas. He says Explorer's four-wheel-drive prowess and go-anywhere spirit separates it from crossovers. He calls it "a very credible offroad vehicle."

Ground clearance: Going from body-on-frame to unibody architecture lowers the appearance of the vehicle. That won't cut ground clearance by much. The new model should have 8.2 inches of clearance, compared to 8.3 inches for the current truck-based model.

Why it won't cannibalize sales from other Ford family haulers: Explorer joins Escape, Flex and Edge on the list of family haulers. But Fields says it won't cut into the sales of the others because it is distinctive. Its three rows of seats for seven passengers sets it apart from Edge and Escape. Ruggedness makes it different than Flex, which buyers view as more of a design-driven hauler.

Ford to Offer Hybrid at same Price as Gas Model

Associated Press

For the first time, an American automaker plans to sell a hybrid car for the same, lower price as its gas-powered counterpart, removing at least one obstacle for drivers who want a greener ride.

At a little more than $35,000, the 2011 Lincoln MKZ sedan won't be cheap, but the decision by Ford to match the prices of the two styles could lead competitors to follow suit with future models.

The hybrid MKZ, debuting this fall and running on both gas and electric power, will be a bargain after factoring in savings at the pump. It gets more than double the mileage of the traditional version in city driving.

While automakers won't reveal what they spend to install a hybrid system in a car, the final product usually costs several thousand dollars more than a gas-powered version of the same car.

The Lexus HS 250h, the MKZ's closest competitor, costs about $2,500 more than the Lexus IS, a similar, small, gas-powered sedan. Ford charges $8,840 more for the hybrid version of its Ford Escape SUV.

The MKZ can still make money even if Lincoln doesn't charge more for the hybrid, said Erich Merkle, president of the consulting company Autoconomy.com. Luxury cars are sold at a significant premium, he said, ensuring a profit for Ford.

Lincoln can also borrow the hybrid system from the Ford Fusion, its corporate twin, and save on development costs.

"Conventional wisdom is that the hybrid should be priced higher, but there's not really anything to say that a hybrid has to command a higher price," Merkle said.

Besides, Ford had to keep the price down, said Jessica Caldwell, an analyst for Edmunds.com. If it had sold for more than $40,000, it would have faced tougher competition from luxury cars like the Mercedes E-Class or the Audi A6, she said.

"It's going to take moves like this one to break into the luxury market," she said.

Other automakers may not try to match Lincoln's move if it is limited to the MKZ, but they will have to take notice if Lincoln uses the same strategy with future hybrid models, said Aaron Bragman, an analyst with IHS Automotive.

John Felice, Lincoln's marketing manager, said pricing strategy is an opportunity to get buyers interested in the Lincoln brand. Even after a complete revamp of its cars in the past few years, Lincoln still lags behind other luxury brands. Lincoln sales were up 7.5 percent in the first six months of this year, compared with 17 percent industrywide.

Lincoln is also trying to make up for the sales it is losing by phasing out its Mercury brand, which includes two hybrids.

The MKZ is one of most popular Lincoln models, but its sales have fallen 5 percent so far this year.

The MKZ will get 41 mpg in the city and 36 on the highway. That beats the Lexus HS 250h, which gets 35 mpg in the city and 34 on the highway. The gasoline version of the Lincoln MKZ gets 18 mpg in the city and 27 on the highway.

The new hybrid system isn't the Lincoln MKZ's only nod to the environment. Its wood trim comes from well-managed forests, while the leather seats use a chromium-free tanning process that makes them easier to recycle, Ford said.

Lincoln MKZ buyers are not eligible for federal tax credits for alternative-fuel vehicles. Federal law limits the credits to the first 60,000 buyers of a company's hybrids, and Ford hit that number on March 31.

Ford is the first U.S. automaker to offer a hybrid and conventional version of a car at the same price. Industry analysts say they are unaware of a foreign automaker doing it, either.

Even if Ford were to lose money on the MKZ hybrid, it would probably be willing to make the trade in exchange for marketing value for the Lincoln brand, said Bruze Belzowski, assistant research scientist at the University of Michigan Transportation Research Institute.

"Lincoln might say, 'We're going to take a hit on this,'" Belzowski said. "They may say something like 'We're willing to take a hit on this because the marketing value is going to outweigh the cost.'"

Ford Fusion faces Gas Pedal Probe

USA Today

 

Federal safety officials say they have begun an investigation into the potential for floormat-related unintended acceleration in 2010 Ford Fusion and the nearly identical Mercury Milan mid-size sedans.

The National Highway Traffic Safety Administration says it has received three complaints of what is officially called "pedal entrapment" by all-weather floormats in the vehicles. As many as 249,301 cars could be involved, NHTSA estimated. No injuries or deaths are listed as a result of the incidents.

Ford says the mats involved were Ford accessory mats. Ford says its all-weather accessory mats come with an attachment to secure them so they don't slide forward and trap the gas pedal, and the driver's mats are printed with a warning that they shouldn't be stacked atop other mats. Ford says it will cooperate with the NHTSA investigation.

Edmunds.com went through an eye-opening incident in one of its own Fusion test cars after a car wash or a body shop worker took the rubber floor mat out of the trunk and put it back into the driver-side footwell on top of the carpet mat.

Ordinarily, just three complaints might be too few for NHTSA to take notice. But ill-fitting floormats jamming open gas pedals is blamed for a majority of Toyota's infamous unintended acceleration problem.

Toyota has recalled 5.4 million vehicles in the U.S. because improperly fitting mats can slide forward and trap poorly designed gas pedals against the floor. The automaker says it has fixed 1.7 million of the vehicles.

The National Highway Traffic Safety Administration release Tuesday tells Fusion and Milan owners not to place any unsecured floor mats, whether made by Ford or any after-market retailer, on top of the carpeted floor mat in the driver's side foot well. In addition, all owners should ensure that any mat is properly secured and never stacked.

Ford Board Approves Ending Mercury

The Wall Street Journal

 

Ford Motor Co. will shut its Mercury brand after its board of directors voted to phase out the 71-year old nameplate, according to a person familiar with the matter.

The company has scheduled a news conference for later Wednesday where it will outline its Mercury plan, this person said.

A Ford spokesman said the news conference will cover the company's strategy in the U.S. "I can't get into specifics," he said.

Ford Chief Executive Alan Mulally and his top lieutenants recently won the backing of key members of the Ford family to kill Mercury after years of dwindling sales. Its sales fell another 10.7% for May compared with the same month last year, the auto maker reported Wednesday.

Mercury's future has been in limbo ever since Mr. Mulally arrived as CEO in 2006 with a restructuring plan that relied on phasing out extraneous brands and putting most of the company's resources into its Ford division. Since then, Ford has sold Jaguar and Land Rover, while the sale of its Volvo brand should be complete later this year.

Mercury was supposed to give Ford a midpriced car that fit between inexpensive Ford models and its more luxurious Lincolns. But that plan bore little fruit in recent years. In 2009, Ford sold 92,299 Mercury vehicles, down from 359,143 in 2000.

The hundreds of dealers that sell only Lincolns and Mercurys may find it difficult to continue without the volume from Mercury. A person familiar with the matter at Ford said the company hopes to merge many of those dealers with existing Ford dealerships or shut them. Mercury had 1,780 U.S. dealers at the end of 2009.

Sales of Ford F-Series, Ram, GMC Sierra Trucks Pick Up

USA Today

 

New versions of big, bad, politically incorrect heavy-duty pickups have starring roles in the Detroit automakers' sales and profit comeback.

Chrysler recently touted the role that its heavy-duty Ram played in improving its first-quarter finances. Ford Motor cited its new F-Series Super Duty pickup as a sales standout last month. And General Motors has high hopes for revised heavy-duty versions of its sibling 2011 Chevrolet Silverado HD and GMC Sierra HD due this summer.

The sales increases, in fact, are a good omen not just for automakers, but for the economy overall.

Heavy-duty, full-size pickups are typically bought by small businesses and individuals as working trucks. The sales strength is a sign that construction, farming and other key industries are rebounding strongly enough that people have enough confidence to invest in new vehicles.

"Those purchases are made by people who work and need a truck," says GM spokesman Tom Henderson.

The increased capability of the heavy-duties makes them more expensive than light-duty pickups — and more profitable for automakers. A new Ford F-150 light-duty pickup goes for as little as $21,820, but the brawny Super Duty starts at $28,020 before destination charges.

So it's no wonder a segment that was an afterthought awhile back now is in the spotlight. Chrysler says its Ram Heavy Duty sales rose 13% in April compared with a year ago. Ford said it sold twice as many Super Duty pickups last month as it expected — and year-to-date sales through April were up 30% from a year ago.

A common boast for the new heavies: More power plus improved fuel mileage from the big gas and diesel engines. GMC, for example, says the optional 6.6-liter turbodiesel in the Sierra HD will offer 397 horsepower, 30 hp more than Ford's rival Super Duty, along with 11% better fuel economy than the outgoing GMC model.

"It's a more competitive segment," says Mike Levine, editor of PickupTrucks.com. "It's about capability and who can tow and haul the most."

The rivalry, he says, also has held prices in check — for working buyers who eschew the luxury versions or a lot of features that run up the sticker price. For the most part, "You don't haul your ego with these trucks," Levine says.

But makers also know there's a market for upscale versions with the horse-ranch crowd and others. The Ford F-250 King Ranch, for instance, with such touches as power leather seats, is priced at $45,715.

Ford Hits the Road with 'Caravan' App

PC World

Cloud computing will take the place of CB radios this month when Ford Motor leads a subcompact convoy across the U.S. and demonstrates Caravan Track, an application developed by students at the University of Michigan.

Caravan Track was the winning project from a Ford-sponsored Michigan course in which students wrote applications to help travelers. On May 14, a team of Ford engineers and the four students who developed Caravan Track will leave the university and drive two Ford Fiestas, both equipped with the software, to the Maker Faire hobbyist event in San Mateo, California, on May 22. Ford dubbed the trip American Journey 2.0 and will use it to showcase Ford-developed software as well as the students' work.

Caravan Track lets people share route and vehicle information and coordinate stops as they travel in groups of cars, the kind of communication that once was done over short-distance CB (citizen's band) radios. But the Caravan Track development team wasn't trying to emulate that traditional communication tool of U.S. truckers, who broadcast over shared channels and identify themselves with clever handles. The students thought of the application as an alternative to cell phones.

"Calling between cars can be a hassle sometimes, so we figured this might make things a bit easier," said John Ciccone, a member of the development team, who just graduated from Michigan with a bachelor's degree in computer science.

With Caravan Track, users sign up online to join a trip with friends, much like joining a Facebook group. The leader of the trip supplies a four-digit code that allows each participant to log in. Routes to all planned meeting points and the final destination are automatically generated for each car. Once on the road, all the participants can share data from each of their cars, such as speed, location and fuel level. Caravan Track can also provide information on nearby restaurants and gas stations with the click of a button.

Users can send text messages between the cars to coordinate activities. To make things easier, there are prepared messages, such as "We should stop at the next rest area," that can be initiated with one click and played over the speakers in the other cars, as demonstrated in a video about the software. Some features of Caravan Track can be used hands-free with voice commands, while others are accessed through a touch screen with a simple, one-level interface, Ford said. It is designed to be used by drivers and passengers together, and one of the aims of the project is to determine what is the best type of interface to use.

The application was written in C#, and the students used a special Ford development platform called Fiestaware and Microsoft Robotics Developer Studio. Fiestaware gave them access to data from the car's own systems, such as fuel level and speed. For its initial demonstration, the application will run on an Intel-based Windows 7 PC with a custom-designed touch screen. But most of the computing will take place in the cloud, with the client software just sending data to the project's server, which then sends the information on to the other cars in the caravan. The Sprint Nextel 3G network will carry the data.

"The footprint is pretty small for our application. It shouldn't require too much memory or processing power, especially given that in an average caravan, there aren't too many vehicles," Ciccone said.

The application is just a demonstration of what types of software could help drivers in the future, with no date for commercial availability, said Ford spokesman Alan Hall.

Other programs developed in the Michigan class included an audio social-media service with spoken reviews of destinations by other consumers, a crowd-sourcing platform for sharing information about road hazards, and a carpool coordination tool that uses social networking and rates the driver and rider's compatibility on a scale.

The Michigan class and American Journey 2.0 are part of a broader effort by Ford to better link its vehicles to digital technologies. Last month, Ford announced Ford Sync AppLink, coming later this year, which lets smartphone software developers integrate their applications with the Sync hands-free in-car entertainment system. The American Journey project is not directly related to AppLink, Hall said.

Ford-Geely Deal Spells Out Tech Sharing

The Detroit News

Global automakers have been leery of deal-making with China's fledgling carmakers because of the Chinese history of pirating technology and designs, and in 2008, Ford Motor Co. was no exception.

The Dearborn automaker responded coolly that year, when Zhejiang Geely Holding Co. first wrote to Ford with an offer to buy its Swedish carmaker, Volvo.

Privately owned Geely had been making cars for only a decade and already had been sued for trademark infringement by Toyota Motor Corp.

But last month, after a year of talks, Ford and Geely signed a binding agreement for a groundbreaking $1.8 billion deal for Volvo that will serve as a major test of the Chinese auto industry's willingness to respect the rules of global business.

Prior to the Volvo deal, China's automotive acquisitions were limited to troubled companies and castoff assets that were headed for the scrap heap.

But now, Geely is vaulting ahead by acquiring a global carmaker with state-of-the-art technology and vehicle development, as well as other operations that are still deeply intertwined with Ford's.

According to people familiar with the yearlong negotiations, which took place mostly in London, drawing up the intellectual property agreements took up the largest amount of time.

"When they laid them out, they went from one end of a board room table to the other," said an adviser to Geely, who spoke on condition of anonymity.

In addition to clarifying who owned what technology, the agreements detailed the procedures, sanctions and penalties for any breaches.

"I'm very comfortable with the arrangements we have in place, and the arrangements we've made, if we have issues, to resolve them," said Lewis Booth, Ford's chief financial officer and the U.S. automaker's top negotiator.

Splitting up the technology

The accords give Volvo access to any technology that it needs from Ford to produce the vehicles in its business plan covering the next few years.

Volvo may share some of that technology with Geely, but is not allowed to share some of the exclusive Ford technology to which it has temporary access.

Geely will acquire all the technology that Volvo has developed -- primarily safety and environmental technology.

With the acquisition of Volvo, which is expected to close before October, Geely will obtain a research and development operation comprising 3,000 engineers -- about as many as Ford inherited when it bought Volvo in 1999.

Ford, meanwhile, retains access to technologies jointly developed with Volvo, according to people familiar with the accords.

In any industrial transaction of this size, technology agreements are bound to be complex.

But negotiators are particularly wary when dealing with companies from China, which has a poor record of protecting intellectual property, such as patents, copyrights and trademarks.

Although China joined the World Trade Organization in 2001, foreigners working there say the protection of intellectual property remains a concern.

"There's a well-articulated set of intellectual property guidelines and laws, but there hasn't been consistent enforcement of those laws," said Bill Russo, a Beijing-based consultant with Booz & Co.

A December AmCham/Booz survey of business people working for foreign companies in China found that China had made little progress in the past three years in protecting intellectual property.

"Rulings in favor of foreign companies in China are still rare," said Michael Dunne, president of Hong Kong investment and advisory firm Dunne & Co.

Toyota lost its case against Geely in 2003, after a Chinese court concluded that Geely's logo wouldn't be easily confused with Toyota's.

Attorneys with experience in China say it's difficult to win intellectual property suits because the rulings may be subjective.

Increasingly, companies such as Ford are reinforcing their claims by specifying sanctions or penalties incurred in any breach of intellectual property in the sales contract.

In such cases, the courts rule on the basis of contract law, said attorney Justina Zhang at TransAsia Lawyers in Beijing.

Power of a brand

From Geely's standpoint, Volvo's technology wasn't the main reason that Chairman Li Shufu pursued the deal, which was suggested to him by a banker at Rothschild & Sons in 2007.

An adviser to Li, a farmer's son who became one of China's first industrial tycoons, said Li believes Geely's technology will attain world-class standards within a decade.

But it will take at least twice as long, Li believes, to command similar prices on Chinese-branded vehicles. He was eager to obtain a strong brand as well as Volvo's distribution network.

Auto analysts say the Volvo acquisition will help Geely gain expertise in vehicle development -- an area where China's fledgling carmakers are all weak. Geely has only been making cars since 1998, while expertise in vehicle development is built over five-year product cycles.

"It's like you can go to medical school and be a straight-A student, but until you've been a doctor for 10 years, you're not going to be that good at it," Russo said.

But it won't take long for the Chinese to catch up.

"We probably had this discussion about Japan 40 or 50 years ago, and we probably had this discussion about Korea 10 to 20 years ago," Booth said.

"The world is accelerating, and China is accelerating very fast."

Ford, GM Promote Car Loans in China as 90% of Drivers Prefer to Pay Cash‏

Bloomberg

Pi Wenhui would have bought a 249,800 yuan ($36,600) Mazda if she had gotten a loan. She couldn’t, so like 90 percent of Chinese drivers she paid cash -- and bought a cheaper car.

Carmakers including Ford Motor Co., Nissan Motor Co., Beijing Automotive Industry Holding Co. and Guangzhou Automobile Group Co. are anticipating that will change as China’s government is set to introduce policies to encourage auto lending in the world’s largest car market.

“We see a lot of potential in auto financing,” Joe Hinrichs, Ford’s president for the Asia-Pacific region, said in an interview at the Beijing Auto Show.

Automakers estimate sales growth in China will slow to as little as 10 percent next year from as much as 20 percent this year and 46 percent in 2009. Enabling more of China’s 1.37 billion people to borrow for vehicles would have a “big stimulus impact” on sales, Xu Changming, research director at China’s State Information Center, said in Beijing on April 22.

“For the next 5 to 10 years, auto financing will be the biggest thing for the industry and the most important booster,” said Yale Zhang, a Shanghai-based director at CSM Asia, an auto consulting company.

U.S., India

In contrast to China, 85 percent of car drivers in the U.S. take out loans and 65 percent of buyers in India borrow, according to the State Information Center, a government advisory body. The government may introduce policies to boost auto lending this year, including making it easier for car financing companies to raise capital by selling corporate bonds, the center’s Xu said.

Guangzhou Auto, a partner of Honda Motor Co. and Nissan in China, plans to open an auto financing unit this quarter, General Manager Zeng Qinghong said. Beijing Auto will begin offering financing this year, President Wang Dazong said.

“We’re counting on auto financing as a new way to generate growth,” Wang said in an interview in Beijing. “There is a lot of room to develop the business in China.”

Zhejiang Geely Holding Group Co is also planning to start an auto credit business, Chairman Li Shufu said.

Currently, auto financing companies in China mainly provide loans to dealers, 90 percent of which are independently owned, according to the China Automobile Dealers Association.

GM, Toyota

Ford, General Motors Co. and Toyota Motor Corp.’s local financing units provide loans to consumers as well as dealers, including those that are unable to borrow directly from banks.

Chen Guangjun, general manager of the Beijing Zhong Ye Toyota dealership, said about 12 percent of his customers buy on credit. The outlet accepts applications that are ultimately handled by Toyota’s financing unit.

Honda doesn’t have a financing business in China, so dealers such as Beijing Fanlv Business & Trading Co. introduce buyers to a bank if they need loans, general manager Wen Hai said.

In China, 80 percent of auto loans come from banks, while in other countries 80 percent are from auto financing companies, the State Information Center’s Xu said.

“The number of people using loans will rise,” said Tao Ye, president of the company that owns Beijing Zhong Ye. “In particular, there are a lot of people who use financing to buy second cars.”

The government is considering encouraging auto loans even as it targets a 22 percent reduction in overall new lending from a record $1.4 trillion last year. Earlier this month, the government announced curbs on loans for third-home purchases, increased down-payment requirements and higher mortgage rates as it stepped up efforts to prevent a bubble.

Good Savers

Persuading customers to take out loans may be challenging because the Chinese traditionally use cash for big-ticket purchases like cars, CSM’s Yale said.

“The Chinese are very good savers,” said Robert Graziano, head of Ford’s China operations. “It will be a relatively slow process.”

The cost of the credit approval process is often too high for small loans to be profitable for lenders. About 69 percent of car sales in China last year was for vehicles with engines no larger than 1.6 liters, which cost as little as 21,800 yuan.

Boosting financing may also require making it easier for customers to get credit approval. Because reliable credit information on consumers is often lacking, some banks hire outside specialists to gather information about applicants, said Beijing Fanlv’s Wen. Sometimes the specialists go to the applicant’s house or workplace to gather and verify information.

About half of applications are rejected, as many of them fail to provide enough information, said Zheng Xinhe, general manager of the Beijing Yinghua Lexus dealership. Once accepted, defaults are very rare, he said.

‘Totally Worn Out’

Pi, the would-be Mazda buyer, gave up trying to get credit for a Mazda6 car. To get the loan, she needed to own real estate in Beijing, which she doesn’t.

If Pi, 28, wanted to use her parents’ property as security for the loan, the bank would need to pay home visits to both her and her parents to interview them, she said. She disliked the idea as her parents aren’t used to buying things on credit, she said.

Pi also decided against using a friend who owns property as a guarantor, because the car would then need to be registered in her friend’s name. She didn’t qualify for a credit card suggested by the Mazda dealer.

“Applying for automobile financing is way too complicated,” said Pi, who wound up paying cash for a Kia Motors Corp. Sportage sport-utility vehicle, which cost her 203,000 yuan including taxes. “I was totally worn out by the difficulties of getting a loan.”