In a surprising bit of good news, Goldman Sachs (GS) announced that it has upgraded the Ford Motor Company (F) from neutral to buy, and has added the automaker to its "conviction buy" list. In the process, Goldman also set a price target of $6 on Ford stock, a significant increase over its current price of $3.80. Upon the news, Ford's shares rose over 14 percent, to $4.34, in mid-day trading.
Part of Goldman's reasoning for the change lies in its belief that Ford won't need a government bailout. Despite suffering a recessionary downturn, the automaker has held off on requesting federal funds, unlike its fellow automakers, General Motors (GM) and Chrysler. Although Ford acknowledged that it might need help in the future, its decision to hold off on accepting a government handout has raised its profile in the auto industry.
This follows last week's decision by Standard & Poor's to upgrade Ford from a rating of "SD," or "Selective Default" to a grade of "CCC+." This change has lowered the percentage rate at which Ford can borrow, and reflects the company's moves to reduce its debt and its negotiation with the United Auto Workers, under which the union has agreed to accept Ford stock as partial payment for the company's Voluntary Employee Benefit Association.
Another factor in Goldman's decision is its apparent belief that GM and Chrysler are likely candidates for bankruptcy. However, some analysts have noted that the failure of either company could negatively impact Ford, as all three automakers use some of the same parts suppliers. Presumably, a drop in business would translate to higher prices for other customers, increasing Ford's production costs.
Regardless, Ford's Executive Chairman, Bill Ford, is cheerful about the company's future. The combination of potentially rising petroleum costs and customer demand for more responsible cars is fueling what he terms a "revolution" for the "insular industry." The automaker is working to bring many of its more efficient European models to the American market, while preparing for the eventual adoption of multiple gas-conserving technologies.
In the meantime, Ford has expressed hopes that a strong governmental position on oil pricing might help stabilize the auto market and increase the profitability of fuel-efficient cars. Given that Ford has been lauded for his (relatively) early adoption of energy-conscious technologies, it will be interesting to see if his focus on the next generation of cars will pay off.
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