Like politics, American big business has its "great families" and its "great characters". And its "great stories" ... This is one of them. In the auto industry, the names Kerkorian, York, Iacocca, Eaton, Lutz and Perot have all had long and strong connections to every one of the Detroit Three, connections several decades long. This week, all those connections again came to light as Kirk Kerkorian's company started buying-up 20-million more shares of Ford (he already owns 100-million shares, almost 8% of the whole company) and advising Ford's CEO, Alan Mulally (a Detroit newcomer), to sell-off that company's Volvo and Mercury divisions. (Photo --- Above, Ford is estimating they will sell 100,000 of their all-new Flex models the first year it's on-sale, Below, Kirk Kerkorian makes a point to reporters; the 92-year old billionaire, with longtime, huge investments in the Detroit Three, is currently in the process of buying 20-million more shares of Ford Motor stock).
Ford's surprise turn of a profit in the year's first quarter brought all this about.
You may remember when we reported on April 25th, that "Ford Motor Co. surprised Wall Street 
today with a first quarter earnings report full of black ink -- saying it posted net income of $100 million on total revenue of $43.5 billion. That's compared with a net loss of $282 million on revenue of $43.0 billion during the same period a year ago. Ford stock skyrocketed on the news -- closing the day up 88 cents, or 11.7 percent, to $8.40 a share." (Photo --- Kerkorian's friendship with Lee Iacocca, shown promoting an electric bicycle which a Southern California company is making, using his name, created animosity between Kerkorian and Chrysler after Iacocca left it).
We've been saying "Buy Ford!" and "Buy GM!" for several years (can't say "Buy Chrysler!" anymore, 
unless you want the whole thing) ... These gigantic American corporations, with so many overseas properties and superior products, Ford and GM (or Opel or Holden, etc) cars and trucks being the "favorites" in many markets (if not the US), simply can not have their stocks stay in the $10/share range, even if the companies are old-time, unexciting "brick-and-mortar" business, something very unsexy to Wall Street in these days of trying to make enormous sums of money by making as few actual products as possible. If all your company sells is "information," ala E-bay or, the best example, Microsoft, that's been all the better for stock prices since the 1990s. Ford and GM have massive amounts of real estate, buildings, skilled workers, many of them unionized, at that, franchised dealers around the world (highly-protected in this country from the manufacturer by US laws) and made huge sums in the US through the 1990s and early years of this decade by selling massive, heavy, low-mileage trucks and SUVs which don't have to be re-designed every two to three years, like car-buyers demand. Now, "thanks" to $4/gallon gas prices ($5/gallon by the day Bush leaves office; we'll also be at war with Iran), for the first time in about a decade, cars and the new CUVs (Crossover Utility Vehicles), which are built on car-like platforms, are outselling the big trucks and SUVs which Americans managed to get so used to, so easily.
After the announcement, Kirk Kerkorian announced his intention to greatly increase his stock holdings in Ford. This past week, Kerkorian's Tracinda Corp. announced that it plans to make a cash tender offer for as many as 20 million shares of Ford stock at $8.50 a share. Kerkorian, Tracinda and York are no newcomers to Ford; Tracinda already owns 100 million shares, representing 4.7 percent of Ford's outstanding shares.
Last month, after the process to buy those 20-million shares of Ford had begun, York had a private meeting with Ford CEO Alan Mulally, the ex-Boeing chief who took the Ford job about a year ago (but only after Ford deposited more than $20 million in his bank accounts). At this meeting, York apparently told Mulally that he needed to sell the company's Volvo and Mercury divisions to help in Ford's "turn-around". (Photo --- Jerry York is Kerkorian's "bagman" in buying-up 20-million more shares of Ford stock, and last month he "advised" Ford CEO Alan Mulally to get rid of Mercury and Volvo; Mulally was not amused).
While Ford is still not making a single cent in profit in the US, the company's recent positive results show that when a company based in the US, as Ford has always been, in Dearborn, Michigan, and shows profits from markets other than the US, it's still good for the company as a whole, especially as far as Wall Street is concerned.
The big problem in Ford's case, and ultimately, for America, is that a lot of the "profit" expected to come from the US for Ford (and GM and Chrysler) will come in the form of cutbacks, as Ford has upped the numbers and the values of the "early retirement buy-outs" which the company is offering tens of thousands of their US employees. And as someone smarter than I once said, "A large company can't cut its way to success and profitability."
Kirk Kerkorian and his investment firm, Tracinda Corporation, has as his "chief aide" a former Chrysler
executive named Jerome B. (Jerry) York. York is Chairman, President and CEO of Harwinton Capital, another Wall Street investment firm. He is also the former CFO of IBM and Chrysler, CEO of Micro Warehouse and he joined the board of directors of Apple Inc. in 1997. (Photo --- Why Mercury needs to be sold, which is unlikely, or shut-down: Their Mountaineer version of the Ford Explorer. First three months of 2008 saw sales of 4,728 Mountaineers, and 27,638 Explorers. Sure, some can argue that those 4,700 Mountaineers represent pricier Explorers which wouldn't have sold, anyway. But could those few sales, and the total costs which go into making them and then the costs of their after-care, really make Mercury viable?).
Click below to read more about Kerkorian, York, Volvo and Mercury ... if Ford will sell those two divisions ... and when!
(Photo --- On the left, US Senate Majority Leader Harry Reid (D-Nevada) stands with investor Kirk Kerkorian at a 2007 Oscar De La Hoya prize fight in Las Vegas).
Kerkorian helped elect York to the board of directors of General Motors, from which York resigned on October 6, 2006, after less than a year. In his resignation, he blasted the management of GM and the board of directors, a situation not unlike that in 1986, when H. Ross Perot sold his company, Electronic Data Systems (EDS) to GM, earning a place on their board of directors. He vehemently and publicly criticized the way the company was being run, and soon found himself taking a $700 million cash buy-out from GM to leave their board, their buildings and probably had to promise to never drive a GM car or truck ever again (something not easy to do in Texas, where the Chevy Suburban is the "National Truck"). Perot's tenure on the GM board also lasted than a single year. $700 million just doesn't buy you what it used to. (Photo --- Ford's Euro-only "Ka" is typical of the small, fun, sporty and fuel efficient cars the company is known for outside the US).
Kerkorian had then held 9.9 percent of GM shares. In June, 2006, Kerkorian suggested that Renault 
acquire a 20 percent stake in GM to "rescue GM from itself". A private letter sent to GM President Rick Wagoner was released to the public to add extra pressure to the GM executive hierarchy. As Kerkorian should have learned from the Ross Perot "incident" of years before, that kind of pressure does not work on GM, for better or worse. York left his corporate board seat in October, 2006, and in November of that year, Kerkorian sold 14 million shares of his GM stake. Kerkorian still owns 5% of all GM stock. (Photo --- A 2003 Ford Crown Victoria represents the kind of reliable-sellers which for decades was sold by Ford to police and government agencies all over the US, and the over-50 set; they all appreciated the car's large and comfortable interior space, V8 power ... and an ability to be parked, without getting a ticket, almost anywhere, because many parking-enforcement agents figured the car was probably owned by some government outfit. Its even-more-soft-and-comfy twin, the Mercury Grand Marquis, was bought by some agencies for their senior officers, and over-50 folks with a few more disposable dollars. January through March, 2008 sales: Crown Vic, 13,000, Grand Marquis, 8,000).
Kerkorian and Lee Iacocca were personal friends. Kerkorian is 91 and was estimated by FORBES in 2006 to be worth $9 billion, making him one of the world's wealthiest people. Kerkorian's firm, Tracinda, owned a large amount of Chrysler stock when Iacocca ran that company, having confidence both in his friend and the company's ability to develop products the public would buy. He was right on both counts and decided to show his confidence in a very public way. Chrysler had brought-out their "K-cars," the come-back models which helped make Chrysler a successful American car company once again (combined with Iaccoca's masterful marketing, including appearing in his company's TV ads, being available for almost any journalist's radio, TV and print interviews almost anytime, anyplace and even penning a best-selling book or two). (Photo --- Two of the rarest Chryslers; 1984's "Executive" versions of the ubiquitous Chrysler K-car could be had as a more spacious and luxurious sedan or as a full 7-passenger limousine. Kerkorian used many of them at his Las Vegas hotels and his MGM Studios in Los Angeles).
In 1984, Chrysler manufactured, at their St. Louis plant, stretched and luxe-outfitted versions of the K-
car called the Executive; available as both a sedan and a 7-passenger limousine, Kerkorian got almost 100 of the limousines and used them to transport guests in and out of his Las Vegas MGM Grand Hotel, and others he owned outright or pieces of, in Nevada. Guests from around the world left their Las Vegas or Reno vacations, telling their friends at home about those "Chrysler limos" they saw all around those cities. He also made sure MGM Studios (which he also owned) had a good supply of them, too, so they'd be seen all over Southern California. It was smart, hip marketing. One Chrysler company exec at the time said, "Styling was essentially that of the extended-K platform LeBaron coupe and sedan." The Executive sedans were in-production for but two years, the limos for four.
Jerry York was also a focal point of a mid-1990's battle between Tracinda and Chrysler when Kerkorian attempted to get York appointed to the automaker's board of directors. The attempt failed when the then-Chairman Robert Eaton and President Robert Lutz refused to appoint York to the seat. Many observers of the situation said at the time that the pair's refusal to seat York had more to do with his friendship with Iacocca, someone who had become anathema to both Lutz and Eaton (what is now the "Walter P. Chrysler Museum" at Chrysler's Highland Park, MI, headquarters was originally to have been named, "The Lido A. Iacocca Museum". That all changed when Lutz and Eaton took-over control of the company. They even took Iaccoca's use of the company's planes from him when he was "retired", perhaps the ultimate insult among those who move in "those high-flying circles"). (Photo --- Journalists gather around a 2008 Pontiac G8 at a recent media introduction in Santa Monica, CA. Bob Lutz, who has dealt with Kerkorian at both Chrysler and GM, hopes the G8, based on the Australian-made Holden Commodore, will be more successful than his last "big idea" from Oz ... The 2005 Pontiac GTO, which was built on the coupe version of the Commodore platform, called Monaro, Down Under).
"Maximum Bob" Lutz is now, of course, the Vice-Chairman of General Motors, making all their "product decisions" for North America, proving it's almost as hard to lose a job in Detroit's upper echelons as it is to get one in the first place; once you're "in," baby, you're in. Go ahead and buy that "rustic" Michigan Upper Peninsula lake house with your first contract! And Kerkorian bid almost $5 billion for Chrysler when it was sold by Daimler almost one year ago; Cerberus, yet another Wall Street investment outfit, beat that bid with their own for $7.4 billion, a fraction of the $36 billion deal that created the ill-fated (gosh, who didn't see that coming?) DaimlerChrysler transatlantic car union nine years before. One wonders how a country can stand a loss like that, much less a single company. (Photos --- Lincoln's MKX is their version of the Ford Edge; Edge sales are slower than predicted, so is a Lincoln version necessary for a brand-new CUV whose tooling won't be paid-off for at least three more years of sales?).
Kerkorian made his money in airplanes; flying them and owning them. He decided to become a pilot 
when a man he was working for (by installing hot water heaters) in Los Angeles was taking flying lessons and invited Kerkorian along for a training ride. Kerkorian was instantly hooked. He created a business shuttling warbirds of all kinds from the US to Europe during WWII, using a faster, but more dangerous (and expensive) route. After the war, and more wheelings-and-dealings in the huge post-War aircraft business, he used his savings to pay $60,000 in 1947 for TransAmerica International Airlines, a small air-charter flying gamblers from Los Angeles to Las Vegas. He operated the airline until 1968 when he sold it for $104 million to the TransAmerica Corporation (builders and owners of the "Pyramid" building in San Francisco). He had first visited Las Vegas in 1944, as a general aviation pilot. In 1947, after he gave-up gambling, and, working with architect Martin Stern, Jr, creator of the Las Vegas "megaresorts," Kerkorian has been full or partial owner of Caesar's Palace, the International (Elvis Presley and Barbra Streisand were that hotel's showroom first two acts), the Las Vegas Hilton (anyone who has ever attended the SEMA Show knows that very elegant Hilton), the MGM Grand and others in Las Vegas and Reno. (Photo ---- Lincoln's 2009 MKS, available with either a V6, new 3.5-liter V8 and possibly a twin-turbo V8, is based on a full-size Ford platform which Ford borrowed from Volvo after buying that company in 1999. This platform is used on the Volvo S80 and is used on the new 2008 Ford Taurus/Mercury Sable, formerly the 2005-2007 Ford Five Hundred and Mercury Montego. Just more reasons for Ford to hang-on to Volvo).
Will Ford sell Volvo and/or Mercury? We don't think so; first, we think it's much more likely that Ford will eventually kill-off the Mercury division, ala GM and Oldsmobile (though members of the Ford family, now self-admittedly not always the best business-runners, have been spending time at Mercury), because, frankly, what's the value in Mercury? If the name itself held any value at all, they'd be selling more cars and trucks. Total light truck sales (minivans, SUVs, et al) for Lincoln-Mercury combined for this year's first three months were under 30,000; total car sales that same period for both were about 33,000. Compare those numbers (about 63,000, total for the Lincoln-Mercury division) to those of Chrysler's Dodge Division for the same period: Car sales were 89,000, light trucks 142,000, for total car and light truck sales of 453,000 for the Dodge Division alone in the first three months of 2008. Ford can make no serious business case for keeping Mercury alive; and barely one for Lincoln, which might still have some cachet to it, some value which the company can sell-off for much-needed cash. We say: Kill-off Mercury, and now. Try to quietly sell Lincoln (like you just did with Jaguar and Land Rover to India's Tata Corporation) and if a quick buyer can't be found, shut it down, too. (Photo --- Volvo's XC90 and the successful Ford Explorer now share many components).
As for Volvo, that "Swedish division" of Ford has a lot of positives going for it, most of them outside the
US, but Volvo would probably be a valuable part of almost any larger car-maker which owned it. The name still means something; the company's successful efforts to co-opt the term "safety" for their cars only in the minds of buyers worldwide still carries a lot of influence and positive "blue-sky" (the term for determining a company's worth after the hard parts are paid for). Volvo, in this year's first three months, sold about 19,000 cars and 6,200 XC90 "light trucks". That's off about 2,000 trucks since the same time period last year; car sales are almost exactly the same as January, February and March, 2007. On average, Volvo pricing (in the US) is quite a bit above both Mercury's and Lincoln's, so selling fewer vehicles doesn't necessarily mean less profit. Volvo also makes and sells many different cars and trucks which are never seen on these shores, adding to the division's good position within the company. (This Volvo hot rod named Hot Rod Jakob, celebrates the 1927 OV4, nicknamed the Jakob, the very first series-produced Volvo car. Created by Leif Tufvesson and his company Caresto, the two-seater sportscar features a carbon fiber body and a hot rod minimalistic design ... And these capabilities and sensibilities are more reasons for Ford to not sell-off Volvo).
We say: Keep Volvo. It's too late for Mercury, almost definitely too late for Lincoln, but Volvo still has a lot of life in it. And this country survived after Oldsmobile was killed by GM, and perhaps keeping the Lincoln and Mercury names alive by using them for new Ford (and even Volvo?) vehicles in the US might mean they have a future, yet.
But probably not. The horse which finished second in the Kentucky Derby this very weekend fell over with two broken front ankles seconds after the race was over and had to be "immediately euthanized," according to the track's veterinary doctor. While that horse's name will live on forever in trivia games and bar bets and "along the rails" at hundreds of race tracks around the world, her name (Eight Belles) will really do no one any good, except for the winners of all those inevitable bets. Best for all to forget it (and Lincoln and Mercury) ... and save all the energy wasted by beating dead horses.
I just bought my first Volvo. It's a 2004 Volvo XC90. I totally love this car. My wife and I have been saving our money for this model car from the day we first learned of it's existence. Basically, we've been saving our money for four years. We bought the Five Cylinder 2.5T Front Wheel Drive. This car is comfortable, has plenty of power(actually more than we need, and more than we use). We love the safety built into this car. It's not to big and it's just the right size. We hope to drive this car for at least ten years. We will take good care of our new(Only has 65k miles) car. We sure hope it last a very long time. We grew up learning the quality that Volvo Cars have. And when I think of Ford Owning Volvo, I think of "Built Ford Tough". Well, What more need be said. We will travel all over this Proud Country of America. In our Volvo Cross Country(XC)90. Thank you Volvo and Ford for the XC90. We love it!
Posted by: Joseph Mercado | July 07, 2008 at 04:50 PM