Debt Free

I've been away at a trade show. Sorry for the absence.

Yahoo reported yesterday that their Q3 financials would reflect Internet ad sales earnings toward the lower end of their estimates. Their stock took a bit of a tumble on the news. Google, with a policy of not issuing quarterly financials, was tight lipped on the issue. Yahoo's largest decrease came in the ad sectors so popular during tennis and golf on the tele; financial services and automobiles. What does this mean for the average person on the street just trying to put aside a little something for retirement? Should anyone care that one of the Internet giants suffered a bit of a hiccup in their quarterly revenue growth that's averaged well over 10% of late?

Maybe not. The revenue results are telling if you take a look at the sectors where Yahoo suffered the drop. Both Ford and GM have been hemorrhaging cash in recent quarters. To put this in perspective, in the same quarter of 2005, they showed almost a $1 billion profit in the same category. It was bound to catch up to them eventually. Ford experienced a $48m loss from continuing operations in Q2 of this year. With the recent appointment of the charismatic Alan Mulally as CEO, Ford has a proven cost cutter, so we may see such reductions continue for the near future, even though his experience has been more targeted on reducing the largest corporate expense, labor. One of the problems facing the big two automakers has been their reliance on high margin SUV sales to generate profits. As fuel prices rose during the summer consumers stayed away from the largest of the vehicles. As there seems to be an inverse relationship between the vehicle's fuel consumption and it's gross profit, this hurt the company's bottom line.

Ford has introduced several new cars in the last few years to try and bolster a sagging product line. They were even calling last year the “year of the car”. To a point they've been successful. The new Mustang, with its retro look that manufacturers have been embracing, has been a huge hit. Where Ford needs to hit a real home run, however, is in the mainstream family sedan sector. Ford experienced it's last huge success in the car sector with the Taurus 20 years ago. In the last decade, they've suffered tremendously under the siege of hot import competitors, such as the Camry and Accord, that many consumers felt offered a better value. They've done a decent job of turning around some of their foreign luxury brands, such as Jaguar (Jag and another Ford brand ,Volvo, just finished in the top five in a German quality survey released this week) but again, that's not where they need to shine.

To continue with the baseball analogies, Ford needs to reach the post season again, and it's going to need help from some stars to make that happen. For all its success, the Mustang is essentially a low volume product. If the new Fusion, Freestyle (essentially a station wagon, but the marketing types hate the “S” word), Focus and the Five Hundred can sell well, it will go a long way toward getting the automaker out of the doldrums.

Mulally, however, has a plan. It's known as the “Way Forward”. This plan was actually developed before his arrival, but he's just the one to kick it into high gear, which he has. First, he's targeted 14,000 salaried positions for termination, with some of those cuts announced at the end of last week, so if you're a Ford manager, look out! Next, he aims to significantly revamp 70% of the company's product line by 2008. Ford owned component division, Automotive Components Holdings LLC , will be entirely shut down or sold, also by the end of 2008. As a final bit of news, if you own Ford common or class B stock, too bad, so sad. They'll be suspending quarterly dividend payments for a while. This is all in an attempt to return the company to profitability by increasing sales and eliminating $5B in operating expenses.

Obviously, some of those expenses were going to Yahoo advertising. The Ford media buyers aren't being so friendly anymore. I wonder how effective this strategy will be. What Ford desperately needs is brand loyal, long term customers. The Internet user's demographic fits who they need their new customer's to be for long term success. If the “Way Forward”s new product introductions bring forth snappy, new, vehicles that excite the car buying public into action at the dealerships, Ford needs to make sure they become Ford customers for life. The younger they are, the longer their car buying life will be, and the more more buying cycles they'll participate in.

If enough of the big ad purchasers pull out, maybe Yahoo, and possibly Google, will sweeten the pot for the little guy. There's a thought.