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Billionaire Kerkorian Cuts Stake In Ford

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Billionaire Kerkorian Cuts Stake In Ford

Billionaire Kerkorian Cuts Stake In Ford

Billionaire Kerkorian Cuts Stake In Ford

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  • <iframe src="https://www.npr.org/player/embed/95935316/95935296" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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Kerkorian's buy in to the troubled automaker was seen as a huge vote of confidence in the company's plans to turn business around. What does it mean that he's weighing pulling out all together?

ALEX CHADWICK, host:

Back now with Day to Day. I'm Alex Chadwick. Ford Motor Company has had a tough couple of months, high gas costs and the credit crunch drastically cutting sales for its best-selling trucks and SUVs. Now, today, another bad sign. Billionaire investor Kirk Kerkorian is pulling most of his investment out of Ford. Marketplace's Janet Babin is here. Janet, how bad is this news, and why is Kirk Kerkorian bailing on Ford?

JANET BABIN: Well, Alex, Kirk Kerkorian's investment company, Tracinda Corporation, says one thing. It may be another reason why this decisions been made. But in a press release, Tracinda stated that it's reallocating its resources in light of current market and economic conditions. It said it wants to put its money instead into gaming and hospitality and the oil and gas markets where it sees more value, although some of those markets have been on shaky ground recently, too.

There's speculation out there that Kerkorian and Tracinda just needed the money, even though it will take a steep - it has taken a steep loss on the shares it sold already. It bought them for more than it sold them for. There's some speculation, too, that it just lost faith in the U.S. auto industry, and there's no surprise there, and we could see why that would happen. Analyst Dave Winston at Morningstar told me, again, another idea, that this might be a sign that internally there is a power struggle or some type of disagreement inside Ford.

Mr. DAVE WINSTON (Analyst, Morningstar): We just saw those two directors resign last week, and the CFO was basically forced out the door, and for a while, I wondered if Mr. Kerkorian had pressured that but apparently not, if he's exiting his stake, too.

CHADWICK: Well, so, I think that Kirk Kerkorian has been Ford's biggest shareholder for a while. Maybe this is just a vote of no confidence on his part in the company.

BABIN: That is possible. Since the summer, we've seen Ford's share price fall more than 50 percent, and there have been possible merger talks recently between GM and Chrysler, the other U.S. auto makers, and that would be tough on Ford. And then there's the current economy, Alex. I mean, analysts expect consumer confidence will be low next year, and that is expected to hurt auto sales. And it's expected to hurt Ford more than its competitors.

CHADWICK: And why would that be?

BABIN: Well, Ford has tens of billions of dollars in debt on its balance sheet. Its foreign competitors aren't dealing with that. Through June, Ford was burning about $750 million dollars a month. There's also, though, a perception distortion going on in terms of quality. A lot of people still think Ford, GM, and Chrysler don't make high-quality vehicles. Dave Winston at Morningstar says in Ford's case, that is not a fair assessment.

Mr. WINSTON: They make really good cars now. And Ford's new designs, like the new Lincoln sedan, it's a great car. There's just a lot of people out there in the United States that are just so biased against a Detroit name now that they won't even consider a Ford name, and they always think of Toyota, Honda, Volkswagen first.

BABIN: And in Winston's opinion, it's going to take a generation to change that, Alex.

CHADWICK: Thank you, Janet. Janet Babin of public radio's daily business show, Marketplace.

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