Ford disputes analyst report on accounting

n a move against any hint of balance sheet trickery, Ford Motor Co. disputed a top Wall Street analyst's report suggesting Ford's accounting for incentives makes its $23 billion cash horde seem more robust than it is. In a report issued Friday, Goldman Sachs analyst Gary Lapidus said Ford was tying up as much as $10 billion in cash and boosting cash flow by paying the cost of vehicle lease and loan incentives to its financing unit over time, instead of all at once when a vehicle is sold. With investors wary of even the whiff of improper accounting in the wake of Enron and other corporate scandals, Ford's shares fell 4.5 percent to a nine-year low on Friday after the report was released. In a regulatory filing on Tuesday, Ford said the effect of low-rate financing on its cash "is less than half of the amount indicated in the Goldman Sachs report, and the effect on cash flow is even smaller." Ford also said it had accounted for incentives in that fashion for years. Lapidus on Tuesday said the $10 billion estimate was based on information the company provided at the time, but said he now believed Ford might be tying up only $4 billion in cash. He also pared his estimate for how much the actions were boosting annual cash flow to $600 million from $1.4 billion. Ford's policy of paying its financing arm over time differs from some of its competitors. General Motors Corp. and DaimlerChrysler AG's Chrysler arm pay the total cost of the incentive up front to their credit arms at the time of the deal. But Ford spokesman David Reuter said Ford disagreed with Lapidus' conclusions enough to warrant the reply. "We felt an error had been made and it needed to be rectified," he said. In his report on Tuesday, Lapidus said although Ford Credit is just an arm of Ford, the liability matters because the cash pledged to Ford Credit can't be used for anything else. "The cash payments to Ford Credit for cars financed during the sales boom keep flowing without regard to future sales volume," Lapidus said. "As a result, the positive impact on automotive cash flow in the boom would be negated by the negative impact on cash flow in a sales bust." The Ford release also said the company was expecting a dividend payment from Ford Credit this year. Automakers typically receive dividends from their credit arms, but Ford Credit did not pay a dividend last year, as it faced financial troubles. Wall Street analysts have expressed widely differing opinions over the past few months about the pace of Ford's turnaround plan in the wake of its $5.45 billion loss last year. Even after Ford raised its third-quarter earnings estimates on Monday, several analysts, including Lapidus, said the increase should not be taken as a sign that Ford was speeding up its plans. Lapidus, considered one of Wall Street's leading automotive analysts, has issued several warnings about the potential costs of incentives to the finances of Ford and GM, and warned about their rising pension costs last year. While other analysts, such as Salomon Smith Barney's Jack Grubman, have been accused of being too cozy with the companies they cover, auto industry analysts have not faced such accusations.

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