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Einstein once said : The definition of insanity: doing the same thing over and over again and expecting different results.

Troubles may spur sale of Ford Credit.

Selling stake in finance arm is one of several options
Bryce G. Hoffman / The Detroit News

DEARBORN -- Citing potential conflicts of interest, Citigroup Inc. executive Robert E. Rubin resigned from Ford Motor Co.'s board of directors Friday as the automaker considers a number of strategic moves, including the sale of a significant stake in its profitable Ford Credit finance arm.

The potential deal involving Ford Credit and other strategic moves under discussion played a role in Rubin's decision to step down after six years on the board, where he been an influential director in recent years, according to sources familiar with those discussions.

While an option, a deal involving Ford Credit isn't Ford's primary focus as it concentrates on operational issues in the wake of losses and declining market share. (Telecommuting would elimiate some of those expensive operational issues).

Ford is also exploring the sale of brands such as Jaguar and Land Rover and is weighing whether the company should form an alliance with another automaker or even take the company private.

Citigroup already is advising Ford on its strategic options (Telecommuting would be my strategic option) and could be a major player in any of these moves.

"As the board undertakes its upcoming review of strategic options, Citigroup's multifaceted relationship with Ford could raise a question whether my relationship with Ford and Citigroup creates an appearance of conflict," Rubin said in a letter to Chairman and CEO Bill Ford Jr., portions of which were released by the company Friday. "Although no conflict currently exists and while I would have liked to remain involved, I have with great regret concluded that I should resign from the board at this time."

In a statement released Friday, Bill Ford called Rubin's decision "prudent." He is the third Ford director to leave the board this year.

Nasser expresses interest
An investment group led by Jacques Nasser, former CEO of Ford, has had some preliminary discussions with Ford regarding the possible sale of European brands, including Land Rover, Jaguar and Aston Martin, two people familiar with the situation told The Detroit News on Friday.

Nasser is a senior partner for mergers and acquisitions at JPMorgan Chase & Co.'s One Equity Partners LLC. The "on and off" discussions have been very preliminary in nature and may not go any further, one person said.

Since being fired from Ford in 2001, Nasser has been working in the private equity arena out of an office in Bloomfield Hills. He still has an office and an administrative assistant at Ford.
David Cole, chairman of Center for Automotive Research in Ann Arbor, said it wouldn't surprise him if Nasser is eyeing Jaguar or other parts of Ford's Premier Automotive Group, which Nasser established while CEO at Ford.

Nasser, who is out of the country, declined to comment Friday through a spokeswoman.

Everything's on the table
In the past, Ford has said it had no interest in selling a stake in Ford Credit, which has been a cash cow for the automaker even in lean times. But more recently it has said that everything is on the table as it prepares a restructuring plan expected to be announced shortly after Ford's Sept. 14 board meeting.

The plan is expected to include white-collar job cuts and an expansion of its buyout program for hourly workers. It could also mean more factory closures. How many more customers can Ford afford to buyout?

Bill Ford will meet next week with top executives to start finalizing plans.

The United Auto Workers union has summoned local officers from each of its Ford locals to Detroit for a meeting Tuesday to discuss its buyout strategy.

Citigroup has been working to expand its auto-lending portfolio, and was one of the key players in the private equity purchase of a 51 percent stake in General Motors Corp.'s credit division in April. The buyer was a consortium headed by private investment company Cerberus Capital Management, plus Citigroup and Japan's Aozora Bank, in which Cerberus holds a majority stake.

That deal was worth $14 billion to GM and has many on Wall Street urging Ford to follow suit.

"We think Ford is compelled to take a more serious look at selling a stake in Ford Motor Credit, given the recent GMAC stake sale announcement, but we suspect selling it will be a last resort," said Robert Barry, who follows Ford for Goldman Sachs.

Credit unit could fetch $6B
One analyst said Friday a controlling interest in Ford Credit could be worth $6 billion. What will Ford do with the money?

That is money Ford could use to help fund its restructuring moves. Ford has said it has enough cash to cover those costs, but that was before the automaker announced a 21 percent cut in fourth-quarter production -- a move that will translate into a big reduction in profits. Or a big reduction in losses.

"At the end of June, Ford held $23.6 billion in cash and equivalents. We expect Ford to fall well short of its goal of $20 billion at year-end," said Gimme Credit analyst Craig Hutson.

Ford Credit earnings down
But raising cash is only part of the picture. A bigger concern is Ford Credit's poor credit rating, which has sunk deep into junk-bond territory. That makes it harder for the company to borrow money at competitive rates.

Earnings at Ford's finance arm fell 40 percent to $441 million for the second quarter of 2006, partly reflecting its own higher borrowing costs. How does a financial arm make money, when they lend their money at 0%?

"There are obviously a lot of high-level financial things going on right now," said Cole, adding that a sale of Ford Credit is likely one of them. "That's always been an option that has real value."

Pete Hastings of Morgan Keegan & Co. Inc. in Tennessee said any sale of Ford Credit would be deeply discounted because of Ford's financial problems, making it an attractive target for investment firms like Citigroup.

"There's an opportunity to buy something at a discount, improve the rating and sell it at a profit a few years hence." Why sell their "cash cow", if all they need to do is wait?

The bond market would applaud a sale of Ford Credit and would be likely to rethink its ratings in short order, he said.

Rubin is a Citigroup director
Citigroup ranks No. 1 among advisers on mergers involving automakers and their suppliers this year, with $20.2 billion to its credit, according to data compiled by Bloomberg.

Rubin, who joined Ford's board in 2000, is also a director of Citigroup, as well as chairman of the financial conglomerate's executive committee.

He served as Bill Clinton's treasury secretary from 1995-99 and spent 26 years at Goldman Sachs & Co.

He played a central role in last month's decision to hire former Goldman Sachs mergers-and-acquisitions expert Kenneth Leet to lead a review of Ford's strategic options, according to sources familiar with the situation.

Rubin was also viewed as one of the strongest independent voices on Ford's board.

"I greatly appreciate the many valuable contributions Bob has made to Ford Motor Co. during his six-year tenure," Bill Ford said. "He brought strategic thinking to every situation and has been a wise and generous counselor to me and to the company."

Shares of Dearborn-based Ford rose 24 cents to $8 in trading on the New York Stock Exchange. The automaker's stock has tumbled 19 percent in the past year. Citigroup shares fell 8 cents to $48.64.

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