Ford Cash Crunch Coming

I’ve taken a lot of heat in these parts for predicting that Ford’s bankruptcy bound. Having watched GM and Chrysler’s long march to Chapter 11, the signs seem pretty obvious to me: lousy branding, excess nameplates, non-competitive models, a pegged BS meter and a proven inability to take in more money than they spend. Yes, there are differences; his name is Alan Mulally. But, as The Detroit Free Press finally reports, The Blue Oval Boyz are burning down the house. Or, to put it more politely, “Even if Ford Motor Co. reaches all of its targets by 2011, the Dearborn automaker’s growing debt load could end up weighing the company down.” As far as euphemisms go, that one just went.

Today, Ford has $25.8 billion in automotive debt — much of which was accumulated to raise cash so the company could survive the economic downturn that it correctly forecast several years ago . . .

What’s more, Ford’s debt level could reach $36 billion by 2011, when Ford expects to be profitable again, Citibank analyst Itay Michaeli said in an interview with the Free Press. That is about four times more than Ford’s expected earnings. Healthy automotive companies usually carry about twice as much debt as earnings, he said.

Ah revisionism. Ford decided to mortgage itself up to and including its logo without any foreknowledge of the economic downturn. They did it to survive their sinking fortunes in a “normal” (which is to say vastly inflated) U.S. new car market. In fact, the company’s analyst was publicly predicting a bull market even as the bubble popped. And then forecast recovery approximately ten minutes after the market tanked.

Still is, actually. Pipas reckons the drought ends at the end of 2010, doncha know. FoMoCo better hope so.

With that high level of debt to earnings, Ford’s debt could strain the company’s finances as payments on it become due. One of those payments is $10.1 billion, due in the fourth quarter of 2011 . . .

“We gave guidance that our cash burn was $3.7 billion in the first quarter, which was substantially less than the fourth quarter, and we gave guidance that every quarter this year, it will get lower and lower and lower,” Mulally said. “That gives everybody confidence that we are on a positive track.”

Ford might well be on a positive track—cutting costs, suckling-up to the federal teat ($5.9 billion loan from the DOE for retooling thank you very much) and ratcheting-up a, wait for it, .6 percent NA market share gain. But the U.S. new car market is dead in the water. With Nissan’s Carlos Ghosn (and TTAC) predicting an extended downturn, well, it’s only a matter of time before Ford runs out of dough.