By on May 13, 2010

After four straight profitable quarters, Alan Mulally’s forecast today of a “solidly profitable” 2010 shouldn’t come as a huge surprise. But, as Executive Chairman Bill Ford put it to Ford shareholders at the company’s annual meeting [via AP],

It is the very early days in our recovery. We still have a lot of debt

And he’s not kidding. As of the end of Q1 2010, Ford was carrying $34b in debt. And though Ford faces a higher cost of borrowing because of its staggering debts, Bill Ford was clear that he wouldn’t trade places with Ford’s Detroit competitors, which cleaned out their balance books, at the expense of government bailouts and accompanying PR problems. After all, while GM and Chrysler were rebuilding, Ford managed to outperform both of them last year by gaining sales and market share. And Ford’s leadership sees that momentum carrying forward into next year.

Alan Mullaly told stockholders [via BusinessWeek] that

We expect to see continued improvement in 2011. We’re clearly on a path now of profitable growth. The improving global economy is a slow gradual recovery especially in the United States, but with very solid fundamentals. Also, we’re bringing on more and more products.

But the news out of FOrd’s annual shareholder meeting in Delaware isn’t all good. After a meteoric rise in its stock price since hitting lows in the $1 range last year, Ford’s challenge is in convincing stockholders that more growth is still possible.Says Efraim Levy of Standard & Poor’s:

Ford has taken advantage of the weakness of their competitors, and now the challenge will be to continue to outperform them. They’re not out of the woods yet.

And that’s because so much money has been made on Ford stock since last year’s low, that pressure to sell is inescapable. One hedge fund manager who recently sold off Ford holdings for an average return of 275 percent explains:

The company is doing fantastic but I don’t know if there’s a lot of upside. When Ford’s outlook was very cloudy and not as positive, there were regular buy signals.

Further hurting chances of further growth in Ford stock is the news today that shareholders had voted down a plan that would redistribute the Ford family’s closely-guarded preferred-share voting majority to the rest of Ford’s shareholders. This is the sixth time such a measure has been voted down, although with 30 percent voting in favor, this time was the closest it’s ever been to passage.

Moreover, Ford will not institute a dividend for stockholders, despite the projections of profit. That decision underlines the importance of reducing Ford’s debt load. Bill Ford explains that

the most important thing we can do as a company is get the balance sheet in order.

But there’s more to running an automaker than merely attracting equity investment, and Ford’s operational strength means CEO Alan Mulally is the man of the hour at the Ford shareholder’s meeting. Bill Ford waxed effusive about the former Boeing CEO, who has rapidly become one of the most respected executives in the industry, saying

Alan has been completely superb for this company. We’d like him to stay as long as he wants.

And with profits looking likely this year and the next, Ford’s shareholders can rest assured that their investment is about as strong as any other in the auto sector… especially if they bought in at the $1-$1.50/share low last year.

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15 Comments on “Ford Shareholders Meeting: Profit This Year, But No Dividend...”


  • avatar
    dkulmacz

    And yet again . . . you know that Ford paid down about $3B in debt in April, yet neglect to mention it.

    Back in the day it was common procedure to project out the latest quarter’s negative cashflow and predict how long until Ford’s inevitable bankruptcy. Well, let’s do the same for change in debt, since it is just as meaningless. End Q1, $34B. End Q2, all signs point to $31B or less. Nearly a 10% drop, thus at this rate in about 10 quarters debt could be zero. Or, since that’s not a realistic goal . . . in little over a year the debt could be a pretty normal-looking $15B or so.

    That’s obviously ridiculous . . . but nonetheless the trend is positive with a relatively significant change.

  • avatar
    Robert.Walter

    I’m confused … I thought Ford had over 100 billion in debt …

    Does the 34b represent just automotive debt? What about the debt on the FMCC side of the business? Is this consolidated into the 34b? Is the 34b just short-term debt? Does this ignore the corporate bond debt?

    Would be glad if someone could shed some light here…

    • 0 avatar
      Gregg

      I never heard 100B. It’s always been around 35B. Actually I’m pretty sure that they paid down about 3B in April that’s not reflected here. I think they owe about 31.xx billion at this point.

    • 0 avatar
      Robert.Walter

      I’m pretty sure that I read in about 2007 or 8 that GM and Ford had about 150 and 135 billion in debt (respectively) even though the debt levels being reported were less than that.

      Since there hasn’t been anything on the Ford-side that could have wiped out 100 billion of debt in the last two years, I wonder where the remainder of that debt is hiding…

    • 0 avatar
      Bancho

      Are you talking about the deal with VEBA where the manufacturers made a one time payment to shed retiree healthcare costs? That was supposed to save over 116B for the manufacturers.

    • 0 avatar

      FMCC is — functionally — a bank. Banks have “debt” because they make loans, but that’s not true debt in the business sense, despite what ignorant commentators in the financial media (of which there are a surprisingly large number) might have told you in the past. In truth, FMCC is a solid, profitable bank with a reasonable leverage ratio that contributes positively to the overall business’s bottom line. The auto business has $31b or so of debt at the moment, all of which is current. The debt is being paid down on schedule, in accordance with a plan that has targets that look — from the perspective of Ford’s current success, anyway — like they won’t be a problem to meet. The company is probably 3-4 years from having a solid balance sheet, but they’re on track.

  • avatar
    Telegraph Road

    The $34B is before the April 6 (i.e. 6 days after quarter end) payment of $3 billion on its revolvers mentioned in the Q1 earnings press release. Continued failure to mention this, despite admonishments from the B&B, is becoming a litmus test of either bias or ignorance.

    The $31B (not $34B) figure is automotive debt, both short and long-term, while the $100+ debt figure includes Ford Credit’s debt, which itself has a prudently low leverage ratio.

    The comments here are my own and not those of my Dearborn employer.

    • 0 avatar
      Gregg

      That’s it. The 100 billion figure is for auto loans. FMCC borrows money at a low rate to finance the cars they sell. That isn’t counted on the books because it gets paid back as people pay their car notes.
      The 31 billion debt is the money borrowed to restructure the business and retool the plants.

    • 0 avatar
      Robert.Walter

      Thanks.

      Right, I thought the vast maj of the debt was tied to when they had to recapitalize FMCC … but this was also explained by IIRC Don LeClair as having very long due dates, with most of the debt coming due in the 2025 or 2035 timeframe…

      Why, if Ford as a holding company with consolidated debt has both automotive and finance side debt is only the automotive side mentioned? I don’t really get this. If it is all in one pot, and if FMCC needs FMC to stay alive, why isn’t the total figure reported? Does this have something to do with the span of time over which the debt falls due?

    • 0 avatar
      Gregg

      My guess is that the finance side would be running that debt even if the manufacturing side was making 40 billion a year. I think it’s just the way auto financing is run.

      How’s that for a technical explanation.

    • 0 avatar
      Chicago Dude

      “Why, if Ford as a holding company with consolidated debt has both automotive and finance side debt is only the automotive side mentioned? I don’t really get this”

      Robert, the finance arms of automakers are more or less banks. When you go deposit your paycheck at Bank of America it is recorded as a liability on their balance sheet. When they loan you money to buy a house it is recorded as an asset. This is completely opposite to how everything else works – because banks are taking the other side of the transaction.

      When a bank reports their financial numbers, nobody gets worked up about their liabilities because those are good things. It’s the same deal with FMCC. FMCC is actually more like a bank than most other finance arms because they offer demand notes to the general public. These work exactly like a money market account. Right now Ford pays about 1.95% – better than any money market account you will find. They can do this because 1.95% represents a dramatic reduction in the cost of money to FMCC and gives them a competitive advantage over other finance arms.

  • avatar
    Telegraph Road

    Robert–Ford Credit’s debt is backed by receivables on the other side of the balance sheet, primarily a continued stream of monthly payments from auto loans and leases. Ford’s debt concerns, judging from the debt rating agencies’ public statements, are the $31B on the automotive side.

    These statements are my own and not those of my Dearborn employer.

  • avatar
    Z71_Silvy

    How much will the debt go up when they factor how much they lost on Volvo…4 Billion…5 Billion?

  • avatar
    geeber

    Anybody else notice that William Clay Ford, Jr., and Alan Mulally have EXACTLY the same hair color?!

    • 0 avatar
      psarhjinian

      My mother-in-law has that same hair colour. It’s what anyone with light-coloured hair gets when they start dyeing to cover gray. Eventually hair stops taking dye and you end up with that peculiar shade.


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