By on August 10, 2010

At the end of the second quarter of this year, Ford’s overall automotive debt totaled $25.8 billion. Just three months before, its debt level was at $32.6 billion. The debt reduction is all part of CEO Alan Mulally’s plant to earn an investment-grade debt rating by the end of 2011, a move that will lower Ford’s cost of borrowing as well as lowering interest payments. And though Ford’s been making a healthy profit, America’s bailout-free automaker has had more than its fair share of government help to beat the debt. According to the WSJ [sub], Ford’s extensive collection of government loan guarantees has been key to its ability to pay down more expensive debt accumulated during Ford’s 2006 restructuring.

Last week’s US Export-Import Bank loan of $250m was just the latest in a string of government loan guarantees that have helped Ford cut its debt. THe UK government also recently put a $572m guarantee for a $715m European Investment Bank loan to Ford. The EIB has also promised Ford $527.6m to produce cars in Romania. Ford has also taken on $1.8b in low-cost Department of Energy loans this year, on top of last year’s $5.9b DOE “Section 136″ retooling loan. And the help is working

In April [Ford] made a $3 billion pre-payment on a $7.5 billion revolving loan.

In June, it paid $3.8 billion in cash to the United Auto Workers Retiree Medical Benefits Trust. A large chunk of the payment for retired worker health-care benefits was paid ahead of schedule.

Ford said its total debt payment in the second quarter should yield annual interest savings of more than $470 million.

Despite the EIB’s rejection of another $264m loan, Ford is clearing its bad debt with remarkable speed, a fact that was rewarded last week when Fitch raised Ford’s debt rating to within three steps of an investment-grade rating. Doubtless Ford would have been prioritizing debt reduction regardless of its government help, and it’s certainly made enough profit this year to make a start on the task. Thanks to generous government assistance, however, Ford is blowing through its debt faster than previously imagined.

In the second quarter of this year, Ford paid an estimated $318 per vehicle produced just to pay interest on its debt. Ford now estimates its total annual savings due to second-quarter debt reductions of more than $470m. And thus far consumers continue to see Ford as having avoided a bailout. Talk about having your cake and eating it too.

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21 Comments on “Government Loan Guarantees Help Ford Beat The Debt...”


  • avatar
    dwford

    Smart strategy. Swap out higher interest loans for lower interest government backed loans. It will save a boatload of interest expense, which will accelerate the debt repayment.

  • avatar
    rnc

    Yeah I don’t see the problem here, I mean every automaker (and almost every large multi-national corporation) uses loan guarantees, it’s become part of business. Not using them would be a problem when your competitors are and that is what you are suggesting should happen? Where are the stories about the J3 and thier loan guarantees?

  • avatar
    NulloModo

    Consumers see Ford as not having taken a bailout because Ford didn’t take or need a bailout. GM and Chrysler were failing due to a number of reasons and needed emergency funds to stay solvent – this was a bailout. Ford has taken advantage of low interest loans that are available to any qualifying business, that isn’t a bailout, it’s good fiscal and business sense.

  • avatar
    educatordan

    Just managing debt as inteligently as possible.

  • avatar
    Syke

    Definitely no problem here. Just good business sense.

  • avatar
    don1967

    Bailed-out or not, Ford is hardly a paradigm of a well-run business. The company is heavily indebted, and still dependent on super-sized trucks as well as older products like Escape and Fusion. It’s newest bread-and-butter models, such as the revamped Focus and Taurus, do not bode well for the future.

    The Dearborn Darling might not be GM, but it ain’t no Toyota or Hyundai either.

  • avatar

    I want to know how this is a bailout. Or is that just being thrown around every time the government sneezes on a car company now?

  • avatar
    GarbageMotorsCo.

    Ford is attracting a ton of ex-GM owners that I know. The rest are going to Honda, Nissan/Infiniti and Hyundai. Those are the guys who are tired of supporting the UAW.

  • avatar
    jj99

    I agree with many of the comments here. But, I am even more concerned about a possible back door bailout.

    In a article dated 8/9 in this very site, a Ford executive made the following statement: “He said Ford is emphasizing commercial and government fleet sales — generally considered more profitable than sales to daily rental fleets. Sales to daily rental fleets are less than half of Ford’s fleet total this year.”

    I think the government fleet sales is right on the mark. A government building close to my office has rows of brand new Ford vehicles with government plates that are, according to the Ford executive, “profitable”.

    Since the government owns GM and Chrysler, the other 2 Detroit firms bidding on government fleet sales, the government can allow Ford to win government fleet sales with a high bid, like sticker price, because it can fix the bid for Ford to win with above market pricing … a rigged bid to give ford a government bailout.

    So, is our tax money being pumped into Ford via rigged bids for government fleets? Interesting question that we need an answer.

    • 0 avatar
      rnc

      “Since the government owns GM and Chrysler, the other 2 Detroit firms bidding on government fleet sales, the government can allow Ford to win government fleet sales with a high bid, like sticker price, because it can fix the bid for Ford to win with above market pricing … a rigged bid to give ford a government bailout.”

      A. The GAO and press would be all over it quickly as members of the other two would begin quickly releasing information and whining.

      B. Ford may be receiving higher transactions prices, but this is based on anticipated resale value as the total cost (=) cost (-) resale (my rather large company will only allow ford vehicles, at higher transactions prices than what GM offered, based on resale)

      Having dealt with alot of government contracts related to aerospace, price is only one of the driving factors, but is the one that will be taken largely out of context.

    • 0 avatar
      jj99

      So, you are telling me that GM or Chrysler executives will whine about the Government overpaying for fleet cars from GM, Ford, and Chrysler?

      First of all, the executives of the Detroit firms welcome the overpay. Not to mention, Obama would fire those very executives.

      I think the government fleet sales stinks like a backdoor bailout.

  • avatar
    Dave M.

    The Fusion was new last year. The new Focus will be out this Fall. The Taurus needs some sales love, no doubt.

  • avatar

    No matter one’s political or economic ideology, when the government is offering cheaper money than anyone else, it’s prudent for a business to take advantage.

    OTOH, my late uncle, who was a mortgage banker (and a lifelong Democrat) said that a business deal has to make sense on its own. If you have to consider tax savings or gov’t subsidies for a deal to turn a profit then it isn’t a great deal to begin with.

    Prudent businesses take a cold look at the deal and treat tax savings and gov’t subsidies as gravy. Basing a business model on continued government largess is imprudent.

    Be careful with the government, for they befriend a person only for their own needs. They appear to be friends when it is beneficial to them, but they do not stand by a person at the time of his distress. – Rabban Gamliel, Pirke Avot 2:3

  • avatar

    so isn’t there a saying that says perception has nothing to do with the facts…

    In defense of Ford… yes they have taken government backed loans, but they are paying them off (for real apparently, not just moving money around like GM and calling it a payoff)

  • avatar
    Z71_Silvy

    And, yet, when GM gets loans…people mess their diapers.

    Ford…what a pitiful company.

  • avatar
    JeremyR

    I sure wouldn’t mind being able to pay off my mortgage with a low-interest, government-backed loan…

  • avatar
    george70steven

    Ford has taken advantage of low interest loans that are available to any qualifying business. If you have to consider tax savings or gov’t subsidies for a deal to turn a profit then it isn’t a great deal to begin with.
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