By on October 3, 2010

When Alan Mulally came to FoMoCo, his strategy was simple. Quite literally. “One Ford.” Jaguar? Out. Land Rover? Out. Volvo? Out. Mercury? Out. Aston Martin? Out (but we’ll keep a small stake, just in case…). It’s all about “Ford.” And it’s worked. Ford is flying high and is closing in on GM in the US market. But there’s one thing that stops Ford flying even higher. It’s that millstone around their neck, called debt. And lots of it. About $27.3b in the most recent quarter. Some economists believe that is what is depressing Ford’s stock price. Well, it seems Mr Mulally is going to have a laser focus on this problem.

The Wall Street Journal reports that Mr Mulally wants to pay off Ford’s debt (not personally, but corporately) by 2011. My goodness! He’s going to tackle Mount Everest?! “We plan to get rid of the net debt in 2011,” said Alan Mulally, “we will already be firmly profitable this year with a positive cash flow in the auto business…In 2011, we will do even better.” Honestly, you turn a company around and soon you’ll start believing your own hype.

Mr Mulally then turned his focus to Ford Europe, one of the crown jewels in the Ford crown. In the huge poker game he is playing with other car makers in the European market, Mr Mulally thinks the others are bluffing. Supposedly, Mulally does not want to increase Ford’s market share in Europe just for the sake of it. “In Europe…some competitors do it because they have a surplus of production capacity, but they will not be able to do it for long,” said the Ford CEO. You mean, Ford backed-off from Europe’s largest brand? Or could Mr Mulally be having a sly dig at Vauxhall/Opel? No, not Mr Nice Guy? Doesn’t he know who owns them…?

UPDATE: Since writing this article, the WSJ have changed their article. It appears that the original story from Il Sole 24 Ore “misrepresented” Alan Mulally’s comments. Ford is aiming to have more cash than debt by 2011. The new article posits that Ford need $5.4b to have enough cash to cover existing net debt. Unfortunately, it doesn’t end there. Ford still need that cash to invest in new projects, new factories, keep current operations going, etc. Same goal, same mountain to climb, different angle.

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13 Comments on “Ford’s Tall Order: Debt Free By 2011...”

  • avatar

    Check the WSJ article again — the original report was incorrect. Mulally did NOT say that Ford would be “debt free” by end of 2011 (or if he did, Ford PR walked it back — but that would be an un-Mulally sort of error). He said they would have more cash than debt by the end of 2011, which has been the company line for a couple of months now — Lewis Booth first said it in the Q2 conference call, IIRC. Still a big deal, and still ambitious, but not news.

  • avatar

    Not gonna happen by 2011 – there is simply too much debt. However, if the US continues at the rate of 12M car sales annually then they may make it in maybe 3 years.

  • avatar

    Ford will overtake GM within 6 months if not by year end and the resulting momentum will take the company to new heights. when you line up that the two companies have faced the same obstacles and circumstances, it becomes glaringly apparent that the difference is leadership.

  • avatar

    What we’re seeing is an example of Leadership vs Management.

    I’m lead to believe that GM’s new CEO is a competent manager, however he is just as interchangeable as his predecessors were. He’s not there to lead the company, rather make some small changes and not screw up the status quot.
    Now I just hope that when it’s contract time for Ford the UAW realizes that they are better off being part of Alan Mulally’s turn around plan then simply reverting to old habits –

    “We noticed that you have some money in the company checking account…we want that, now”.

  • avatar

    When I saw the headline, “Ford CEO sees zero net debt by 2011: report” Reuters, I didn’t even bother reading it because it seemed so far fetched.
    Good thing I got some common sence to see right through that headline even though I own a significant amount of Ford stock and would be handsomely rewarded by a debt-free Ford.

  • avatar

    Just keep in mind Mr. Mulally that decontenting and beancounting quality are the two surest ways to kill off the company for good.  Right now Ford has pretty good press but if you resort to the dark side, you best use your short term profit gain to prepurchase your funeral….

  • avatar
    M 1

    Since the article was in error, I guess I’ll comment on the shirt. Forget the message, the grammar tells you everything you need to know about the mentality of the wearer.

  • avatar

    Lasers don’t focus! Aaaargh!

  • avatar

    Ford says a lot of things….most of which are not true.
    I’ll believe it when a 3rd party confirms it.  Nobody should trust a Ford press release.

  • avatar

    Is this the same Mulally that said….
    Screw it..
    They need a roll of Duct Tape for this guy…

  • avatar

    The problem with Ford’s “net debt free” plan is it depends on vehicle sales growth which I suspect is not likely in the near future.
    From the article.
    “Mulally expected the U.S. car market to grow at a pace of 3-5 percent in the future, while the global market would expand at 5-10 percent, he said without giving a time frame.”

  • avatar

    I think carguy’s right. 2011 is too soon to have more cash than debt. End of 2012 would be a pleasant surprise, but my guess would be 2014. I bought Ford at $5 with plans to hold.
    In this market, a smart car company plans on 12M U.S. sales for the foreseeable future.  Then there’s VW…..

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