Ford Death Watch 14: The Race is On
Is there any doubt that that Ford is heading for Chapter 11? Sure. There are plenty of auto industry eggheads and company officials who continue to believe that FoMoCo has what it takes– or will have what it takes at some point in the near to distant future– to pull out of its current corporate nosedive and return to greatness. OK, profitability. Um, how about market stabilization? Actually, at this point, staying out of Chapter 11 would be something of a victory. Meanwhile, Monday was Dia de los Muertos for The Blue Oval.
The headline number was almost enough to fell an elephant, never mind the bulls of Wall Street: $5.8b disappeared down the rat hole in the third financial quarter. In fact, Wall Street seemed unfazed, despite the announcement that Ford is in the process of lining-up a secured bank line facility. In other words, Ford's lenders will no longer fund on the committed unsecured line. The company will have to pay more money for its money, borrow more money and risk more of its tangible assets to keep the ship afloat. Needless to say, S&P was not impressed.
Ford's problems are a combination of continuing losses in NA and the huge cost of restructuring the business. While the $4b Ford is spending on downsizing will be spread out over time, The Blue Oval also has to fund product development, and there a lot of mouths competing for the corporate tit. As part of their ritual display of corporate entrails, Ford also revealed that they’re going to have to restate their earnings back to November 1947. OK, it’s “only” back to 2001, but this Accounting Odyssey is not good news. Oh, and Ford wants us to know that things are going to get worse before they get worse.
“Both the third quarter and fourth quarter of this year will be tough because of the production cuts on trucks and SUVs," Ford’s Chief Financial Officer (CFO) Don Leclair admitted, quashing the notion that the new Edge/MKX cross-border crossover will toss the floundering automaker a Taurus-like lifeline. "In addition, the first half of next year also will be tough." Coming off a $5.8b loss, what the Hell does “tough” mean? With $23.6b in the bank, the necessity to maintain [at least] a $5b pad just to keep the lights on, and a year-to-date hemorrhage knocking on $7.2b, she kennay take much more Captain!
FoMoCo helmsman Alan Mulally was so aghast/mortified at the results that he stopped making sense. “These business results are clearly unacceptable. Not just because they're unacceptable, [but] because this is not a viable business going forward with this kind of business model." When the tongue-tied CEO of America’s soon-to-be third largest automaker says his company’s financial results are unacceptably unacceptable, you know his employer is, um, struggling. And what’s with the broken business model routine? You’d think Ford’s newly-minted jeffe would’ve progressed beyond the “yup it sucks” part of the program by now.
I know, Big Al’s only been using the executive washroom (and corporate jet) for a few weeks. But FoMoCo’s running out of time. Aside from dumping $2b domestically, their hi-falutin’ Premier Auto Group (Jaguar, Volvo, Land Rover and Aston Martin) drained another $593m. Anyone who thinks that Ford’s should hang onto these foreign entanglements (save Volvo) any longer than say, next Thursday, should not pass Go or collect a thirty-five million dollar paycheck.
Yes sir; it’s time for some of them bold moves we keep hearing about. Aside from deeply worrying questions about Ford’s liquidity– which could force the company-killing “run on the bank” supplier scenario previously posited for GM– Ford’s product mix is about as appetizing as Aunt Jemima’s pancake batter formulated with battery acid. At the same time, Ye Olde Cash Cow is looking sickly. Ford Motor Credit Company is getting seriously squeezed, thanks to margin compression and a simple (if deadly) drop in automotive volume (down 64k units from last year's third quarter).
Although the Detroit News’ article on Ford’s losses dissed The Truth About Cars’ prognostication of a GM Chapter 11, the situation is so bad at Ford the august publication is happy to bandy about the “b” word for The Blue Oval. Why the disparity? Apparently, Bill Vlasic thinks FoMoCo's situation is different from the General’s: “GM, which reports its third-quarter earnings on Wednesday, has attacked its costs by completing a massive buyout of blue-collar workers and beginning a series of plant shutdowns. GM is also rolling out a redesigned line of pickup trucks that compete directly with Ford's older models.” I guess he missed the bit about Ford’s massive buyout of blue-collar workers, its series of plant closures and its soon-to-be-refreshed pickups.
Never mind. The stupid money is now on GM, as their inflated stock price proves. And no wonder. GM’s CEO is the company’s former CFO, a man with a storied history of playing fast and loose with the company’s books, to the point where department heads rolled and results were re-reported. Ford’s upcoming restatement of its earnings shows FoMoCo is not immune to the dubious charms of creative accounting. But the simple truth is that all three domestic automakers are in the same boat, and it’s leaking like crazy. The funny things is, if Ford ends-up beating GM to Chapter 11, it may finally find the edge it’s looking for.
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