Ford Feels the Burn, Prints More Money
The Wall Street Journal says FoMoCo burned through $2.1b dollars of cash in the second quarter, which ended way back in June of this year. Results for the July-August-September period haven’t been released yet. But given what we know about unit sales and sales mix, the cash burn almost certainly has gotten worse. Unlike mere mortals, a public corporation has the option to print-up more shares of stock and trade those for cash. Ford plans to sell $500m worth of freshly-minted common stock (not the special “Class B” shares which only family members get) to raise a bit of the needed cash. The crazy thing: half a billion dollars is a bucket of cold water to throw on the bonfires raging through the $26.6b (as of the 4th of July). We’ll keep an eye out to see just how much of that went up in smoke over the summer. But wait, isn’t Ford going to be saved by it’s share of the $25b dollar government bailout? Not according to Standard and Poors, which said “that its negative rating on Ford would not be affected by the recent passage of a $25 billion low-interest loan package.” We shall see if the company’s finances are “Built Ford Tough” soon enough.
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The Ford family owns all of the class B shares. Those shares give them 40% of the voting rights. If a family member sells any of their class B shares, the sold shares magically transform into common shares with only normal voting rights. In 2000 Ford Motor Company paid out $10 Billion in special dividends over and above its normal dividends. In retrospect I'm sure the company wishes it still had that $10B on hand. Strange, isn't it, that the company now is looking for taxpayer handouts when only a few years ago it pissed away such a massive pile of cash on those spoiled heirs. The New York Times archive has a good story from 2000 about that special dividend and how the share structure works: http://query.nytimes.com/gst/fullpage.html?res=9B02E7DD1631F936A25757C0A9669C8B63
Why are they worried or concerned about $500 million when they have $26.6 billion in reserve?
Thanks for that info. Very interesting. Sad that so much has been squandered.
This really isn't that dire a move. Ford has seen that their shares are marketable and are using new equity to initiate debt swaps. The point isn't to fill its coffers, per se, but to manage debt. Basically, Ford is in a difficult position with debt refinancing. Ford Credit, even with its credit rating, used to be able to get loans in the 8% range easy to service old debt and keep lending money for people to buy new cars. With the current crisis, Ford pretty much can't get anything. So, when debt at Ford Credit comes due (or will be due at some point - which is what they're servicing now, not just current bills but medium-term bills), it is in Ford's interest to find cheaper ways to service it than taking out new debt to replace the old. Financial companies do this as routine because they need money to lend out in order to have loans that they service. Desperation would be touching their $11b line of credit that will be needed after their $27b is run through.