By on November 7, 2008

Smaller loss, bigger burn. Relative to last year, The Blue Oval Boyz narrowed their Q3 losses from $380m to $129m. But the cash burn is, as expected, intense. The Detroit Free Press tells the tale. “The automaker’s cash reserves dropped from $26.6 billion at the end of the second quarter to $18.9 billion at the end of September. That means Ford burned through $7.7 billion in cash in three months, or $2.6 billion a month — a much faster burn rate than over the prior 6 months, when Ford burned through about $1 billion a month.” But wait! There’s less! “Ford recorded a positive accounting charge of $2 billion for retiree health care costs during the quarter that helped the company’s overall result. Excluding special items, Ford posted a pre-tax loss of $2.7 billion for the quarter, which is worse than the $2.1 billion in losses that Wall Street analysts had been forecasting.” So… “As part of Ford’s latest plan to preserve cash, Ford said it would also cut its 24,100 remaining salaried workers by another 10%, further reduce capital spending in a variety of areas, such as advertising. Ford also said it would continue to explore selling non-core assets, in addition to other actions.” Meanwhile, if my math is right (which it seldom is), assuming Ford needs a $10b pad to keep the lights on and nothing much changes ($675m per month cash burn), they’ll conflagrate their cash in just over a year. [Raw numbers here.]

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24 Comments on “Ford Posts $3b Q3 Aftertax Operating Loss , Burns $7.7b in Cash; Cuts Jobs and Ads...”

  • avatar

    Can someone explain how much of the cash was VEBA related? It seems that some of the cash burn is related to Ford putting money into the VEBA as required. Will we see that some of GM’s cash burn is also VEBA related, or haven’t they started contributing to that yet?

  • avatar

    Doubtless I’m being dense, but can someone explain how you burn $7.7 billion in cash yet lose ‘only’ $129 million?

  • avatar

    HPE :

    Doubtless I’m being dense, but can someone explain how you burn $7.7 billion in cash yet lose ‘only’ $129 million?

    Yeah, how you do it?

  • avatar

    I’m going to guess it’s partially VEBA related, though I don’t understand why Ford wouldn’t mention that in the press release. That would make sense in light Ford removed 2 billion of health care liabilities from its books. That’s likely the offset to the cash it paid out to VEBA. Still the numbers don’t quite add up.

  • avatar
    Steven Lang

    Ford is required to set aside money for the benefit of retirees. The pension and medical costs are the big two, but there are a surprising number of other items that are in that cash burn mix as well.

  • avatar

    Hey, doesn’t appear they mentioned putting all future programs on hold (like GM).

    Ford is in bad shape, no doubt. But seems they’re doing better than their friends to the east and north. I’m sure they’re thinking that just out-lasting the other two might be enough to help them scrape through.

    I feel this company is in the best position of the three. They don’t have pure garbage models (chrysler) and they don’t have extreme brand bloat (GM). Core brands, and if they really need the cash, they still have the opportunity to sell Volvo and Mazda, both of which should fetch a pretty solid number.

  • avatar

    Cash outflow and loss are not necessarily related. Say you buy a house for 200K cash. The value of the home appreciates (fantasy world) by 40K during the year. Your net cash flow is -200K but you earned 40k in unrealized gains. Accounting is fun.

  • avatar

    Bold Moves.

  • avatar

    @HPE and Stingray

    Cash Burn and Operating Loss relate to the Balance Sheet and Income Statement, respectively.

    Only operational activity hits the income statement. Revenues (if any), cost of goods sold, Selling and G&A expenses, etc. So their gross margin (Revenue less cost of those goods)less their operating expenses got them to the $129M loss.

    On the balance sheet, Ford began the quarter with $26.6B. But during the quarter, there were actions the company needed to take, and some of those actions required cash. Could have been VEBA payments or a whole slew of other things, but none of it operations related. All of ‘those things’ added up to $7.7B over those three months. Ouch.

    In simple terms, think of their income statement as their checking account and the balance sheet as their savings account. There can be many withdrawals and deposits that hit their checking account every month or quarter. At the end of the quarter, if they made money, those retained earnings would be ‘transferred’ over to their balance sheet, or savings account. Being that they lost $129M in the quarter, they had to fund it out of their savings account, and in addition to that, spent another ~$7.6B on other obligations.

    The obvious question now is what did they spend $7.6B on in three months? Bonus accruals? Or were those dollars just sent straight to the golden parachute department to be gift wrapped for Bildo and the boys.

  • avatar

    yeah, reminds me of the story of the two scientists and the tiger. “I don’t think we can outrun this tiger, says one. No, but I can outrun you, says the other.”

    I hate reading about “brand bloat” because the theologians who think GM has too many brands are annoying. That being said, it is much easier to cut Volvo or Mazda away than to cut Buick or Pontiac.

    But in general, Ford makes so decent cars right now. I’m not a big fan of any of them, but they are very respectable. that is the difference in having some good management.

  • avatar

    You forgot Mercury. A lot of people do, TBH…

  • avatar

    I saw this news this morning, and my first thought was “wow, that’s not too bad.”

    Then my next thought was “wow, how far these companies have fallen when a $129 million loss doesn’t seem too bad.”

  • avatar

    @Drew Fink

    Drew — I’m gonna one-up you here.

    On my drive in this morning, when I heard Ford ‘only lost $129M this quarter’…I started pumping my fists in celebration. Ford’s kickin butt! Woo-hoo! There is some hope!

    And then the reporter went on to mention the $7B cash burn.

    It’s all smoke and mirrors at this point. I do believe they are better positioned than the General or Chryslerberus, but everything is relative. They’re still hosed.

  • avatar

    Ford also said it would continue to explore selling non-core assets, in addition to other actions.

    The kidneys of their staff? What else is left?

  • avatar
    Dr Lemming

    Is the $7 billion burn related to Ford’s forthcoming product blitz?

  • avatar

    Is the $7 billion burn related to Ford’s forthcoming product blitz?

    I’d think so, tbh.

  • avatar

    “Ford also said it would continue to explore selling non-core assets, in addition to other actions”

    Wait a minute! Isn’t everything down to the logo already pledged to creditors as security? Where I come from, selling that stuff is called defrauding a creditor.

  • avatar

    When GM goes C11 next month they should see a sales/revenue increase as the filing will scare a fair number of buyers.


    Still, 7+B! Serious pain.

    MgoBlue-thanks for the explaination.

    Hopefully some of that cash went to speeding the Fiesta this way.


  • avatar

    50merc: Wait a minute! Isn’t everything down to the logo already pledged to creditors as security? Where I come from, selling that stuff is called defrauding a creditor.

    Ford could tell creditors, “Either you let us sell this asset, which will give us the cash to survive until the economy improves and our sales pick up, or you can force us to stick to the terms of the original agreement, and get in line with everyone else when we go belly up.”

    I do believe that a some of the cash burn is related to bringing the new products to market. Note that Ford hasn’t yet cut back on product development, as GM has done.

  • avatar

    Robert, you forgot to note one key thing; although Ford’s cash reserves are down to $18.9 billion, unlike GM they have a credit line of $10.7 billion left. That means that, even though Ford’s situation is very serious, their total liquidity is over $29 billion dollars, which is much higher than either GM or Chrysler.

  • avatar

    Ah well. Ford will bank big when they get the dead cat bounce from GM and Chrysler going down.

    One reason why I predicted Ford surviving is that part of their survival is feeding off the failure of their cross town rivals.

  • avatar

    I am really hoping that Ford pulls through! They’re the only domestic manufacturer that has had credible competitors to the foreign competition… albeit not consistently. Hopefully the new products will get here before the cash is all gone.

    As a side note, I decided to pop by the local Ford Lincoln dealer the other day and was pleasantly surprised by the quality interior in the Ford Flex and the Lincoln MKX. Very well finished, very comfortable… VERY surprising!

  • avatar

    The $7+ Bil in cash burn includes quite a bit of non-recurring outflows . . . shouldn’t use that figure in any calculations since it should not continue at near that rate. No cuts, delays, deferments, cancellations or otherwise bad news for new product investment, which is great news. Ford Credit is doing great. Not ‘counting on’ any government money. Not in any way abandoning car product and FE just because gas prices have dipped. The top management — Mulally, Kuzak, Farley, and Booth at least — are top-notch . . . they have a good plan and are staying focused on delivering it. They acknowledge the sins of the past and vow not to repeat them.

    Layoffs suck if you’re one of the 10%, but those who remain are also lean and focused . . . contrary to opinions expressed here, the deadwood has left the building and the people who remain are loyal, determined, and talented.

    If you truly are pulling for a successful US auto industry and want to see the US companies survive as vital makers of quality vehicles — as you have stated repeatedly on the site — then it’s time you quit the excessive negativity with respect to Ford. I’ve been here for nearly 20 years and I’ll tell you . . . this change is real. We *will* make it through this shit economy, and we *will* come out the other side with top tier products across the spectrum.

    *That* is the Truth.

    Oh . . . and I believe ‘non-core’ assets refers to Volvo and the 33% stake in Mazda.

  • avatar

    Thanks for the explanation MgoBLUE, that makes sense.

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