Ford Drops $1.4 Billion in Q1; Faces "Rabbit in a Python" Problem

Robert Farago
by Robert Farago
ford drops 1 4 billion in q1 faces rabbit in a python problem

You may have noticed that TTAC hasn’t joined the MSM’s celebration of Ford’s Q1 financial report. While FoMoCo didn’t lose as much money as analysts predicted—“only” dropping $1.4 billion in Q1—danger lurks around every corner. For one thing, the “it wasn’t as bad as everyone expected” rejoicing represents exactly the same logic GM deployed as it slouched towards Bethlehem. Look how well that turned out. For another, as we also pointed out during GM’s Long March to C11, you can’t cut your way to profits. At some point, Ford’s going to have to build something the North American car market really really wants. The forthcoming Transit van, turbo’ed Taurus, Fusion, etc. ain’t it. Fiesta? I wouldn’t don those sombreros just yet.

And even if Ford’s products suddenly prove popular, the US new car market has to recover (thing three) for that to meme anything. Some pundits are [still] predicting that new car sales have . . . wait for it . . . bottomed out. Q3 and Q4 will see a lift. Maybe. Probably not. And even if the recovery clocks in on schedule, or Uncle Sam juices the market with cash4clunkermania, there’s the fourth item on our agenda of despair: Chrysler and GM’s “restructuring” (i.e. death and dissolution). More specifically, The Mother of All Fire Sales.

At some point soon, there will be an AWFUL lot of new cars going for peanuts. All the inventory marked HUMMER, Saab and Pontiac are about to go for cheap. And then there’s everything else Chrysler and GM makes. The Detroit News taps JPMorgan analyst Eric Selle to make the point (in the last sentence of a story entitled “Mulally: Ford plan working”): “The threat to our Ford model is the potential for its competitors to file for bankruptcy and slash prices to maintain volumes.” In other words, Ford will have to compete with Chrysler and GM products going for a song. Say goodbye to the possibility of maintaining Ford’s margins (should they even exist).

There’s more potential fallout from the fallout. Never mind the supplier collapse problem; the feds have shown themselves willing to keep the big 2.8’s parts makers in business, come what may (or may not). How about the Chrysler/GM fire sale’s effect on “the perception gap”? Chrysler and GM redux will have sealed for all time their rep as discount brands. Can Ford’s “we didn’t take any bailout bucks” mien protect them from a more general “domestics are cut rate automobiles” branding problem?

As always, cash burn is the best way to judge Ford’s prospects.

Ford burned through $3.7 billion in cash in the first quarter, down from $7.2 billion in the fourth quarter of 2008. That left the company with $21.3 billion in cash to fund its automotive operations.

If you multiply Ford’s Q1 cash burn by four, assuming that the market doesn’t get worse, that’s $14.8 billion per year. Assuming Ford needs a $5 billion “pad” (low-balling) to keep the lights on, The Blue Oval Boyz will be down to their last couple of billion in just over a year. Just in time for another bailout?

[Thanks to Ken Elias for the headline title.]

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2 of 61 comments
  • Carguy64 Carguy64 on Apr 27, 2009

    Like I mentioned earlier...if it wasn't for Mazda, their wouldn't be Ford...same goes as the Volvo unit, all it was is a cheap attempt to create much better offerings from Ford..Same goes for GM..Saturn is getting chewed up by Opel Europe..because really GM can't make a great car either, did you ever envision the Camaro being from Down under??? whats next...Caddies from China, thats where the new La Cross is being designed and remember the Mazdang, that would of been a a huge mistake for Ford! I think I really blame Detroit bean counters and Management for crappy cars and lackluster perfomance!

  • TRL TRL on Apr 27, 2009

    No doubt the give away deals about to be even more aggressive will hurt Ford. To a lessor degree they will also hurt Toyota, Honda, and Nisson. The only strategy that allows Ford to make it (as the obove three will) is to not be seen as just one of the D3. Can they do it? Well, not entirely, but maybe a little with a lot of hard work, careful marketing, and a couple of good products. Close call right now but what choice do they have other than to try? No way will they live through a price war if they have to match dollar for dollar. Would I pay more for a new Taurus than a 40% off 300 or Charger? I probably would but how many are like me? The number will determine if Ford survives. Could be worse. Ford could need to sell Fiat's to make it (who can even say that with a straight face?).

  • Azfelix From certain angles the bonnet appears oversized with respect to the rest of the car - like a skinny teenager wearing a bulky sweater nicked from her older sister's wardrobe.
  • Tassos This is way too god damned OLD, 21 years old to have all the necessary options you need TODAY. You need a 10 year old or less car. AND if you give us THIS POS, a 21 year old model, that is not even a LUXURY car, whoever pays $10k for a Golf, And I Do NOT care what anniversary it is (they are all UTTERLY INSIGNIFICANT) deserves to get this MOST UNRELIABLE AND COSTLY TO REPAIR OF ALL LOUSY ECONOBOXES< EVEN THE DOMESTICS AND THE KOREANS.
  • Tassos As you say, Toyota confirmed this on TUESDAY. Today is WEDNESDAY. Why is everything on TTAC held back one or more days before you tell us the NEWS when it is NO MORE THE NEWS?
  • MRF 95 T-Bird You can find a decent and far more stylish Audi TT or an S4 of a similar vintage for under $10k.
  • RHD "In all situations, the grip of the tires (225/40R18 front, 225/35R18 rear) brings with it road noise."Are the rear tires actually smaller than the fronts??!! Adding just a bit of sidewall would take care of the bumps and rough ride. I'm not a fan of BMWs, personally, but this is a very enjoyable car. There are times when driving a convertible is pure bliss, and with a bit of power it's fun as well. (And certainly a better drive than a gussied-up, overpriced German taxicab!)