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

Robert Farago
by Robert Farago

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.]

Robert Farago
Robert Farago

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  • 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?).

  • Analoggrotto TTAC is full of drug addicts with short memories. Just beside this article is another very beautiful article about how the EV9 was internationally voted by a renowned board of automotive experts who are no doubt highly educated, wealthy and affluent; the best vehicle in entire world. That's planet earth for you numbskulls. Let me repeat: the best vehicle in the world is the Kia EV9. Voted, and sealed, and if you try to deny it Fanny Willis is ready to prosecute you; but she will send her boyfriend instead because she is busy.
  • MaintenanceCosts Our Bolt is not going away for a while but if I had to predict today what would replace it, I'd predict an EX30. It checks every box for my wife.
  • Ajla Both Biden and Trump are on record caring ~0% what the WTO says and the US government isn't bound by WTO rulings.
  • Honda1 The FJB Inflation Reduction Act will end up causing more inflation down the road, fact! Go ahead and flame me libbies, get back to me in a few years!
  • Cprescott Fisker is another brand that Heir Yutz has killed.
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