Ford Cash Crunch Coming

Robert Farago
by Robert Farago
ford cash crunch coming

I’ve taken a lot of heat in these parts for predicting that Ford’s bankruptcy bound. Having watched GM and Chrysler’s long march to Chapter 11, the signs seem pretty obvious to me: lousy branding, excess nameplates, non-competitive models, a pegged BS meter and a proven inability to take in more money than they spend. Yes, there are differences; his name is Alan Mulally. But, as The Detroit Free Press finally reports, The Blue Oval Boyz are burning down the house. Or, to put it more politely, “Even if Ford Motor Co. reaches all of its targets by 2011, the Dearborn automaker’s growing debt load could end up weighing the company down.” As far as euphemisms go, that one just went.

Today, Ford has $25.8 billion in automotive debt — much of which was accumulated to raise cash so the company could survive the economic downturn that it correctly forecast several years ago . . .

What’s more, Ford’s debt level could reach $36 billion by 2011, when Ford expects to be profitable again, Citibank analyst Itay Michaeli said in an interview with the Free Press. That is about four times more than Ford’s expected earnings. Healthy automotive companies usually carry about twice as much debt as earnings, he said.

Ah revisionism. Ford decided to mortgage itself up to and including its logo without any foreknowledge of the economic downturn. They did it to survive their sinking fortunes in a “normal” (which is to say vastly inflated) U.S. new car market. In fact, the company’s analyst was publicly predicting a bull market even as the bubble popped. And then forecast recovery approximately ten minutes after the market tanked.

Still is, actually. Pipas reckons the drought ends at the end of 2010, doncha know. FoMoCo better hope so.

With that high level of debt to earnings, Ford’s debt could strain the company’s finances as payments on it become due. One of those payments is $10.1 billion, due in the fourth quarter of 2011 . . .

“We gave guidance that our cash burn was $3.7 billion in the first quarter, which was substantially less than the fourth quarter, and we gave guidance that every quarter this year, it will get lower and lower and lower,” Mulally said. “That gives everybody confidence that we are on a positive track.”

Ford might well be on a positive track—cutting costs, suckling-up to the federal teat ($5.9 billion loan from the DOE for retooling thank you very much) and ratcheting-up a, wait for it, .6 percent NA market share gain. But the U.S. new car market is dead in the water. With Nissan’s Carlos Ghosn (and TTAC) predicting an extended downturn, well, it’s only a matter of time before Ford runs out of dough.

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  • Baldheadeddork Baldheadeddork on Jul 13, 2009

    @RobertSD This is a pretty negative look at Ford - it feels like some analyst has a lot of money riding on a Ford competitor. Or someone shorting F. And Robert, Niedermeyer made the same post three weeks ago. Are you guys having to recycle your doomsday scenarios? ;-)

  • Jamie1 (of Ford) Jamie1 (of Ford) on Jul 14, 2009
    I know Ford cheerleaders that deny they ever took Government money. That is simply because this is the case. If you do not understand the difference between a loan, that is repayable, and a massive corporate bail out, which is not, it is back to kindergarten for you. Sorry Robert, your passionate desire to call the demise of the entire domestic auto industry is flawed. Just because you scored two hits with GM and Chrysler does not mean you will make it 3 out of 3. Ford is very well placed indeed simply because unlike almost every other auto company out there, they have left their PD costs alone despite all the other cost cuts. Even assuming a small increase in the SAAR, Ford will be in a good position. If the SAAR increase any further, Ford will be the turbo machine that Mulally has predicted. Bear in mind the product that Ford has already launched and will launch over the next 12 months and you will see that they are sitting pretty. Sorry, but I do not share your pessimism and neither does Wall Street.

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