Ford Death Watch 49: Gypsies, Tramps and Thieves

Will Ford go bankrupt? I doubt it. Not while the “bad” automakers that suckled on the federal teat go on and on and on and on. A FoMoCo C11 would expose the government’s Detroit bailout for what it was/is: unfair, ineffective, ill-conceived and unsustainable. Politically, Ford’s failure is not an option. If push comes to shove, Uncle Sam will send Ford more Department of Energy loans, some juicy subsidies and generous tax breaks; anything and everything up to and including cash money. This despite—I mean because of the fact that Ford is guilty of the same sin that sank GM and Chrysler: taking in less money than they spent. Political calculations aside, is it even possible that Dearborn’s darlings will be forced—forced I tell you—to prostrate themselves in front of federal taskmasters? Once again, to answer that question, feel the burn.

Twenty-four billion dollars is not a lot of money. Not in the car biz. When GM was heading towards bankruptcy, stockholder activist and momentary GM Board member Jerry York warned that General Motors needed a $10 billion “pad” for cash flow. You know; to keep the non-proverbial lights on. Subtract that amount from Ford’s current $24 billion cash pile, and that leaves “just” $14 billion.

By all accounts, ex-Boeing exec and current FoMoCo CEO Alan Mulally has done as much as humanly possible to dowse Ford’s cash burn. Incentives are down. Market share is up. Factories have been trimmed. The workforce downsized. Even so, during the first half of this year, Mulally’s minions spent $4.7 billion. Double that and you’re looking at a $9.4 billion annual burn rate. That would leave Ford with $4.6 billion. Or, another half year at the current, vastly reduced rate; in 2008, FoMoCo said goodbye to $21.3 billion.

While you’re running all those numbers, lauding Ford’s $25 million CEO (first year) and wondering if Ford can avoid paying the piper through investor confidence (i.e. Other People’s Money) or much-promised profits, don’t forget that the American automaker doesn’t enjoy the advantages of bankruptcy. Unlike their cross-town rivals, Ford’s buried under a $35 billion debt mountain. Worse, the money’s due in 2013. At the end of its pre-nationalization life, GM was paying a billion bucks a month in interest. Without—and perhaps with—a fresh cash infusion, Ford can’t afford that kind of vig.

Need I say more? How about this: Mulally predicted a turnaround in the U.S. new car market at the end of this year, despite obvious indeed incontrovertible evidence that the U.S. economy was no rising tide. [Note to armchair analysts: rising unemployment and a moribund housing market are not good for new car sales.] And now Big Al’s predicting that self-same sales lift for the beginning of next year.

Well he would say that, wouldn’t he? What else can he say? Lower costs and rising market share be damned. Ford simply cannot sustain itself in a U.S. car market that hovers around nine million sales per year. In other words, there’s a big ass clash between Ford’s positive spin and the grinding reality of an ongoing recession. And who should be shining their light on this irony but the United Auto Workers (UAW) . . .

Ford wants investors to think that all’s well with The Glass House Gang. At the same time, it wants the UAW to sign a contract that lowers its costs and outlaws strikes (no less). As The Free Press puts it, the story that Ford is returning to profitability is “complicating efforts to convince Ford’s 41,000 UAW-represented workers to vote in favor of a modified labor contract.”

Complicated is just a word. Despite the fact that UAW President Ron Gettelfinger is “selling” Ford’s looming debt to secure the workers’ approval, and rearranging the voting order to save the most recalcitrant U.S. plant (Dearborn) for last, the union rank and file aren’t buying it. Ford’s Kansas City plant rejected the new contract and others (two out of the five that have voted). If the contract gets shot down, Ford’s “good news” media story will start to unravel.

The press will blame the UAW (which is only half right). The union will do what it always does: go back, knock some heads together, pretend that it’s made substantial changes, claim victory, re-do the vote and get the result it desires. And . . . we’re back! Again. Still. Soon.

Never mind. And at the end of the proverbial English day, Ford’s survival all comes down to product. The Blue Oval Boyz have a number of promising vehicles on the horizon: the new Fiesta and, uh, a few other things. And therein lies the tale. Ford’s branding is still in shambles; its identity as not-GM/not-Chrysler will only take it so far. The products may (or may) not be class-competitive, but the Blue Oval’s a bunch of branding gypsies, moving from message to message to message, never settling on a single coherent message (from the Department of Redundancy Department).

In fact, a Chrysler and GM C7 is about the best possible thing that can happen to Ford. But Motown’s tramps will not face their reckoning before Congressional midterms, or, perhaps, ever. (The whimper vs. bang thing.) No matter how you look at it, by the time GM or Chrysler leave the field of battle, Ford’s debt will be due. In other words, the real dead cat bounce will come too late.

And so, with the best intentions and will in the world, get ready to bail out Ford. They simply can’t compete with America’s nationalized automaker and its Italian twin-under-the-skin in a down market. Not because their rivals are so good. Ford’s problem: GM and Chrysler have been propped-up with your tax money, keeping Dearborn’s darlings from enjoying the fruits of their foresight. The Motown bailout queens are oxygen thieves. Make no mistake: Ford is still gasping for breath.