By on May 23, 2012

Seth-Gold-Hardcore-Pawn-Ford Images: Ford Motor Co. & Tru-TVIt’s almost a cliche. Someone mentions the $23.5 loan package that Ford Motor Company presciently took out in 2006, a loan that allowed Ford to develop new products and survive the economic meltdown and credit crunch of 2008 while its crosstown rivals were reduced to begging Washington for a bailout, and almost invariably they will bring up the fact that Ford pawned everything including their “blue oval”. Well, Ford once again owns the famous cerulean logo free and clear. Now that Moody’s has joined Fitch Ratings in restoring the rating on Ford’s debt to investment grade from junk status, the collateral that Ford put up for the loan, which included the logo, Ford’s “glass house” headquarters, several factories, and intellectual property including the Mustang and F-150 trademarks, is no longer security on that debt, per the terms of the loan.

Ford Chairman Bill Ford Jr., the great grandson of Ford founder Henry Ford, said, “The Ford Blue Oval is back where it belongs with the Ford family of 166,000 employees around the world. This is a great day for us and is the result of several years of hard work and progress by everyone associated with Ford.”

The hocking of the Blue Oval was a hugely symbolic step for Ford to take, emblematic of the straits the company faced. Ford Jr. said that the logo was more than an asset. “We pledged our heritage.”

Ford CEO Alan Mullaly, who relied on the advice of now retiring CFO Lewis Booth in taking out the loans, had described them earlier as “the world’s biggest home improvement loan.”

In a statement (full statement below) announcing the debt upgrade, Mullaly and Ford said, “Moving forward, we will continue to focus on driving profitable growth for all of our stakeholders. We are confident that, by staying focused on our plan and working together, we will maintain strong investment-grade ratings through all economic cycles.” Under Mullaly’s leadership, Ford has returned to profitability and the Dearborn automaker has hacked away at its debt in huge chunks. Ford’s current debt stands at $5.9 billion.

In other credit rating news, Moody’s continued General Motor’s Ba1 rating, saying that they expect GM to be upgraded to investment-grade status within a year. “GM’s credit quality continues to improve and the company remains on track to regain an investment-grade credit rating over the course of the next 12 months,” said Bruce Clark, Moody’s chief analyst for the North American auto industry. The credit rating company listed GM’s performance in North America and China as upsides, with the company facing challenges in Europe and continued concern over pensions, GM Financial, and the consequences of the U.S. Treasury Department’s stake in the automaker.

From: Bill Ford and Alan Mulally

Sent: Tuesday, May 22, 2012 3:50 PM

To: The Ford Team

Subject: Investment Grade

This afternoon, Moody’s Investors Service announced its decision to upgrade Ford Motor Company to Baa3 with stable outlook, or investment grade. This is a significant milestone for all of us and the result of several years of hard work and progress by everyone associated with Ford.

We all can be very proud of today’s decision by Moody’s and the resulting release of the collateral securing the loans we took out in 2006 — particularly the Ford Blue Oval. This is further proof that, by staying laser-focused on our One Ford plan, the Ford team can deliver great products, build a strong business and contribute to a better world even through the most challenging external environment.

When we pledged the Ford Blue Oval as part of the loan package, we were not just pledging an asset. We pledged our heritage. The Ford Blue Oval is one of the most recognized symbols in the world, and it is a source of great pride and passion, both inside and outside our company.

Moving forward, we will continue to focus on driving profitable growth for all of our stakeholders. We are confident that, by staying focused on our plan and working together, we will maintain strong investment grade ratings through all economic cycles.

The Ford Blue Oval is back where it belongs. This is a great day for everyone associated with our company.

Congratulations and thank you!

Bill and Alan

Ronnie Schreiber edits Cars In Depth, a realistic perspective on cars & car culture and the original 3D car site. If you found this post worthwhile, you can dig deeper at Cars In Depth. If the 3D thing freaks you out, don’t worry, all the photo and video players in use at the site have mono options. Thanks for reading – RJS

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32 Comments on “Debt Upgrade to Investment Status Restores Blue Oval to Ford Ownership, GM Upgrade Expected...”

  • avatar

    This is why Alan Mulally makes the big money – he earns it. And kudos to Bill Ford for recognizing he needed someone other than himself to run the company.

    This is how bailouts should be done.

    • 0 avatar

      And VW’s Chairman, Winterkorn, doesn’t deserve more?

      Both Mullaly and Ford, Jr. made twice as much as Winterkorn in 2010 and VW last year made more in profit than GM, Ford and Chrysler combined.

      Just shows how much that CEO compensation in the US has run amuck.

      Also, Ford management wasn’t prescient in anything.

      It was the Ford family being nervous about how a bankruptcy would devastate their holdings which got Ford to hock its assets when it did.

      GM could have done the same if it weren’t for the credit markets freezing due to the banking sector near collapse (thanks to all the huge bets the big banks had placed using financial derivatives such as credit default swaps); GM in certain ways was in better shape than Ford – GM, at least, had a Chinese division that was making $$.

      And it’s not got Ford wasn’t saved by govt. funding either.

      Ford Credit was bailed out (even more $$ than for GM’s credit arm) and Ford also got about $6 billion in basically interest free loans for development and production of fuel-efficient vehicles which they basically used to update production facilities.

      • 0 avatar

        Not quite.

        First, if I recall correctly, American accounting rules and German accounting rules vary greatly. Just because VW reported higher profits under German accounting rules doesn’t necessarily prove that it is better run than Ford.

        Second, Ford management WAS prescient in taking out the loans, as it knew that the company had to completely remake its operations, and that a recession was likely to occur while it did this. Management thus realized that the company would need a cash “cushion” to carry it through any downturn. The fact that the resulting downturn was far worse than anyone had imagined does not detract from their smart planning.

        Third, GM WAS offered the same package by financial institutions while Ford was arranging its financing, but turned it down. Rick Wagoner thought that the new GM cars and trucks would be sufficient to regain market share and reverse its losses in North America. Oops…

        That’s the result of arrogance (especially given that no new model introductions had managed to reverse the decline in GM’s market share since the mid-1970s, when GM began its downsizing efforts), and poor economic forecasting on GM’s part, plain and simple.

        Fourth, while Ford did receive some government funds, the company would still be here if it hadn’t received those funds. Ford wasn’t bailed out by the government, as GM and Chrysler were.

      • 0 avatar

        bd2 said:

        “GM could have done the same if it weren’t for the credit markets freezing due to the banking sector near collapse”

        Timing is everything. GM blew it. You’re trying to give GM credit for wanting to buy collision insurance after they’ve had a fender bender. That’s not how it works.

      • 0 avatar

        Ford acted b/c the last thing the Ford family wanted was Ford to go into bankruptcy (even if it was Ch.11).

        Ford had no foresight that the credit market would freeze due to banks and Wall St. gambling and losing on huge bets via financial derivatives.

        Yes, GM was late to the table, but if the credit markets hadn’t froze, they were still in a position to do what Ford had done.

        And sorry, w/o the govt. intervention and bailout of Ford Credit via essentially no-cost govt. $$, Ford Motor would have gone by the wayside as well.

        And Ford Motor was burning thru its cash stockpile so quickly that if the auto market hadn’t turned around when it did (in part due to cash4clunkers), Ford would have run out of cash.

        Didn’t care for cash4clunkers but Ford execs have noted that it really helped push Ford Motor from the brink.

        Also, w/o the bailouts to GM and Chrysler, their suppliers would have gone under – which would have eventually pushed Ford over the edge, since Ford shares many of the same suppliers.

      • 0 avatar

        Ford acted because it knew that it need time and cash to completely implement a turnaround plan, and its internal forecasts showed that a recession was likely to happen when Ford was in the middle of executing its plan. That’s called sound future planning.

        And the Ford Family initially wanted to SELL the company completely. They wanted to take the money and run. Only strong pleas by William Clay Ford, Jr., and Elena Ford, prevented them from taking this action.

        GM turned down the same financial package that Ford had received from banks at the same time Ford arranged its deal. GM failed to account for the possibility of a recession (which happens regularly in the U.S. economy). This shows both arrogance and poor planning abilities on its part.

        If you are a shakey company in a cyclical business such as the auto industry, you borrow money when times are reasonably good and banks are willing, not when disaster hits and you have to beg for the money. Apparently, Rick Wagoner forgot that lesson.

      • 0 avatar

        “Ford management wasn’t prescient in anything.”

        A pretty lousy analysis, on a lot of levels.

        Ford made good management choices, while GM made some rather poor ones. Compare and contrast:

        -Mulally began divesting PAG in 2006-7. He realized that a Ford turnaround would require focus, and that PAG was a distraction.

        In contrast, GM continued to hold on to extraneous brands and channels that weren’t working. As Frederick the Great noted, he who defends everything defends nothing. By trying to prop up everything, Wagoner was exposing GM to future failure.

        -Mulally focused on product quality, in an effort to support higher price points and greater consumer satisfaction. In contrast, Wagoner whined about exaggerated “legacy costs” while propping up weak brands and channels at a much higher cost, largely ignoring the quality message that had done so well for TMC and Honda, and that was then beginning to pay dividends for Hyundai.

        Mulally and Wagoner took fundamentally different approaches. Mulally was consciously trying to turn around a business, while Wagoner didn’t even recognize that his company was in trouble. You couldn’t ask for a greater contrast in competency or insight than these two.

    • 0 avatar
      bumpy ii

      Let’s keep in mind what GM actually did in that pre-bailout Deathwatch era. While Ford hocked the family jewels on one giant loan with a solid improvement plan in place, GM was nibbling on smaller loans at increasingly usurious rates to cover revenue shortfalls, without any overarching restructuring in mind. Instead, it seems that Wagoner’s intent was to muddle through with more cost-cutting until gas prices fell and the new trucks and SUVs could pay the company’s bills again.

      • 0 avatar

        I’ve owned US auto stock from the D3 in the past, but were I to put money into a US auto stock these days, Ford would be the only company I would buy.

        And even though we own a 2012 Jeep Grand Cherokee, I wouldn’t put any money in Chrysler stock if it was available, because if I were to go foreign, I’d choose Toyota, no matter what the price. (Just like I would choose Apple no matter what the price, and I’d shun Facebook no matter what the price)

        GM was a great stock at one time and I made tons of money on them when I sold in 2007/early 2008. But it is clear that GM continues to “muddle through with more cost-cutting until gas prices fell and the new trucks and SUVs could pay the company’s bills again.” GM is just not competitive and selling to the rental fleets does not offset selling to the masses.

        There really is only one viable American auto manufacturer left, and that is Ford. Chrysler now is foreign and GM has too many problems here and abroad to remain standing for much longer. What is Ford going to do when Mulally retires?

  • avatar

    At least there is one example of how to run a large company, indeed an automaker, properly despite being weighed down by costs, regulations, competition, and a crappy economy. Look for Ford stock to climb back to 15 a share quickly

  • avatar
    Steven Lang

    Absolutely love the Hardcore Pawn reference.

    I can easily see Les going up to Alan and giving him the 8 Mile version of a shakedown.

    • 0 avatar

      Their shop is about 2 1/2 miles from my house. I was there recently looking for an 8mm movie projector. In the parking lot the show’s crew was filming a customer and pretty much telling him what to say. Most of the sibling rivalry is ginned up for the show, according to one of the managers there. I think my Bubbie, aleiha hashalom, would have said Les was “pruste”.

      • 0 avatar
        Steven Lang

        Les always struck me as a street fighter type, and I have a tremendous amount of respect for those who can survive the rougher elements of commerce.

        I’m glad he’s getting some good attention. His business is far more involving than mine on a daily basis.

  • avatar

    What exactly is the worth of that Blue Oval as collateral? Not like the bank could sell it if Ford went under…

    Let’s face it, for FORD as a company, NOT taking the Government cheese put them at a competitive disadvantage. But for FORD the family, there was no alternative as they would have lost everything, and FORD the company is very much controlled by the Ford family.

    Not trying to denigrate the fantastic things happening at Ford these days.

    • 0 avatar

      on oval: don’t get it either. i mean, who could use it? for what? maybe someone could explain.

      • 0 avatar

        If Ford defaulted on the loan and collapsed (presumably at the same time as the rest of the American auto industry), the most valuable thing left to sell off would almost certainly be the brand — the Ford name, the logo, the names to the best-selling models, etc. With the brand as collateral for the loan, even if Ford the company went into Chapter 11 reorganization after defaulting on the loan, the bank that held the loan would be able to sell the Ford name and intellectual property off to somebody else.

      • 0 avatar

        Consider it this way: How many cars sell based solely on brand recognition (co-Camry-ugh)? If a Chinese car maker put a blue oval that said “Ford” on their product, how many more would they sell? How many more markets would be willing to buy their product? My bet is a ton, thus that little blue oval would be of great worth to them.

    • 0 avatar

      aristurtle: I get what you’re sayib=ng, but suppose a Chinese company bought it. Then it wouldn’t be a Ford so what’s the value of that? If you buy the factories and tools to make the car then some people would not care, but just slapping a Ford logo onto a Chinese car…

      Are people so gullible?

      • 0 avatar

        This is an interesting thought experiment, actually. A number of factories were part of the collateral deal as well. I don’t know the details, but let’s say for the sake of discussion that these were the factories that produce the Mustang and the F-150. Hypothetically, Ford goes into bankruptcy reorganization, loses the collateral (the Ford, Mustang, and F-150 intellectual property as well as the factories to build these two vehicles) and re-emerges reorganized but, necessarily, under a different name (we’ll go with “Edsel Motor Company”, for historical reasons). They start producing the cars that they didn’t lose the rights to, and the new Edsel Fusion hits the market. Meanwhile, [insert foreign enterprise here] purchases the seized collateral, forms “Ford Holding Company” and starts building “Ford Mustangs” from the same factories that they had been previously produced at. Would people still buy them? I think they would, assuming that the new people had a good enough advertising department.

      • 0 avatar

        It’s not about being gullible. Any F-150 not made by Ford, as we know it, would be (and is) considered a knock-off, but if it featured its style, quality, etc, yeah I’d give it a look. It’d be a bonus if it had all the emblems and historical logos of the original. If it was made in America, sign me up, son.

        Then if Ford stayed in business, but couldn’t completely satisfy the loans, they would be paying to use someone else’s trademarks indefinitely.

    • 0 avatar

      The Ford Family would have only lost everything if the company had gone into bankruptcy. If the company had taken part in the bailout, the family could have retained control, as long as the company stayed out of bankruptcy court.

      The federal government may have forced the issue, but given that William Clay Ford, Jr., appears to have maintained good relations with President Obama (not to mention Ron Gettelfinger, who probably preferred dealing with the scion of the Ford Family than professional managers), this would not necessairly have happpened.

      • 0 avatar

        “Taking part in the bailout”, for GM and Chrysler, *was* a Chapter 11 bankruptcy, with a court and everything.

        Unless by “bailout” you mean the big, low-interest loans that the Federal Reserve gave out to the vehicle finance arms of Ford, GM, Chrysler, Harley-Davidson, and others, but Ford took those, so…

      • 0 avatar

        It’s my understanding that GM and Chrysler only went to bankrupcty court after all of the parties failed to reach an agreement. Bankruptcy didn’t have to be a part of the procedure.

    • 0 avatar

      People buy still buy Land Rovers and Jaguars from a big Indian conglomerate.

      People still buy Volvos from a big Chinese conglomerate.

      Why wouldn’t people buy Fords from a big Chinese conglomerate?

  • avatar

    So when Ferrari was going to call last year’s F1 car, the F150, was it Ford or the bank holding the F150 trademark at the time the one who challenged the rights to the name?

    • 0 avatar

      Ford. The banks liens on trademarks and logos does not mean that the bank owns the trademark but rather that Ford is unable to sell the trademarks and logos, and, in the case of a bankruptcy – or if Ford defaulted on the loans that the liens secured – that the trademarks and logos becomes the property of the banks. The situation is similar to the way you can protect “your” house from burglars and intruders even thou you have a mortgage.
      The terms of the loan probably forces ford to vigorously defend the trademarks from anything that can be construed as a infringement, so that the security does not decrease in value.

  • avatar

    Ford is like a buddy movie.

  • avatar

    If Ford had defaulted and the Blue Oval would be owned by someone else, had the best of their cars built by someone else, were branded as “Fords” made by most likely a Chinese conglomerate, would YOU buy one?

    Has anyone shopped for a Zenith TV, lately? I thought so…

    The word ‘bailout’ has been used and if it indeed is regarded as a bailout done by private industry, it was done correctly. I’m glad Ford made it, but I’m also happy Chrysler and GM were bailed out, albeit perhaps wrongly, and appear to be getting on track as well.

  • avatar

    “Ford CEO Alan Mullaly, who relied on the advice of now retiring CFO Lewis Booth in taking out the loans, had described them earlier as “the world’s biggest home improvement loan.”

    Ronnie, this is factually incorrect.

    The brain behind the loans was Don LeClair, who convinced Bill Ford, to sell this to the Ford family. Alan Mullally showed up after things were already quite far along, playing, however, a not insignificant role in convincing the banking consortium that there was a plan not to blow the money.

    Lewis Booth played no role here, as he was still running FoE, only later replacing LeClair after LeClair was forced out due to weak team and interpersonal skills.

    Recommend anybody interested in the behind the scenes story on this to pick up a copy of Icon by Bryce Hoffman.

  • avatar

    Ford Credit did need some help at the time due to some risky moves by a new head, but lets not forget that for many, many years before that it was FMCC that kept Ford Motor going.

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