Ford Surprises Markets and Inspires Americans
by Hiland Doolittle
Could it be that when all seemed lost, when the American manufacturing industry seemed on the brink of oblivion and when the country desperately needed to see that the American entrepreneurial sprit still existed in today’s regulated economy, Ford Motor Company would emerge to turn the tide and lead industry down a path to recovery. One of the country’s core Captains of Industry surprised investors, Wall Street and the banking industry when Ford Chief Financial Officer Lewis Booth announced a lower-than-expected first quarter loss of $1.4 billion.
In early morning trading, Ford shares jumped 17% or $0.76 to $5.25 and supported an earlier “buy” recommendation from Goldman Sachs. Analysts had expected a first quarter loss of $1.23 per share and were surprised with the loss of just $0.75 per share.
Booth was upbeat and encouraged by the automaker’s first quarter numbers. During the quarter, the company had drawn down the last of its $10.1 billion credit line as the bankruptcy rumor mill gained momentum. Booth indicated that as of March 31st, Ford had generated $21.3 billion in cash reserves. At the close of the first quarter 2008, the company had $28.7 billion in cash.
Ford Motor had lost $6 billion in the fourth quarter of 2008. U.S. Ford sales were 43% lower than in first quarter 2008 and revenue was down 37% to $24.8 billion, but analysts had projected more dramatic losses.
Ford gained $1.1 billion on its March debt exchange. The company appears to be ready to sell its Swedish Volvo satellite within the next 12 months.
Ford Going It Alone
American taxpayers were relieved when Ford rejected TARP emergency funding used by General Motors and Chrysler. Ford opted to determine its own path and destiny. As Brian Johnson, of Barclays Capital explained, “If you don’t need government cash, you don’t have to worry about waking up with Tim Geithner in your bed. The first rule in dealing with the government is there are no rules.”
And, Ford has chalked one up for American ingenuity and fiscal responsibility. Meanwhile, General Motors and Chrysler have been working under extreme government pressure to meet federally mandated deadlines. Neither company is expected to make their cutoff dates and bankruptcy looms as a likely result.
Perhaps Ford’s greatest accomplishment has been its ability to reduce labor costs by about $500 million per year and its ability to reduce its debt through negotiations by $9.9 billion or 38%.
CFO Booth’s optimism is based on his belief that the first quarter is generally the company’s most difficult sales quarter. However, while the news surprised analysts, the loss marks the company’s largest first quarter loss since 1992.
Projections are that Ford will end the year with $14.5 billion in cash. Ford has avoided the need for Federal assistance because it borrowed $23 billion in 2006, before the recession began. At that time Ford CEO, Allan Mulally, called the loan “the world’s largest home equity loan” as the company posted all major assets as collateral.
Looking Ahead
With American competitors General Motors and Chrysler floundering, Ford expects to capitalize on the “Buy American” mentality. Mulally said he expects sales in South America and Europe to also gain a better market position. The CEO does not expect a significant decrease in production in 2009. This statement comes on the heels of GM’s announcement that it is immediately closing 13 North American plants for up to nine weeks.
Barclay’s Johnson explained, “Ford may actually benefit from the market-share losses as it picks up consumers who may shun the other two companies, either on political grounds of not supporting bailouts or on concerns of purchasing from a bankrupt company.”
How the government deals with the fates of Chrysler and GM could impact Ford sales. There is concern that a surplus of available autos will negatively affect market pricing. While taxpayers are not happy to have billions invested in the two failing automakers, they do not want to create unfair competition for the survivor.
CEO Mulally told CNBC News that “he could see light at the end of the tunnel” and that “we are turning the corner on North American sales.” Public sentiment favors Ford’s no public assistance stance. American consumers seem poised to support the auto giant.
Ford has been developing a new product line with an emphasis on smaller, fuel-efficient vehicles for years. A European marketing push for buyers to trade-in older cars in favor of new efficient autos has worked well. These incentive programs could be introduced in North America soon.
Strategically, Ford Motor sold Aston Martin, Jaguar and Land Rover to gain cash. Volvo is next. The company has chosen to focus on its basic product lines, Ford and Lincoln-Mercury.
Meanwhile, Ford has injected hope in the overall economic recovery and specifically in the country’s ability to sustain a viable automaker. When the recession settles, Americans may well remember Ford’s first quarter turnaround as a key indicator that U.S. manufacturing has not forgotten how to get the job done. Chalk one up for American private industry.
About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
