Here is a quick run down of Ford's (F) results for 2008:
(From the NY Times): "DETROIT — After closing the books on a $14.6 billion loss in 2008 — the worst annual result in its 105-year history — Ford Motor Company said Thursday that it would draw the last $10.1 billion from its lines of credit to add to its cash hoard so that it could survive the increasingly bleak vehicle market.
Ford ’s chief executive, Alan R. Mulally , said the company, which tapped credit markets to build its cash reserves well before the economy soured, remained determined to finance its operations without the federal aid that was extended to its crosstown rivals, General Motors and Chrysler .
“I think there’s more awareness than ever that Ford is on a very different path,” Mr. Mulally said in an interview.
He added that it had become a marketing advantage for Ford with consumers shopping for an American car. “Our dealers have told us that people know that Ford is in a better place,” Mr. Mulally said.
Ford joined G.M. and Chrysler in December in asking Washington for a combined $34 billion in loans, but has since backed away from seeking its portion of the request. G.M. and Chrysler, however, needed $17.4 billion in emergency loans from the Treasury Department to avoid filing for bankruptcy...
...Ford’s miserable sales in 2008 worsened sharply in the fourth quarter, with nearly $6 billion of the total $14.6 billion loss coming in the fourth quarter. It was a year in which Ford’s revenue declined almost 20 percent, and its cash reserves declined by $21 billion.
The automaker ended 2008 with $13.4 billion in available cash, which it will augment by tapping into its credit lines for another $10.1 billion.
Ford’s financial health owes considerably to its decision in late 2006 to mortgage its assets and arrange long-term borrowing before the credit markets dried up.
Now, with more than $23 billion in hand, Ford can keep spending billions of dollars on new products during what promises to be another tough year for vehicle sales around the world.
Ford said Thursday that it expects the United States market to total 11.5 million to 12.5 million vehicles in 2009. Last year, industry sales fell 18 percent, to 13.2 million vehicles.
The company is also forecasting lower sales in the already depressed regions of Europe and South America, and little if any growth in Asia."
While Ford has established itself as the "healthiest" of the Detroit automakers in terms of available cash, let's not forget that the company's relative health comes with a heavy price. Namely: Ford effectively mortgaged the entire company to raise cash in 2006, and as a result has nearly 3 1/2 times the debt load of GM (as of 9/30/2008), $156.8 billion vs. $45.2 billion.
In other words Ford's relative health comes more from having greater access to credit than GM, as opposed to having had stronger sales, more efficient operations, etc, etc.
All that being said: while I have more faith in Ford's ability to survive than say Chrysler, I'm still rather skeptical overall because of the size of their debt load and the fact that they weren't making money when car sales were at record highs (for the market overall at least). Furthermore the "recovery" the automakers are waiting on isn't going to be like the old market in terms of SUV/Truck sales, and the ability of consumers to finance vehicles that are well above their means.
The days of Ford selling $35k Explorers to people who earn $40k/yr are over.
At this stage it just remains to be seen whether or not Ford can introduce the necessary operational efficiencies, on top of having a better product strategy around bringing stateside some of the cars designed by their European subsidiaries, cutting back on product overlap, etc. Having greater access to credit than GM is meaningless if the money is spent funding the old way of doing things, and they aren't able to become efficient enough to be profitable.
Let's also not forget that despite Ford's stronger cash position relative to GM and Chrysler, Ford dealers are still offering cars for 50% off. I'm actually considering an SUV at the moment and the Explorers are tempting because I can get a decked out one with low mileage for under $16k, whilst a 4-Runner with similar content would cost me well over $20k. However this isn't necessarily an advantage for Ford because they won't make any money off of me buying an Explorer at their 2 for 1 sale, while Toyota (TM) will make money if I buy a vehicle from them.
Furthermore being the "strongest" of the Detroit Automakers isn't a competitive advantage when it comes to the Japanese manufacturers, as being less "functionally bankrupt" than GM & Chrysler isn't going to help them sell Fusions to potential Camry buyers.
I suppose the question offered is: is this still the Ford that doesn't even sell some of its best products in the U.S., or has the company woken up and realized that many of its prior assumptions, strategies, etc, for the American market were patently fatuous? Finally, are they going to be capable of introducing the cost efficiencies needed for their survival, especially considering the $156 billion (and growing) worth of debt they need to service?
You can read more here (NY Times), and about Ford's plans to draw down their credit lines here (FT).
Sources:
The NY Times: "Ford Reports a Record $14.6 Billion Loss for 2008" -- Bill Vlasic, January 29, 2009.
*All Data related to total debt provided by Yahoo Finance.
Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.
