Gimme Credit: Ford Faces Eventual Bankruptcy, Restructuring Without Union Concessions

It may be the perfect time for Ford Motor Co. (F) to sell its Jaguar, Land Rover and Volvo brands in order to focus on the turnaround for its core business. There is plenty of private equity money floating around and Cerberus Capital Management LP, which bought 80% of Chrysler in May, is one possible candidate.

Getting rid of these unprofitable brands will boost Ford’s earnings before interest, taxes, depreciation and amortization [EBITDA], which Gimme Credit analyst Shelly Lombard expects will come in at US$2-billion or less this year. This is closer to US$4-billion on an adjusted basis, which adds back non-cash pension and other post-employment benefits.

How much work needs to be done? In order to support US$2.5-billion of interest expense and US$7-billion of capital spending, Ms. Lombard says Ford needs to boost adjusted EBITDA to at least the US$9-billion to US$10-billion range. This is more than where it was in 2002 and 2003, when Ford was benefiting from healthy margins on strong truck and SUV sales.

The only way for Ford to get there is through major concessions from The United Auto Workers union, Ms. Lombard wrote in a report.

“Without such changes we believe bankruptcy or some type of out-of-court restructuring may be inevitable, though not immediate of course since Ford has enough liquidity to last until 2012 or so, even at the current cash burn rate.”

F 1-yr chart:

Comments

[Paul Meisel:]

A lot of Ford's better financial talent works for Cerberus now........

2007 Jun 20 10:01 AM