How long until Ford also needs bailout?

By Jeff Horwitz

updated 10:33 a.m. ET Feb. 25, 2009

Watching grown companies grovel is not a pretty sight. Last week, General Motors and Chrysler went to Washington to ask for another $22 billion, despite failing to meet the terms of their original loans. If they get the money, the companies will have to run every major business decision by the government for years to come. Their future, assuming it exists, is not a cheery one.

Just in case you might have forgotten about the Big Three's other member, however, Ford had some good news to report: It reached a tentative agreement with the United Auto Workers on pay cuts that would "help Ford operate through the current economic downturn without accessing a U.S. government bridge loan," a company press release claimed.

Call it Ford exceptionalism. In the company's fourth-quarter earnings call last month, CEO Alan Mulally suggested that his only rationale for visiting Washington last year was to "support the industry." Given how many times Mulally described his firm as in a "different place" from GM and Chrysler during the call — at one point he used the phrase three times in four sentences — listeners could be forgiven for thinking Ford was no longer located in Michigan.

As a public relations strategy, Ford's "what, me worry?" approach has been a coup. While GM and Chrysler get spanked for their short-sighted decisions, Ford has piggybacked on its competitors' eleventh-hour negotiations with bondholders and the UAW. In its latest earnings outlook, the company highlights its dealers' comparatively low inventory backlogs, its One Ford standardization campaign, and billions of dollars in cost savings, along with "product highlights" like British auto-mag What Car?'s choice of the Ford Fiesta as car of the year. Despite horrific economic conditions, Ford says its gaining market share against its U.S. competitors because customers believe they can count on Ford's survival.

Yet looking over Ford's financial statements, reason for confidence is hard to find. Income from Ford's financing arm, historically a rare bright spot on Ford's deteriorating balance sheet, swung to a $300 million loss. Inventory is up by $2 billion, and the plummeting value of used cars cost its leasing business $2.1 billion. Ford lost $2.46 per share solely in the last quarter — more than its entire current market capitalization. This year's forecast anticipates the worst sales in decades, and Ford's 40 percent revenue decline in January suggests that even its current-year prediction may be overly optimistic. Most serious of all is the $21.2 billion in cash the company chewed through last year. If the company keeps spending at that rate — though it insists it won't — Ford will face a liquidity problem before the end of the year.

So how is it that Ford, a company that was near bankruptcy during better times a few years ago, now has Detroit's deepest pockets? The answer is that CEO Alan Mulally had very good timing.

A little more than two years ago, Ford secured a $23 billion line of credit to fund its now-scrambled turnaround, then called "The Way Forward." Arranged by Goldman Sachs, J.P. Morgan Securities, and Citigroup, the massive deal securitized and then hocked almost all of the company's North American assets, including the Ford logo. Even at the peak of the credit bubble, Ford's double-down strategy was viewed as reckless. All three major rating agencies downgraded Ford's debt after the deal was announced.

In hindsight, however, Ford appears to have gotten while the getting was good. The deal gave the company access to a cash pile that has set it apart from its rivals: At the beginning of February, Ford withdrew more than $10 billion to bankroll its capital-destroying manufacturing operations. Under the terms of the deal, its lenders couldn't say no. The main reason that Ford doesn't need a government bailout now is that it already received the private-sector equivalent.

Internally, the company has made progress in standardizing its products globally, shuttering a number of manufacturing plants, and moving toward more fuel-efficient vehicles. But some of Ford's key accomplishments exist on paper at best. For instance, the company boasts that it "remains on track for both its overall and its North American Automotive pre-tax results to be at or above break even in 2011, excluding special items." In other words, if everything goes to plan, Ford will stop losing money by 2012 — not counting its potentially massive restructuring costs.

MORE FROM AUTOS

Autos Section Front

Inside Toyota’s epic safety breakdown   Toyota woes follow years of slipping quality   Japan gives Prius an award; Toyota declines Toyota begins public, back room PR effort Honda airbag recall grows to 822,000 vehicles U.S. officials review Toyota Corolla complaints Early Priuses may have braking issues Toyota’s powerful friends in Washington Toyota resale value, reputation take a fall NYT: Toyota has been slow to respond on safety Autos Section Front   Add Autos headlines to your news reader: