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Ford Slashes Debt, Stays Ahead of GM and Chrysler

Ford, the only of the Big Three automakers to so far refuse government bailout money, said this morning that it has slashed the debt in its automotive division, enabling it to save $500 million per year in interest expense.

Ford used $2.4 billion in cash and 468 million shares of its common stock to buy down $9.9 billion in debt, reducing its leverage by 38 percent.

"By substantially reducing our debt, Ford is taking another step toward creating an exciting, viable enterprise," Ford chief executive Alan Mulally said in a statement.

Ford has so far been spared the wrath of the federal government and the administration's automotive restructuring team, headed by former investment banker Steve Rattner. The White House ousted GM chief executive Rick Wagoner last week.

Last Wednesday, Ford reported that March vehicle sales were down 40.9 percent compared with March 2008, which beat forecasters' expectation of a 45 percent plunge for Ford.

Ford sales were up 30 percent compared with February of this year.

As recently as first quarter 2008, Ford was profitable.

-- Frank Ahrens
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By Frank Ahrens  |  April 6, 2009; 10:35 AM ET
Categories:  The Ticker  | Tags: Alan Mulally, Ford, automakers  
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Comments

Frank Ahrens wrote: "Ford has so far been spared the wrath of the federal government and the administration's automotive restructuring team"

That is because Ford hasn't signed up to be an entity run, in-part, by the Federal Government. Whatever failings it may have, Ford must be commended for staying solvent, producing some decent vehicles domestically and making a go of things during a very difficult business climate.

Time for our business schools to start up the domestic automotive market case studies in order to better understand the disparity between Ford, GM and Chrysler's financial situations. We need home-grown business leaders who *learn from history* and apply that wisdom to their organizations' bottom line and long-term viability.

Additionally, who else is sick of hearing the excuse that 'our customers only want to buy big vehicles' and therefore that is why we are now stuck with massive inventories of large vehicles during the recent period of high gasoline pricing? Oh really? Organizations as large as GM, Chrysler, etc. couldn't forecast or wouldn't address the risk of high gas prices impacting large vehicle sales?

What were the drivers of that reckless behavior? A focus on quarterly earnings above all else? Executives collective heads in the sand? Something that the public is completely missing?

Posted by: CB12 | April 6, 2009 12:22 PM | Report abuse

Perhaps another reason that Ford is not doing as badly as GM and Chrysler may due to their business model and decisions. I was pondering just yesterday the difference between the American car makers, and it seems that Ford has less "junk" than GM or Chrysler.

GM made a huge decision to jump into 'lifestyle' vehicles - most notably the Hummer - as well as junk financial vehicles through GMAC, Ford jumped into the hybrid market 5 years ago, it came out with the Focus and other fuel efficient cars. (Of course that might have been caused by the problems they had with the "Exploder", but nevertheless, that legal issue helped them bring out the Escape.)

GM invested a lot of time, money and resources on stupid things like flex fuel for SUVs or spending huge amounts of resources and advertising expensive cars that most people can't buy. Cadillac, Avalanche, Hummer, Corvette. Only last year did they finally succeed with the redesigned Malibu.

Also most people don't realize that Detroit followed Wall Street down the path of derivatives and over-leveraging.

Posted by: Anadromous2 | April 6, 2009 1:00 PM | Report abuse

"Ford used $2.4 billion in cash and 468 million shares of its common stock to buy down $9.9 billion in debt,"

So ... who has $7.5 Billion dollars worth of Ford stock? I assume they traded non-performing loans for non-performing stock to clean up their portfolio.

Posted by: knjincvc | April 6, 2009 1:09 PM | Report abuse

This is good news. I own Fords and they are great cars.
The new FORD FIESTA is coming soon and it is already a BIG WINNER in Europe.
Get ready America. Ford is BACK BETTER THAN EVER!

Posted by: TOMHERE | April 6, 2009 3:33 PM | Report abuse

"who else is sick of hearing the excuse that 'our customers only want to buy big vehicles' and therefore that is why we are now stuck with massive inventories of large vehicles during the recent period of high gasoline pricing?"

I'm not sick of it. I would simply not lend money to any company. If GM and Chrysler fail, then they fail. Big deal. They'll reorganize and actually be better for it. Or they'll fail completely. But giving them a few bucks now like this only delays the day of reckoning.

What's worse, is you have people completely unqualified in business (i.e. the Obama administration and congress) mandating cars that simply won't sell. If there was a market for small, fuel efficient cars, somebody would be doing it. As it is, Toyota can't give away the ill conceived hybrids. And the vision of an all-electric vehicle fleet is one borne more of political fantasy than any real market desire.

Enough already. Companies should either live or die. Stop subsidizing bad choices. No company is too big to fail.

Posted by: Ombudsman1 | April 6, 2009 6:53 PM | Report abuse

The American Consumer is a fool. They swallow almost every marketing campaign out there. Toyota and Honda have millions of small cars sitting in US ports rotting. Many still from 2008. If they had cars Americans, heck world citizens, wanted, they would not searching so hard for more space to store their unwanted crap.

Posted by: skramsv | April 6, 2009 7:37 PM | Report abuse

I agree with Ombudsman1, let the chips fall where they may.
I don't want my tax dollars going to any private firm or organization; if i do, i'll give them myself.
I want the federal government to stick to the powers delegated to it under Article 1 Section 8 of the Constitution, and nothing else, and that includes bailouts.

Posted by: intolerant | April 6, 2009 8:09 PM | Report abuse

It is simple. Until the domestics start making and marketing compelling vehicles, they are going to be in trouble. GM is much worse in this regard than Ford. What do these companies stand for?

Posted by: keithrjackson | April 6, 2009 8:43 PM | Report abuse

Ford will still have to sell a lot of cars to have a running start to recovery. If you could only make a car that would get 100 or more mpg or a electric car that could get 500 mpc. Both should be priced for most of the majority of the Americans buyer can afford. Then, there are the large amounts of foreign vehicles sold on the American market, which maybe too much to overcome. Ford chances are still very slim.

Posted by: jk330 | April 6, 2009 9:07 PM | Report abuse

Not bad for a company that backed Hitler and published The Protocols of the Elders of Zion. Holocaust enabler IBM is doing better than average as well. How's Mitsubishi doing? Torah! Torah! Torah!

Ford has always been more of an international player, and has listened to those overseas voices.

Posted by: georgepwebster | April 7, 2009 12:07 AM | Report abuse

The comments to this entry are closed.

 
 
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