In case you hadn’t noticed, Ford is in a [familiar] race against the clock. Pre-economic meltdown, it mortgaged everything up to and including their logo. Under ex-Boeing exec Alan Mulally, the Blue Oval Boys have cut costs, improved efficiency, launched new products and gained relative market share. But Ford’s still a gi-normous company that takes in less money than it spends. The Department of Energy’s $10 billion twenty-five year, no-to-low interest loan didn’t hurt The Glass House Gang’s bottom line, but there’s only one way for Ford’s going to become profitable, to begin to pay off their debt and stave off bankruptcy: volume. Specifically, they need the U.S. auto market to recover, in a big way, for them, and quickly. So it’s no surprise that that’s exactly what CEO Alan Mulally says is gonna happen . . .
Mulally said there were signs of recovery and a sales pick-up was expected in coming years. Ford expects total U.S. industry sales of about 11 million in 2009, rising to 12.5 million in 2010 and to about 14.5 million in 2011.
Automotive News [sub] forgets to mention that the post-Cash-for-Clunkers sales result are on the catastrophic side of dire; they’re due to clock-in at an 8.5 million-ish Seasonally Adjusted Sales Rate. Absent another round of taxpayer-funded federal stimulus/subsidy action, Mulally’s [ongoing] prediction of a late 2009 uplift may be off by a good million sales.
As for the future . . .
“The fundamentals of economy coming back is the absolute key,” Mulally said. “It’s a slower recovery and we think it’s going to go with the economy.”
If Ford’s future rests on US economic fundamentals “coming back,” with unemployment set to top double digits and the deficit growing like kudzu in a high-speed film sequence, well, who’s zoomin’ who?
And now Ford in Canada is short billions for there Pension Plan and are asking the employees here to make it up! They may not be around in ten years either, what a Company eh?
Ford’s stock price is up about 700% since November. All of you hoarding gold take notice of that return on investment. The interest in Ford as a going concern is real and Ford is expected to survive this tsunami intact.
They have done what needed to be done and did it with a lot less tax dollars. They will probably pay it back eventually.
To close the deal Ford needs to make hybrid small cars and bring into the US successful small cars from overseas.
I don’t fault Ford for taking some of the loan money. Their domestic competition was in the trough not just at it. You can only hold your own for so long.
If you think about it, things are working out very well for Ford. In a way.
They’re actually in a good position, having made it through a rough patch with their marketing image and product development unmolested, while two of their major competitors are going to be limping for a while.
There were two, perhaps three, very bad potential outcomes:
1. Ford ends up in bankruptcy during the recession and it’s competition does not. This would have
2. GM and/or Chrysler enters bankruptcy before the recession and/or in a relatively healthy state. When they emerged, they would have been a dangerous competitor. Instead, they waited until they were terminally ill and had wrecked much of their product development.
3. GM and/or Chrysler enter bankruptcy and immediately enter C7. This would have caused a disruption in the market that would have badly wounded Ford and it’s suppliers. Not even Toyota wanted this to happen.
The current state of affairs: GM and Chrysler pathetically weak in North America and likely to remain so for five years and Opel weakening in Europe works well for Ford. If GM ends up failing completely in two or three years after a slow wind-down then all’s the better.
The trick will be hanging on or making gains while GM continues to crumble. I think they can do this. Heck, they could even choose to enter bankruptcy and reorganize in a year and they’ll still be in a better place than GM is right now.
The first step is realizing that there is a problem ..
I see Ford working with what they have to weather the downturn.
I dont see anything but people grabbing what they can before the gummint cuts off the money at the “new GM”
Sure, all the language is couched in rosy words.
The real nitty gritty is; “Hey, we’dont suck as bad as GM or Chrysler”
Mulally is jawboning a lot, and more importantly, he’s wildly optimistic on industry sales, as most CEOs/CFOs would happily take anything over 9.2MM now that they are staring into the post-partum, Cash-for-Clunkers Abyss (where estimates of yearly sales now hover around 8.8MM).
By the way, Mulally has had his wings clipped recently, as it turned out the Boeing 787 Development Disaster happened on his watch.
By the way, Mulally has had his wings clipped recently, as it turned out the Boeing 787 Development Disaster happened on his watch.
When he left the program was on time and under budget (in addition to being the most complex design in terms of material and global integrated manufacturing), they have been through 3 (I think) program directors since he left. And it isn’t a disaster in terms of development time (it’s a disaster in terms of communication and a CEO who couldn’t say the most complex and advanced airplane in the world is behind schedule and we are delaying it 2 years, which in turn magnifies every delay after it) You will notice that no airlines have canceled thier orders (most are also happy as the airline industry is in worse shape than the car industry), in fact orders are still increasing.
In addition the 777 (Which before the 787 was the most advanced/complex airplane in terms of design and global integrated manufacturing) was completed on time and under budget by A.M.
Has anyone had to watch the 8-hour documentry on the development of the 777? That was Mulally’s first big program, and was a great success. He was only there for the start of the 787. It’s an entirely different way to design and build airplanes. I would’ve been shocked if they HADN’T had these problems.
Yes, there is a tendency to see the glass not only half-empty but lying-smashed-on-the-sidewalk here at TTAC, but in this instance at least RF is right to call out AM for making bone-headed predictions about the market.
If Fritz, or Obama, had said the same thing, it would be open season. Ford is fair game, too.
Back in February when “worst case” scenarios were being considered, there was plenty of venom to go around for GM, ChryCo, or PTFOA morons who were predicting asinine sales figures for ’09, ’10, etc.
Just because Ford is doing a lot of things right doesn’t get them immunity….
Give it a few months more, Mr. Farago. La Fiesta hasn’t hit yet.
I’m not writing off Ford until I see how that car does.
RF, I saw a blurb on the Yahoo Stocks – Ford site to the fact that through August, there have been nearly 8 million cars sold in the US.
If that’s true, and we’re tracking approximately 1 million car sales per month, then surely we will finish 2009 ahead of Mullaly’s predictions.
Have you found something similar?
@Forditude
So, you agree with AM that the auto sales will cross the 11m mark this year?
Remember the near-toxic levels of denial that GM fans were bathing in? That there were no problems and that everything is right? Well, that happens with Ford, too.** Ford really is up to it’s eyeballs in debt and is still losing money every day it’s in business. Where it differs from GM is this: GM drove the ship full-speed into the iceberg; Ford has been trying to change course, but it’s up in the air as to whether or not they’ll make it, graze the edge or sink like the SS GM.
That’s not fatalism on RF’s part, that’s realism. Ford is in debt. Ford is losing money. They have to stop this or they will be in trouble. No one, not even in this editorial, is saying the products aren’t good, or that they’re not doing making the right moves from a business perspective***.
The user comments are generally more positive than the editorials, so I don’t know where you’re getting that impression. I can only guess you’re subscribing to Autoblog’s patented “Everything Is Sunshine And Rainbows And Happiness Except When We’re Talking About The Toyota Tundra” outlook, in which case people being realistic is probably a shock.
** but not Chrysler. No one seems to have any assumptions left for them.
*** except with regards to the travesty that is Lincoln’s marketing
It is already September so 75% of the cars should already be sold. If he expects 11m and you 8.8m than i think somebody is making a big error somewhere.
ps. How many cars have already been sold this year
@rnc: You will notice that no airlines have canceled thier [787] orders (most are also happy as the airline industry is in worse shape than the car industry), in fact orders are still increasing.
72 cancellations for the 787 this year, as opposed to five new orders (from customers yet to be identified) — not exactly increasing the order books.
http://en.wikipedia.org/wiki/List_of_Boeing_787_orders
Ford is a turn around story. AM has simply done a fantastic job turning around a car company that easily could be heading down the same river as the other Big 3. Go to Europe and drive some the Ford products there. They are second to none. Drive the recent edition of any new Ford domestic and they to at this point are second to none.
WIll they ultimately beat the hands of the Great Recession? Maybe, maybe not. Ford is however, in a position that many automakers would love to be in. They control their own fate and seem to have a hand on the pulse of what auto consumers want to drive. Good for them. I would love to see the other US auto companies do the same.
I’ll have to agree with Robert on this, because the truth about the economy is that job losses continue to mount regardless of any happy talk in the mainstream media.
Ford is in a race against time. I don’t expect them to make money until truck sales increase significantly over 2008/09 levels.
@charly: How many cars have already been sold this year
7.07M to the end of August (based on Automotive News’ highly reliable data).
If you were to assume a 9M sales rate for the remaining four months, that would end up at 7.07M + 9M * (4/12) or 10.07M.
Mulally’s 11M projection means that 3.93M vehicles would need to be sold in the last four months, for an annual sales rate of 11.79M during those months, or about 0.97M per month.
Notably in July when cash-for-clunkers was in full swing, the monthly sales were about 0.99M.
One more note: September-December sales in 2008 amounted to 3.45M, so to reach Mulally’s projection, the sales will need to increase by 14% over last year for those four months. Without cash-for-clunkers (and assuming no cash-for-clunkers hangover).
It’s a pretty aggressive projection, methinks …
You: Ford has a line of credit with the government: Reality: No they don’t
Uhh…they MOST CERTAINLY do.
Big Al secured the 9 BILLION DOLLAR line of credit with the Govt when he went before congress and begged for it.
http://ca.news.finance.yahoo.com/s/02122008/6/finance-ford-seeks-9-billion-line-aims-break-2011.html
http://www.bloomberg.com/apps/news?pid=20601087&sid=aiIsGmu53oDM=home
Give it a few months more, Mr. Farago. La Fiesta hasn’t hit yet.
I’m not writing off Ford until I see how that car does.
It will do as well as well as the Fusion does against the Camry/Accord and the Focus against the Civic/Corolla.
So, in a word…pitiful.
Notably in July when cash-for-clunkers was in full swing, the monthly sales were about 0.99M.
C4C didn’t start until the last week of July (the impact was in August)
P71 – They SEEKED
Seeking and Receiving are not the same thing.
You never said “seeked” (and I NEVER mentioned them “receiving” that 9 BILLION). You asserted that RF was WRONG when he said AS YOU QUOTED:
“(You:) Ford has a line of credit with the government.”
Well, REALITY, is that Ford does indeed have a line of credit with the Government…9 BILLION DOLLARS…and I backed that up.
Why should we care if ford crashes and burns along side GM?
China is ready to step in and fill the void. Once Chinese vehicles control the auto market we’ll see our economy rebound with the creation of millions of jobs in China and maybe a couple hundred for mechanics and sales-persons in America. Celebrate the failure of Ford – we know we can count on other countries to bail us out. Maybe China/India/Korea/Japan/Germany/England/Italy/France/et al will start a program “Cash for Suckers” to help unemployed UAW workers and others that were associated with the automotive industry in America.
We’re reading articles that almost gleefully informs us that Ford is failing (while unemployment in this country is at a all time high) – for some reason none of this sounds gleeful to me.
Not to belabor the point, but in addition to a what is essentially a revolving line of credit from Treasury, Ford gets tons of government love through DOE and other “grants” and other such fluff.
But I digressed because some of you digressed me.
First of all, the Boeing 787 cancellations were due to bonehead marketing, not engineering. Although the product was in development (= it was incomplete and lacking the promised features), the geniuses at Boeing marketing decided to sell it anyway. Oh, and at the price of the finished product that will ship somewhere in 2010 (787-8). So, the airline companies felt they were getting skimmed (“wtf? half-assed version and no discount?”). In fact, they pretty much were. So, most of them *delayed* the orders or cancelled with the intention of ordering the same number of units latter to get the full product (lighter, going more miles)
As regards Ford, they did mistakes in the past. The 2003 Ford Mondeo of my father had many problems, fortunatelly all solved by the warranty. And now it has difficulties starting up. But from what I read, they have fixed those problems now. So, they are gaining the buyer’s trust back, at least here in Europe
Oh, and Ford isn’t going into bankrupty. Neither receiving a bailout. In fact, you can consider them pretty safe. The reason? They are not in such bad condition as the other Big 1.5 (GM, Chrysler) were, so even in the worst case scenario, all they will need is a slight push not a fully fledged bailout. All Uncle Sam has to do is some fleet orders, and presto, Ford is saved. Much less costly than the bailout, plus taxpayers won’t notice a thing.
Ford has been bailed out impossible-to-count times at the past, as the police kept buying crown victorias, despite their lackster durability, corrosion resistance, subpar performance and general crapiness. This shows that all you have to do to survive is avoid making big mistakes, only medium-sized ones.
I’m looking at Ford’s Balance Sheet as of June 30, 2009, and it’s nothing but pure ugliness.
I’m talking it got hit by every branch on the ugly tree ugly.
If you doubt what I’m saying, go look it up now.
Sorry to interject objective math into the ranks of those of you with delusional fantasies.
Edit – Here it is (link for the lazy):
http://finapps.forbes.com/finapps/jsp/finance/compinfo/FinancialIndustrial.jsp?tkr=f&period=qtr
@grobby:
Drive the recent edition of any new Ford domestic and they to at this point are second to none.
So, you believe the Ford Focus is better than a Civic? A Fusion is better than an Accord? Or Camry? Or Altima? Not according to sales figures.
I’m with you on their truck offerings, but cars? Not yet. Not by a long shot. And if you’re thinking Taurus, I’m holding out until we see how they sell.
I’m hoping Ford realizes they’re going to have to undercut competitor pricing while offering equal or better product… and a better warranty. “As good as” won’t win conquest sales.
Ask Hyundai.
For good, relative measure, here is Honda’s balance sheet as of 6/30/09:
http://finapps.forbes.com/finapps/jsp/finance/compinfo/FinancialIndustrial.jsp?tkr=HMC&period=qtr
Compare total assets and total liabilities of Ford, then Honda.
Ford would have to see an absolute and unprecedented surge in revenue and a reversal of cash burn (as in, no more), for a period of decades to go mano y mano with Honda, Toyota or even Nissan.
I’ll make this prediction right here and right now: Ford will at some point in the near future request and receive direct government financial aid.
All carmakers in the US market depend upon a robust US economy, not just Ford. I think 11 million is a dream, and below 10 million is still likely. It will be interesting to see how they cut their own throats to move the metal as 2009 closes out.
Ohsnapback –
Go and look at IBM’s balance sheet in the early 90’s and then the late 90’s and then now. Do the same with NEC. Very similar to your Ford/Honda comparison, all it takes are a couple of good and bad decisions and look at how things can change and how quickly they do.
IBM would be the best analogy to Ford, a huge global company in a near death situation brings in a revolutionary (Mullally is revolutionary from a car perspective) outside CEO who changes the companies focus and culture and then it thrives (Ford is not thriving yet, but the signs are there). IBM was in worse shape in 93′ then Ford was in 06′.
Ford would have to see an absolute and unprecedented surge in revenue and a reversal of cash burn (as in, no more), for a period of decades to go mano y mano with Honda, Toyota or even Nissan.
People seem to forget that just a few year ago Nissan had $27 billion in debt, a bloated corporate structure and inefficient factories despite being a much smaller company than Ford (it was so bad that the only car maker willing to invest was renault (a state owned failing automaker in its own right)) and they turned it around, once again, brought in a revolutionary CEO who changed the culture and focus and the company begins to thrive.
And on the Japan note, you now have a newly elected government who wants to strengthen the Yen to stimulate the Japanese economy internally vs. relying on exports at the expense of it’s own population (for decades you have had the Yen artificically weakened making goods in Japan cost more than they do in the rest of the world despite being manufactured there). This is Japan Inc’s worse nightmare.
As a majority of Honda’s revenue comes from America every fractional increase in the Yen/$ ratio is hundreds of millions of dollars lost. So the swing in the balance sheet you are talking about can happen alot quicker than you think.
Guys, the comparison with IBM or Nissan or past years do not hold up.
Mathematically speaking, Ford (and some other automakers) are much closer to airlines in terms of valuation and quick ratios.
The problem Ford faces is the same one GM and Chrysler face, even if Ford at one time in the future becomes profitable on auto sales (GM, Ford AND Chrysler once made almost all their money on consumer financing): The Asian makes, including the upstarts from Korea, simply do not have the inverted pyramid of 50 or 60 years of accumulated and massive debt to service, and they have none of the legacy costs Ford has (still).
GM and Chrysler couldn’t even shed enough debt through their pre-packaged bankruptcy filings, and may have to go back through the ringer again to get to a competitive starting point.
Ford still loses money on every car it sells. I haven’t even seen the latest data on what their margins are on their Crossovers, and whether those are even profitable.
I apologize if I sound so gloomy, but realism is what I’m driving at. I just can’t see Ford surviving without a bailout and/or bankruptcy considering their balance sheet, given an incredibly competitive global auto industry, and given that they haven’t even returned to profitability in their core car making operations.
rnc – There’s a reason most Hondas and the parts that go into them are built in the U.S. – to hedge against the risk of tariffs and protectionism, and to hedge against currency swings. More of Honda’s cars and the parts that go into them are produced in the U.S., and in an inner ring that surround their plants in Ohio, than can be said of Ford.
Mercedes is considering producing the next gen C class in Alabama for the same reasons.
In the News here today, it says that the CAW and Ford have broken off negotiations over what will happen to the Ford Plant in St. Thomas, Ontario, Ford plans to close it in 2011!
@rnc: C4C didn’t start until the last week of July (the impact was in August)
So you think that Mulally’s 11M unit prediction is solid and rooted in reality, then — and we will see September-December sales exceed their 2008 figures?
The Dreamliner – whoa baby. Airbus used slightly more composites than Boeing, and they have had entire tails fall of because they really did not understand composites as well as they thought they did. So AM’s stroke of “genius”? Make a whole damn plane out of the plastic crap. Its lighter, so it becomes more fuel efficient.
Now, Boeing has gutted its engineering dept, by not replacing the old timers as they retire. So, the solution? Outsource engineering! Now, the whole damn project is f*ucked up, but AM has moved on to create more damage!
Ford cut a lot of good engineers loose, sure Found on road dead is going to recover. And I have the deed the the Brooklyn Bridge I will sell you.
Ford – too many products coming, not matched to the market. Starting with “Ecoboost”.
AM – a twofer. First man to kill two major American companies.
I hope Ford can survive, but it’s looking less and less likely without having to partake of the line of credit. It’s too bad, because Ford is tantilizingly close to a turnaround, but unless the American economy starts back on an upswing Ford doesn’t have a hope in Hades, based on that balance sheet.
It looks like Bill Ford and Allan Mullaly are a dime short and a dollar late. Of course, had Ford invested some of the crazy profits that were earned during the SUV craze maybe the company might have been better prepared for the financial crisis.
For the record, I doubt anyone is rooting more for Ford to survive than me.
I live in Michigan, and have seen the devastation that the undoing of the former Big 3 has wrought in communities all over this state.
Politics and economics aside, if you ever see a family that is struggling to feed their little children, has not been able to make a mortgage payment, and can’t even pay their property taxes, it is gut wrenching.
I know people think that UAW and salaries execs were living too high on the hog for too long, and they may be right (in fact, I’m inclined to agree), but that doesn’t change the sad gravity of their current circumstances.
So, I do hope Ford succeeds. My wife and I are considering a Ford Flex right now, also.
Ford is practicing escapism. To survive, they have to go toe to toe with the Nissan Versa, the Kia Soul, the Honda Civic. When you see twin turbo Taurus, Ecoboost, you start shaking your head. Ford is in denial. They have to face up to the real market and compete there, and it looks like they could not face up to reality.
I hope each of the big (little) three survives. I don’t want to see any employee lose their job. UAW or not. I am pulling for them. Lousy management makes their odds of survival low.
Detroit is the Epicenter of the Economic Meltdown.
Heh, Ford stock is up 4.99% today. When TTAC disparages Ford, the market interprets it as a buy signal.
My wife and I are considering a Ford Flex right now, also.
Get a Taurus X…same car but reasonably priced…and you don’t have to pay extra for LED taillights.
Matt51, what does Ford need to “face up to”? What are they in denial about? Which is the “real market” that they should be competing in? The one in which they’ve been gaining market share faster than Toyota recently?
Telegraph Road: Heh, Ford stock is up 4.99% today. When TTAC disparages Ford, the market interprets it as a buy signal.
In that case it’ll probably drop again once Jack Baruth posts another Ford Flex review … : )
th009: Fortunately for Ford stockholders, Farago’s wonderful posts are daily.
Good luck to Ford getting CAW’s Ken Lewenza to grasp the concept that the biggies like the Crown Vic are history and so is the future of the St. Thomas plant.
Here’s a guy who only starts to understand the power of a nuclear explosion when he sees the flash from a block away.
Clearly they have bigger problems but Kenny still thinks it’s 1971 when it comes to negotiations in UAW-CAW land.
http://www.mystarcollectorcar.com/