For many years, Ford Motor Co. was considered the sickest of Detroit’s
car manufacturers. But conventional wisdom was stood on its head last fall
when Ford parted company with General Motors Corp. and Chrysler Group LLC
by forgoing federal help during the most perilous times for automakers.
By the end of that crisis, GM and Chrysler had received a total of $64
billion, while Ford got nothing — though like other automakers, it is
receiving federal aid to develop green technologies.
Now, nine months later, Ford appears to be well along on the road to
recovery and in many ways is in a stronger position than its longtime
rival GM. While Ford’s senior executives say the company won’t reach
sustained profitability until 2011, the company surprised analysts by posting net
income of $2.3 billion in the second quarter and followed that with healthy
sales increases in July and August thanks to an assist from the federal cash-for-clunkers program. For its next sales boost, Ford is counting on a
marketing blitz, which will be well in evidence in the days ahead, as Ford is
a primary sponsor of NBC’s new Jay Leno show.
Wall Street is growing more optimistic: Moody’s Investor Services recently
raised the company’s credit rating two notches, to Caa1, its first upgrade
in 14 years. “The rating actions reflect Moody’s belief that after a period
of intensive restructuring of its operations and balance sheet, Ford’s
business viability has significantly improved,” Moody’s report notes.
Van Conway, a turnaround expert with the firm Conway and McKenzie in
Birmingham, Mich., says Ford’s $26 billion debt could still prove troublesome, and hefty interest payments will cut into the company’s ongoing
profitability. But one antidote to heavy debt is a healthy stock price,
which Ford increasingly enjoys. The stock is up from about a buck last
November to a recent price of $7.30 per share, and in May, Ford was able to
raise $1.6 billion through a common-stock offering of 345 million shares.
GM, by contrast, is hoping to do an IPO next year.
Moody’s also cites a number of recent changes at Ford that should give the
automaker’s comeback extra kick in the future, including restructuring
wages, work rules and retiree health-care elements in its agreement with the United Auto Workers , as well as
some reduction in debt, the maintenance of a sizable liquidity position and
a more competitive product portfolio.
Moody’s qualified optimism is echoed by Ford chairman William Clay Ford.
“In terms of our industry, I don’t think I’ll feel better until I see people
going back to work. Clearly people without jobs aren’t buying vehicles. But
having said that, there are encouraging signs of a pickup,” he told TIME.
“We’ve pulled ourselves up by our bootstraps and we feel very good about
that,” the Ford chairman added. “There are always competitive issues, but I like the fact that we are
the master of our own destiny, and I like the fact that our products are
getting rave reviews. I wouldn’t trade places with either [GM or Chrysler].”
Jesse Toprak, an analyst with TrueCar.com, says that while GM and Chrysler carry smaller debt loads than Ford, the advantage seems rather slender, given Ford’s
rising stature in the eyes of consumers. A new survey by Consumer Reports
shows that potential buyers prefer Ford products to those of either GM or
Chrysler. Further, in the latest initial quality studies done by J.D. Power
& Associates, Ford was tied statistically with Toyota in terms of overall
quality — it’s best showing ever.
“That Ford was able to survive this harsh environment on its own is
impressive, though much of the feat owes to a savvy decision in 2006 to
mortgage all of its assets right down to its blue-oval trademark in exchange
for $26 billion,” says Toprak. “Taking out the mortgage proved remarkably
prescient and allowed the company to avoid bankruptcy as the financial
crisis swallowed its domestic rivals.”
McKenzie’s Conway puts it more bluntly: “Ford was lucky, and sometimes it’s
better to be lucky.”
See photos of Alan Mulally, the CEO of Ford Motor Co.
