Future uncertain for Ford

Friday, January 30, 2009
Daniel Howes: Commentary

In what alternative reality could Ford Motor Co. deliver the largest annual loss in its 105-year history -- $14.6 billion -- burn $19.5 billion in cash in all of 2008, draw down its revolving credit line and get qualified applause from Wall Street?

In a world where perspective is in the eye of the beholder because business conditions are so awful. Ford's cross-town rivals exist on a federal lifeline: Chrysler LLC is looking for a deal, even multiple deals, to survive into the next quarter, and General Motors Corp. is bracing to deliver even more horrific numbers on last year's fourth quarter from hell.

We're numb. All of us -- investors and analysts, employees and retirees, the news media and ratings agencies. Progress is losing billions but staying the course, limiting the damage and reiterating the (qualified) statement that Ford expects to avoid government loans to fund its business.

Ford's $10.1 billion credit draw "does not reflect an imminent danger" of its "cash balances falling to dangerously low levels," Standard & Poor's said, reaffirming its rating on the automaker. "We could lower the ratings ... if we thought Ford total liquidity would drop below $10 billion by the end of 2009."

And JPMorgan said Ford's fourth-quarter earnings and cash burn were "better than expected," considering the relative economic collapse of the final three months of last year. Ford shares closed Thursday down 3.94 percent to $1.95, even as the bellwether Dow Jones dipped 2.7 percent.

Shares in GM plunged 7.02 percent to close at $3.18, yet one more small piece of evidence that investors continue to regard GM as considerably more troubled than Ford with its we-don't-need-no-bailout posture. For now, at least, it's a smart play for a company long plagued with an annoying tendency to make grand pronouncements only to fail on the follow-through.

The Blue Oval is projecting the image of an island of serenity amid plunging consumer confidence, abysmal car and truck sales and tight credit markets. For the first time since the early 1990s, the automaker recorded three consecutive months of retail market share gains in the United States in the fourth quarter.

That's progress. CEO Alan Mulally says Ford's product "pipeline is full," that its new 2010 Fusion sedan sets a best-in-class fuel economy standard that all Fords will match, that its Volvo unit is getting primed to be peddled to the highest (only?) bidder, that talks with union leaders and bondholders are continuing.

Encouraging, but not sufficient. The simple fact of Ford's predicament is that it, too, is eating cash at an alarming rate. Sales volumes in Europe, one of its bright spots, are collapsing. And Ford's concession talks with stakeholders, namely bondholders and the United Auto Workers, could run afoul of government guarantees secured by GM and Chrysler.

Meaning this: Just because Mulally says Ford "will not be disadvantaged" as GM and Chrysler push to avoid bankruptcy doesn't mean it won't be. GM, Ford and Chrysler aren't the only institutions playing the high-stakes game of restructuring the auto industry on the fly.

Asked what kind of economic developments -- beyond, say, the bankruptcy of GM -- could force Ford to plump for federal loans, too, Mulally wouldn't say. Not because he couldn't speculate, but because the speed of change the past few months has demonstrated a discomfiting inability among business leaders to predict economic developments with any degree of confidence.

Everybody's flying blind, hoping that the $819 billion federal stimulus package will begin to pay dividends later this year, that job cuts will slow, that consumer confidence will stabilize. Maybe. Or maybe not.