SHOPSMART AUTOS CUSTOMER INFORMATION – OCTOBER 2, 2021 –(PT.2)
Ford took $6B government loan in 2009 — and debt still haunts company
Dark days
During good times, automotive analysts said, Ford could have socked away money and paid off debt in anticipation of bad times. That didn’t happen. “This is now very unpleasant and very difficult,” said Elson.. In applying for the loan, Ford said the money would be spent to upgrade 13 facilities in Michigan, Illinois, Kentucky, Missouri, New York and Ohio — “resulting in state-of-the-art assembly and manufacturing plants” with flexibility to build fuel-efficient vehicles that meet changing demands. The government site notes that “Ford updated several facilities to continue improving fuel efficiency in more than a dozen popular vehicles, including the Escape, Fiesta, Focus, Fusion and Taurus car models, as well as the F-150 light-duty truck.” On a side note, the Fiesta has always been built in Mexico. Production of the Fiesta, Focus, Taurus and Fusion will have been discontinued by the end of 2020. The company this year settled a class-action lawsuit involving a defective transmission in its Focus and Fiesta vehicles. Ford is praised on the government website for its “commitment to introducing new hybrid, plug-in hybrid and all-electric vehicles.”
Chump change
Ford says the government debt payments are “relatively small” and cause no alarm. “The loan matures in June 2022. We plan to pay off the loan in full and on time,” T. R. Reid, Ford spokesman, told the Free Press on Tuesday. “At the end of Q1, the principal balance was $1.3 billion.” When asked whether Ford had requested deferral of its loan payments, Reid said additional information would be revealed in upcoming regulatory filings.
Grim reality
Still, candor isn’t always an option, said John McElroy, longtime industry observer and host of “Autoline After Hours.” “Even though things are really tough, you’ve got to say, ‘We’re going to come out of this and be OK,’ ” he said. “To come out and say, ‘Man, we’re in deep trouble,’ — the financial markets would go crazy. Suppliers would start to worry. Employees would be demoralized. It’s a real tightrope to tell the truth without setting everybody’s hair on fire.” Recent borrowing has signaled a grim reality, however. “At the very beginning of the pandemic, when General Motors and Ford announced how much money they were going to borrow, it set off alarm bells in my mind,” McElroy said. “It was obvious they expected financial devastation in the marketplace and went to get money to carry them through. Now, just recently, we’ve seen Ford go back to the banks and ask them for another year before they have to pay that money back. So, clearly Ford believes the situation is worse now than what it thought three months ago.” No question, Ford is under scrutiny. “This will be a difficult earnings report for Ford,” said David Kudla, CEO and chief investment strategist with Mainstay Capital Management, a Grand Blanc investment adviser who manages $2.7 billion in assets for clients who include many Ford employees.
Keep hope alive
Dire predictions about Ford are premature, Reid said. “People who follow us closely know Ford’s balance sheet was consciously strong leading up to the pandemic,” he said. “That cash and liquidity, together with additional cash management and preservation and cost reductions, is why we’re able to both manage through the crisis and strategically invest in Ford’s future.” Ford is not worried, Reid said. “We had financial flexibility in 2008 and have deliberately managed the balance sheet since then so that we’re well prepared for economic downturns — including this one,” he said.
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