Less than three months before Ford celebrates its 100th birthday, the world's second largest carmaker faces a crisis of investor confidence. Talk of bankruptcy, denials of management splits and a warning that new accounting rules could threaten its full-year profits have driven Ford's stock to its lowest levels since 1992. James Mackintosh and Jeremy Grant report.
The shares closed at $8.02 on Friday, having been as high as $36.54 in 1999. Are things so bad for the company that popularised the motor car?
War fears and a slow global economy have hit sales just as Ford is trying to push through a $9bn cost-cutting drive to restore profitability. Ford is cutting second-quarter production in North America by 17 per cent. That threatens profitability, as US manufacturers consider a vehicle "sold" when it leaves the factory, not when it is sold by a dealer.
Ford's worldwide employee pension liabilities are underfunded by $15.6bn. The company says healthcare costs for pensioners ballooned last year to leave it $27bn underfunded - yet operating cashflow from its loss-making automotive business was just $200m, stripping out tax refunds.
But it would require an extraordinary combination of circumstances for Ford to be pushed into bankruptcy. "We don't believe there is a real threat of imminent bankruptcy," says Saul Rubin, motor industry analyst at UBS Warburg. "Yet it appears that the fear is pervading markets."
There are two potential threats. The first is to Ford's automotive business, spanning 110 plants globally. If the US market continues to weaken, Ford is unlikely to be able to cut costs fast enough to compensate for falling sales.
Worryingly, North American sales in February fell sharply to an annualised 15.4m vehicles, the second-lowest level in four years. However, Art Spinella, president of consultancy CNW Marketing, says that sales would have to fall to an annualised 14.5m before Ford was threatened with bankruptcy.
"For Ford to disappear, the industry itself would really have to disappear," Mr Spinella says. Even if Ford repeated its worst negative operating cashflow - $4.2bn in 1991 - it has enough cash to survive for several years. The automotive business has $25bn of cash and most of its $14bn debt does not fall due for another 27 years.
The second threat lies with Ford Credit, the financing and leasing arm. It needs to issue an estimated $30bn of new bonds a year, but has already been locked out of the unsecured market because of credit rating downgrades.
Standard & Poor's rates Ford BBB, two notches above "junk", and has warned that it could downgrade the company if it fails to meet its automotive break-even target. But Scott Sprinzen, S&P's motor industry analyst, says a one-notch downgrade would not imperil Ford.
Sean Egan, managing director of Egan-Jones, a small rating agency, recently sparked concern by saying Ford would be bankrupt were it not for the Ford family's name. However, Sprinzen says: "We don't take that view. It's not as if they are cherry-picking and leaving on the balance sheet assets that are of lower quality than (those that) have been securitised."
If, for example, Ford Motor Credit were faced with a funding crisis, emergency measures to restrict the need for funding - such as stopping motor vehicle lending altogether - could reduce the loan book by an estimated 30 per cent in a matter of months. Hardly be a way to celebrate a centenary, but a far cry from predictions of bankruptcy.
... - Financial Times Service