Ford Motor Corp. (NYSE: F) reported a modest loss as it burned through a huge amount of cash in the most recent quarter. At this rate, Ford's dwindling cash pile will go up in smoke by mid-2009. It appears that the most likely options for Ford are to file for bankruptcy or to seek a government bailout. It would be nice if a private equity firm would step in and help take Ford private -- but that would require bank borrowing which seems to have dried up.
How much did Ford lose? $129 million (a relatively small loss) -- but this figure does not reveal the real problem with Ford. It is burning through cash fast, vaporizing $7.7 billion in the third quarter. That $129 million loss comes thanks to an accounting trick -- it lost $2.7 billion from continuing operations which was partly offset by a $2 billion gain from Ford shifting retiree health care liabilities to a UAW-run trust. More bad news: its sales plunged 22% due to lower volume and the sale of Jaguar and Land Rover. And Ford's loss was worst than expected: $1.31 per share excluding special items -- 27 cents more than analysts' estimates.
What does this say about Ford's future? Well, it plans to cut 10% of its North American salaried employees. Ford has not yet released a balance sheet but it claims to have something called "Automotive Gross Cash" of $18.9 billion as of the end of September. If Ford cuts 10% of its employees, it will need to pay out severance which will reduce that balance. And it claims to have a $10.7 billion line of credit, but a bank would be foolish to let Ford draw down that line.
If it keeps burning through cash at its current rate, Ford probably has between six and nine months left. But if sales fall faster than 22% a quarter -- particularly in light of the deteriorating economy -- that day of reckoning could happen sooner.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Ford securities.
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Reader Comments (Page 1 of 1)
11-07-2008 @ 10:59AM
John Zimmer said...
maybe they should consider giving the CEO, Board of Directors and Ford family another multi-million dollar bonus!
11-07-2008 @ 5:48PM
antoine said...
The main problem with the big three is with the overpaid employee for the last few decades. If you do the math, if you compare the salaries for the big three with other manufactory workers, you will get the answer why they are in trouble.