Careful Planning and a Little Luck Keep Ford Heading in Positive Direction

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Researched by Industrial Info Resources (Sugar Land, Texas)--Three years ago, all the signs pointed to a massive implosion in the American automotive sector. Sales were lagging and poor management decisions, poor planning and a lack of fiscal responsibility had the "Big Three" American automakers hurling in the direction of a major downfall. Upper management at Ford Motor Company (NYSE:F) (Dearborn, Michigan) made some fateful decisions to attempt to change the way they were doing business and as a result mortgaged all of their facilities, their corporate offices and even their logo in order to accumulate enough cash to see the company through the difficult times that appeared to be coming. General Motors Corporation (Detroit, Michigan) and The Chrysler Group LLC (Auburn Hills, Michigan) both fell into bankruptcy after borrowing billions from the United States government.

Ford's financial moves in 2006 and 2007 were part planning and part luck, and helped the company avoid the stigma attached to its two U.S. competitors when fortunes turned downward for the U.S. automakers. Ford realized it needed an influx of major amounts of cash quickly if it was going to survive in the coming years, and was lucky enough to make the necessary arrangements right before the entire sector collapsed and the economy took a nose dive. Borrowing more than $23 billion enabled the automaker to remain out of the scramble that engulfed both GM and Chrysler in late 2008 and into 2009, and as a result Ford was the only American automaker to not require government aid.

While Ford did struggle during the bulk of the recession, the company was in a better position to handle the downturn in the economy because of that influx of cash. Ford could cut back on excess operations and downsize much more easily because the company had some breathing room. Ford also reworked its union contract to place the relationship in line with the reality of today's business climate, as GM and Chrysler did. Now Ford is reaping the benefits of its astute planning, coupled with a bit of luck on the timing, by posting sizable profits and being in a position to reduce debt.

Ford posted a fifth straight quarterly profit in the second quarter of 2010, making $2.6 billion between April and June. Ford also has been able to slowly take sales away from its competitors, in part because it did not require bankruptcy and government aid. At the same time, Ford has been slowly paying down its debt, recently announcing it would reduce its debt by another $4 billion in the near future by paying $3.8 billion in cash to the United Auto Workers union trust fund, which pays retiree health care bills. Ford also will pay $255 million in dividends on preferred securities that had been deferred.

Ford has seen its sales increase 28% during the first half of 2010, and while the automaker remains No. 2 in the U.S., it is slowly eating away at GM's lead and could very well take over the No. 1 position before the end of the year, if things continue to progress as they have been during the past few months. However, Ford continues to take a cautious approach to its forecasting, predicting that while the company expects 2010 to end strong and 2011 to be even strongers it is still reducing its forecast of total U.S. automotive sales by a half million for the year.

Throughout the troubled past three years, Ford has managed to remain afloat and do so quietly, without the major missteps that plagued its competitors. The automaker has played its cards close to its vest, and as a result finds itself in a much better position for a more rapid recovery as the recession winds down. Ford has given itself enough breathing room to take some additional calculated risks in its new lineup and in its plans for the future. With the other automakers struggling to keep pace, Ford should be the American automaker to emulate for the next few years; provided their luck holds, they will be No. 1 in the near future.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.