For a guy not asking for anything, Ford CEO Alan Mulally was awfully agreeable when he came to Washington late last year to testify about a possible auto bailout.
Mulally said that Ford wasn’t seeking any kind of government loan at the time, unlike General Motors and Chrysler, which have since gotten $15 billion in aid. Yet Mulally sat with his GM and Chrysler counterparts, patiently listening to lawmakers fulminate about how much better Detroit’s Japanese competitors are. Ford submitted a public “viability plan” describing its problems and explaining in detail its turnaround plan. Mulally even abandoned the corporate jet when that fiasco developed, driving to Washington for Round II like a humble supplicant.
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Ford still says it isn’t seeking federal aid, but its case is looking weaker and weaker. The automaker lost $5.9 billion in the fourth quarter of 2008, and a staggering $14.6 billion for the whole year. The awful numbers aren’t surprising, since everybody knows the auto industry is in a rapid tailspin.
But the numbers the analysts are watching most closely are cash burn and liquidity – since once the firm’s available cash is gone, it will probably have no choice but to go to the lender of last resort, the feds. And those numbers are going the wrong direction, needless to say.
Ford burned through $7.2 billion in operating cash in the last quarter, more than analysts had expected. That left Ford with $13.4 billion in cash and $25.8 billion in debt. To strengthen its balance sheet, Ford tapped a $10.1 billion credit line, which will help it buy another two quarters’ of time or so.
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Ford did make progress on its turnaround plan, cutting costs by $4.4 billion in 2008. It also scheduled steep production cuts and laid off 1,200 at its finance arm. Those reforms make Ford optimistic - at least publicly - about avoiding a bailout. “Based on current planning assumptions,” the company said in its release, “Ford has sufficient automotive liquidity to fund its business plan and product investments and does not need a bridge loan from the U.S. government.”
But “planning assumptions” have changed almost daily over the past year, and they could easily change again, giving Ford an out if it seeks government loans. Some analysts have trouble seeing much of an alternative. “Although it appears to be making extreme efforts not to use federal funding, we are concerned about Ford’s financial condition,” Standard & Poor’s said in a research note. If Ford doesn’t quickly arrest its cash burn rate, the new credit line could be tapped out by summer, with little cushion left. At that point, Mulally may be headed back to Washington, this time, with palms open.