An Update on Ford's Performance

[Colonel Cadillac]

Ford's Drive to Ditch 'Junk'
By Matthew Dolan

For the past 12 months, Ford Motor Co. has been on a campaign to lift its credit rating out of "junk" territory and get back to investment grade. Judging by the way bond investors view the company, it's just about there.

The interest rate Ford is paying bondholders is half what it was last year, a sign that investors regard the car maker as stronger financially. And a type of insurance investors can buy on Ford debt costs less than it does for most other companies with similar subpar ratings.

That is a boon to the company since it means Ford is paying less on its borrowings and can put the money to other uses. Ford's high level of debt and debt payments has been a concern for investors for years.

"Investors in general think we're closer to investment grade, or credit us better than where the rating agencies see us," Ford Treasurer Neil Schloss said in an interview.

Ford's improved lending conditions come as the company could be on the cusp of reporting a record-breaking quarter Tuesday. Analysts expect it to report a profit of $1.37 billion, or 38 cents a share, for the third quarter, based on a Thomson Reuters survey. The analysts estimate revenue at $29.09 billion.



In the year's first half, the company reported earnings of $4.6 billion. That profit alone would make this year the best Ford has had since 1999, when it earned $7.2 billion.

Ford first lost its investment grade rating in May 2005, but recently the company has been on an upswing.

Earlier this month, Moody's Investors Service upgraded Ford's rating by two levels. Standard & Poor's Rating Services has put the company on a positive outlook, implying it could raise its rating, but still gave the post-bankrupt General Motors Co. a higher rating than Ford in part because of GM's lower debt and more cash on hand.

Investors, however, look at Ford favorably. Consider its credit-default swaps, a type of insurance on Ford's debt.

At the beginning of the year, it cost $350,000 per year for five years to insure $10 million of Ford Credit's debt, according to J.P. Morgan Chase. In September, that cost fell to $280,000 and it is now quoted at $254,000, the lowest point in five years and approaching the levels of investment-grade corporations.

"While there are certainly challenges to be addressed before Ford can regain investment-grade status, the momentum is largely positive," Kathleen Shanley, a senior analyst at Gimme Credit, said by e-mail. A lower cost of credit-default swaps "tends to anticipate formal rating-agency upgrades."

Ford's ability to make money even as the car market has been sputtering has "been the most impressive thing about Ford," said Stephen Brown, a senior director at Fitch Inc., another credit-rating company.

Ford's sales have been outpacing the industry's recovery. And it has lowered costs drastically, in part by almost halving its work force since 2005.

In another sign of Ford's improved standing, the company is the top issuer of consumer loan-backed bonds so far this year, according to Royal Bank of Scotland.

Investors' renewed appetite for Ford has helped it reduce its funding costs. In August 2009, Ford Credit issued debt at a 13% yield. Last month, it sold $1 billion of five-year notes at 5.75%, according to company officials.

Ford Chief Financial Officer Lewis Booth said that planning a return to investment grade is "an understandable rallying cry within the business. But at the same time we have to continue to invest in new product and we have to continue to invest in growth."

Ford was in a better position than GM and Chrysler Group LLC to weather the recession because it borrowed $23.5 billion in 2006. Last year, while GM and Chrysler were heading into bankruptcy, Ford was able to draw down $10.1 billion from a revolving credit line to fund its operations.

But that borrowing also led to Ford's high debt. This year, with the industry recovering, Ford made a priority of paring down that borrowing and is expected to show more progress in Tuesday's report.

In the second quarter Ford retired $7 billon in debt, using profit generated by its North American operations and credit arm. As of June 30, Ford's overall automotive debt totaled $27.3 billion, down from $34.3 billion at the end of the first quarter.

In August, Ford completed the sale of Volvo Car Corp. to a Chinese auto maker, netting about $1.8 billion. Half the proceeds are expected to go to pay down debt. The company is now contemplating reducing its stake in Mazda Motor Co. of Japan, which could further improve its balance sheet.

?Anusha Shrivastava contributed to this article.

Source: Wall Street Journal

[FoMoJo]

A little more info from Ford-pays-down-debt--posts-$1.7B-Q3-earnings

...big volume jump in the shares traded today as well as the stock price continues to rise.

Dearborn? Ford Motor Co. today announced third-quarter earnings of $1.7 billion ? beating analysts' estimates ? and said it continues to reduce its debt.

It was Ford's sixth straight quarterly profit.

Ford's third-quarter net income, up 68 percent, came as the automaker increased its share of the U.S. auto market and buyers paid more for its highly rated cars and trucks.

The automaker credits a slowly improving economy and the strength of its products. Through September, Ford's share of the U.S. market was 16.7 percent, up 1.5 points from a year ago.

"All our business units should be profitable in the fourth quarter and next year," Chief Financial Officer Lewis Booth said this morning.

Significantly, the automaker will have as much cash as debt by year's end, achieving that target a year ahead of schedule.

Ford said today it is taking three separate debt-related actions: The first was a $2 billion mid-September paydown of a revolving line of credit. On Friday, Ford will make a $3.6 billion cash payment to the health care trust fund, prepaying a bill not due until 2022 and completing the automaker's obligations to the fund that is now the responsibility of the United Auto Workers.

And Ford is making conversion offers on two convertible debt securities. The offers will close Nov. 23.

In all three cases, Ford is using cash to shed debt.

The automaker ended the second quarter with $21.9 billion in cash and $27.3 billion in debt for net debt of $5.4 billion.

At the end of September, cash was at $23.8 billion and debt was $26.4 billion, for net debt of $2.6 billion.

As of Friday, Ford will have reduced debt by $10.8 billion from $33.6 billion at the end of 2009. Net debt was $8.7 billion in December.

The automaker has not ruled out further debt reduction in the fourth quarter, as it works to return to investment grade status and equal the playing field with Chrysler Group LLC and General Motors Co., which used bankruptcy to shed debt.

Moody's Investors Service raised Ford's credit rating two levels this month, citing an operating performance that significantly exceeded expectations.

Booth said all the company can do is continue to show results and hope the ratings agencies notice and reward the efforts.

"The valuation of the company will follow the improvements in the balance sheet as we pursue profitable growth," he saidThe conversion offer is expected to further dilute the debt level as notes are converted to equity, as opposed to carrying them as debt. Ford will offer cash on top of the common shares as enticement.

This is the highest third-quarter net income since 1990, Ford says. The last time the automaker was net cash positive was the second quarter of 2008.

"This was another strong quarter, and we continue to gain momentum with our One Ford plan," said Chief Executive Alan Mulally.

The third-quarter income of 43 cents per share beats analysts' expectations of 38 cents. And the $1.7 million income is a $690 million improvement from the same period a year ago.

Pre-tax operating profit totaled $2.1 billion or 48 cents a share, which is up $1.1 billion from a year ago.

The results follow second-quarter earnings of $2.6 billion.

Revenue in the third quarter was $29 billion, a decline of $1.3 billion, 3 percent, from a year ago. But excluding Volvo revenue ? Ford sold the brand in August ? revenue was up $1.7 billion.

Ford earned $1.6 billion in North America for the quarter, compared with $314 million a year ago. But losses in Europe amounted to $196 million. But all operations, including Europe, are expected to be profitable in the fourth quarter and remain in the black next year, Booth said.

Booth said he still expects $1 billion in additional structural costs this year and another $1 billion in higher commodity costs. As the automaker continues to increase production and plans to add 1,200 jobs by 2013, structural costs will go up, but Booth described them as the cost of profitable growth.

The automaker is increasing production in the fourth quarter to 590,000 units, which is 16,000 more than a year ago and higher than previous estimates suggested it would be.

"As we launch new products, we are closing the pricing gap with Asian competitors," Booth said. "Every time we launch a new product we can see that happening."

Ford also is winding down its Mercury brand.

Jesse Toprak, vice president of industry trends and insight at TrueCar.com, said in a statement that "Ford sales continue to surge due to a stronger product lineup and improved consumer image.

"Their retail sales are strong and transaction prices have been increasing this year, contributing to an improved bottom line for the automaker," Toprak said.

[3.0L V6]

Mulally seems to be worth his weight in gold.

Anyway, congrats to Ford to reducing its debt with its profits, instead of frittering it away on purchasing other brands.

[FoMoJo]

A fairly relevant blurb about Ford's board.  No question that Mulally pulled them out of potential ruin but the board, especially Bill Ford, deserve credit for recognizing the situation, devising a plan and getting the right guy to execute it.

Foresight leads to Ford's comeback

The rush to confer quasi-sainthood on Ford Motor Co. CEO Alan Mulally is understandable, given the pile of profits the automaker is amassing ? standing at $6.4 billion so far this year, ahead of schedule.

But he had help, lots of it, to put Ford on the verge of becoming the world's most profitable automaker, starting with a board of directors led by an executive chairman whose name is stamped on every Blue Oval worldwide. That's huge, arguably even more than the backing of the Ford family itself.

What could the Ford family diaspora do in the dark days of 2006 or the even darker days of '08 and '09 ? peddle their stakes to would-be buyers at the lowest valuations in their lifetimes and risk losing control of the company? Don't think so.

Corporate directors have choices, though: They can fret over their image and resign, as former Treasury Secretary Robert Rubin did a month before Mulally arrived in 2006 and HSBC's John Bond and Nokia's Jorma Ollila did in the fall of 2008. Or they can stand up, do their jobs and force a change in direction by hiring someone who will lead the change, and then back him up.

The directors, including Executive Chairman Bill Ford Jr. and his cousin, Edsel Ford II, realized as far back as 2006 (and probably sooner) that the Dearborn automaker's business was broken, that bankruptcy would destroy the company and the family's century-long hold on it, that collapse was probable.

They understood that the revolving executive doors atop the Glass House left them with few viable inside candidates to replace Bill Ford, that the company needed a CEO hardened by tough industrial restructuring, that the new guy would need billions of dollars to finance a turnaround certain to include cutting jobs, jettisoning brands and shaking the company to its core.

They faced what their rivals at then-General Motors Corp. mostly avoided until it was way past too late. Which is why Ford is on track to be one of the greatest industrial turnarounds this country has ever seen and GM is doing it the harder way.

GM gutted through bankruptcy and emerged as a ward of the federal government. It is preparing to launch an initial public offering, led by its fourth CEO in less than two years. Why? Because GM's former directors refused to make the tough choices, to find the right leaders, that Ford did.

Oversimplified? Not really. Way back in '07, when GM was agreeing to fund hefty increases in pension payments for the United Auto Workers, Mulally would stand at his window in the northeast corner of Ford headquarters, point in the direction of the Rouge complex and say something like: In 10 years, this could all be gone.

He'd tell Ford marketers and engineers that the company had been going out of business for 25 years. He'd argue unspeakable heresy ? that Ford didn't need to be in the global luxury car business, that it didn't need to own a third of Mazda Motor Corp., that the Mercury brand had outlived its usefulness.

In each case, he'd be right. In each case, the Ford logic he probed didn't make business sense. In each case, the outsider gone inside voiced conclusions echoing those from critical employees, outside analysts and media hacks who were routinely dismissed by company officials.

And in each case, the directors backed the new guy because they knew he was right ? Ford had to change or it would die. They approved his once-unthinkable moves, funded product plans and backed his management team assembled mostly from longtime Ford hands.

All of which put Ford more squarely on a road to a sustainable and profitable recovery, the kind of result that many inside and outside the Detroit automotive bubble could be excused for thinking they would never see.

But they are. Ford this week said its net income through the first nine months of this year totaled $6.37 billion, most of it coming from its crucial North American operations. U.S. market share is up for the second year in a row. And a pillar of the American auto industry can legitimately claim that reports of its death were premature.

Gives new meaning to the word comeback ? and the difference enlightened leadership can make.