Ford Spends $5.5 Billion in Cash, Ends Worst Year

Ford Motor Co., insisting it can survive without federal loans, said it spent $5.5 billion in cash in the fourth quarter and will tap a revolving credit line after the worst annual performance in its 105-year history.

The second-biggest U.S. automaker also pared first-quarter North American output and won concessions from the United Auto Workers. While Ford pruned its outlook for 2009 domestic industrywide sales to as few as 11.5 million vehicles, that figure is about 1 million more than other projections.

“Their forecast is still too rosy,” John Wolkonowicz, an analyst at IHS Global Insight in Lexington, Massachusetts, said today in an interview. “They’ll need money from the government by midyear.”

Ford posted a quarterly net loss of $5.9 billion, or $2.46 a share. Excluding costs Ford considers one-time expenses, the loss was $1.37 a share; the average of 11 analyst estimates compiled by Bloomberg was $1.24.

The results dragged Ford to a full-year loss of $14.6 billion, eclipsing 2006’s record of $12.6 billion. Chief Executive Officer Alan Mulally reiterated Ford’s aim to avoid federal borrowing even as cash in its automotive business fell to $13.4 billion.

Ford won’t say how much cash it needs to stay in business. General Motors Corp., the largest U.S. automaker, has said it needs at least $11 billion to pay bills, while No. 3 Chrysler LLC has put its threshold at $2 billion to $2.5 billion. Both said they would have been out of operating funds as soon as this month without the emergency aid approved in December.

Using the Revolver

Drawing on the credit line will give Ford access to $10.1 billion in cash by next week, and erases any chance that the money wouldn’t be available later should lending conditions tighten, Chief Financial Officer Lewis Booth said in an interview at Ford headquarters in Dearborn, Michigan.
“We are not tapping the revolver to fund operations. We are not tapping the revolver to stay above minimum cash levels,” Booth said. “We are doing it to ensure that it’s there.”
The move exhausts Ford’s available borrowing under the revolver, Booth said. The interest rate is 2.25 percentage points more than the London interbank offered rate, according to Bloomberg data. That means Ford is paying less for long-term debt than investment-grade companies including Wal-Mart Stores Inc. have paid in recent weeks.
Ford fell 8 cents, or 3.9 percent, to $1.95 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have plunged 71 percent in the past 12 months.

Paring Output

First-quarter production was chopped again, this time by 30,000 vehicles, to a target of 400,000 units. That pushes Ford’s reduction from a year earlier to 42 percent. Ford said it plans to cut $4 billion in automotive costs this year, with steps including shutting plants.
Two moves by the UAW will help bolster cash, Ford said. Matching steps taken at GM and Chrysler, the union will end the so-called jobs bank at Ford, in which employees are paid even when there is no work. Ford has about 1,500 workers in the program.
The UAW also agreed to let Ford convert money set aside for a union-run fund for retiree health care into a note payable at the end of 2009, adding $2 billion to the company’s liquidity. The Canadian Auto Workers union said separately it would open talks with Ford, GM and Chrysler on money-saving actions next week.
Ford has managed to forgo the federal loans doled out to GM and Chrysler because Mulally decided to borrow $23 billion in 2006, securitizing all of Ford’s assets, including its trademark blue oval logo.

Ford’s Outlook

After annual losses this year and next, 2011 should see a break-even result or a profit before taxes and excluding special items, the company has said. Executive Chairman William Clay Ford Jr. said on Jan. 11 the automaker wouldn’t seek federal loans “unless the world implodes.”
Ford asked U.S. lawmakers for a credit line in December of as much as $9 billion as Congress tried to craft an industry rescue package. When that measure failed, the U.S. Treasury granted $17.4 billion in loans to GM and Chrysler. Ford has been in contact with the Treasury about ways to bolster finance arm Ford Motor Credit, a U.S. government official said on Jan. 16.
Ford Credit said yesterday it will eliminate 20 percent of its workforce, or about 1,200 workers, as part of a cost-cutting move.
The Treasury Department also provided a $6 billion bailout to GMAC LLC, the lender affiliated with GM, and $1.5 billion in loans to Chrysler Financial.

Source: Bloomberg

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