Ford expects to avoid loans, surprise critics

Ford President and Chief Executive Officer Alan Mulally believes that critics and analysts are too pessimistic with predictions that Ford will need to turn to government funding to make it through the recession.

“Right now, with everything we see … we believe the economy is going to stabilize and the industry will start to recover in 2010, and we think we have sufficient liquidity to make it through this recession,” Mulally told the Free Press.

Almost immediately after General Motors Corp. and Chrysler LLC struck deals last week to get emergency government loans, industry analysts began predicting that Ford, too, will be forced to borrow from the government by the end of 2009. Several also predict that Ford will be forced to reopen its UAW contract so it can win any concessions from the union that GM and Chrysler gain from the process.

Mulally said analysts are dwelling on worst-case scenarios. Ford foresees the economy bottoming out sometime in the middle of next year, followed by a gradual improvement.

The reason: The concrete set of stimulus actions planned by President-elect Barack Obama will eventually stabilize the economy, Mulally said.

“I think that everybody is trying to figure a worst case as far as the economy,” Mulally said Tuesday. “Those types of assessments are reflecting many people’s thought that we don’t know where the bottom is yet.”

Credit rating falls

Indeed, Moody’s Ratings Service on Monday reduced Ford’s credit rating to Caa3 from Caa1 and predicted that 2009 industry sales will sink to 10.3 million cars and trucks, which is lower than Ford’s forecast.

“The downgrade reflects the increased risk that Ford will have to undertake some form of balance sheet restructuring in order to achieve the same UAW concessions that General Motors and Chrysler are likely to achieve as a result of the recently approved government bailout loans,” Moody’s senior vice president Bruce Clark wrote in a report on Monday. “Such a balance sheet restructuring would likely entail a loss for bond holders.”

Both in Congress and in public, Ford Motor Co. has attempted to separate itself from the more dire situations faced by GM and Chrysler, which received a much-needed reprieve from the Bush administration Friday in the form of $17.4 billion in bridge loans.

Over the past two months Ford has simultaneously argued in favor of immediate federal aid for its competitors while saying it does not need immediate assistance. Instead, Ford is asking for a $9-billion line of credit just in case the economy and industry sales are even worse than it expects.

“Congress asked us for a range. The range we gave them clearly delineated that if the economy worsens significantly, then we outlined the line of credit we would like to access,” Mulally said.

Winning points

Ford’s approach has won it brownie points from the public and from Washington.

“People are seeing we are trying to make it on our own, and I think we are hearing comments in the showroom to that effect,” Ford Executive Chairman Bill Ford Jr. said last week.

But Ford’s stock price offers more evidence that Wall Street is skeptical.

After a slight rebound Friday, Ford’s stock price steadily declined through the week, closing Wednesday at $2.11, down 64 cents from its Friday close of $2.75.

To be sure, Mulally isn’t forecasting good times in 2009.

Ford is projecting that total sales of cars and light trucks — as well as medium and heavy-duty trucks — will be about 12.5 million next year, or more than 20% less than the industry average in recent years.

At that level of industry sales, Mulally said, Ford will be able stick to its goal, which is to ask for a $9-million line of credit from the federal government, but not use it.

source:freep.com