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April 10th, 2009

How Ford Stayed Independent



It was the end of November 2006. Ford’s Chief Executive Alan Mulally, who had been at the helm for less than three months, gathered 400 bankers in a New York ballroom looking for money:

In a packed ballroom at a New York hotel, Ford’s chief executive, Alan R. Mulally, said he would mortgage all the company’s assets for billions of dollars in loans to finance an overhaul of the troubled automaker. Although the economy was healthy then, Mr. Mulally said the money would give Ford “a cushion to protect for a recession or other unexpected event.”

Mulally’s presentation to the bankers was seen at the time as more of an act of desperation than a strategic move in preparation for the future. Luckily for Ford, credit flowed much more abundantly in 2006 than it does today. The company that originally sought out to raise $18 billion wound up with $23.6 billion — a sum that would end up facilitating the chief executive’s vision to transition from larger vehicles to smaller ones.

While Ford has been able to remain independent — free of government funding — they have not avoided the current recession:

Mr. Mulally acknowledged that he did not foresee that annual auto sales in the United States would drop to 13.2 million vehicles last year, from 16 million in 2006, and possibly as low as 10 million this year.

He also knows that a continued slump in sales will put even more pressure on Ford’s balance sheet.

Ford’s sales are down 43 percent in the first three months of this year compared with the same period a year earlier. The overall United States market is down 38 percent.

Ford’s sales may still be in the gutter — along with the rest of the industry — but by not asking for government relief, the company has set itself apart from its domestic competitors:

A recent national study by the firm AutoPacific found that 72 percent of those surveyed would be more likely to buy a Ford product because the company is not taking government loans.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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