Economic woes hit automakers
Ford takes action to weather global storm
The slowing global economy is taking a toll on automakers, and Lehman Brothers Holdings Inc’s stunning bankruptcy will only give already nervous consumers more to worry about, Ford Motor Co Chief Executive Alan Mulally said Monday.
The head of the No. 2 U.S. automaker said he sees no reason to believe overall U.S. auto sales will rebound before late next year or perhaps 2010, but reiterated that the company is confident in its current liquidity.
“We know the situation in the United States, and most people are projecting maybe 1.5 per cent GDP growth this year, but clearly it’s a slowdown,” Mulally told the Reuters Auto Summit in Detroit. “We’re seeing a slowdown in Asia Pacific and we’re seeing a slowdown in Europe … That clearly affects the automobile industry worldwide. It’s a tough business situation for us worldwide.”
Mulally said Ford had not expected the U.S. slowdown to be brief.
“We anticipated about a year and a half ago that the slowdown in the United States would continue, and just as prudent business we decided to go to the markets early and secure the financing that we needed,” he said. “We raised not only the amount of money we thought we needed in the near-term for restructuring ... but also an extra amount of money to accommodate a slowdown into the U.S. economy. So our liquidity going into this turned out to be very, very good.”
Ford went to the capital markets to borrow more than US$23 billion in 2006. It also drew the interest of activist shareholder Kirk Kerkorian, who began to invest actively in Ford shares in April and expressed support for the company’s management and turnaround efforts.
Kerkorian, who had made past investments in General Motors Corp., and an unsuccessful bid for Chrysler last year, had also said he would be willing to support the turnaround with an infusion of additional capital.
Mulally said Ford has not had discussions with Tracinda about an extension of the relationship with Kerkorian, who holds about a 6.5 per cent stake in the automaker.
“As we go forward, the most important thing we do is to manage our liquidity, and we will continue to take multiple actions to improve our balance sheet,” Mulally said.
Jerry York, an adviser to Kerkorian on the Ford investment, said later at the summit that Ford is the best positioned of the U.S.-based automakers and credited Mulally with bringing a “maniacal” focus to the turnaround.
York declined to comment on Tracinda’s investment in Ford.
“I don’t want to do anything to second guess them,” York said of Ford. “They are doing a terrific job and at the end of the day they will get the job done.”
Mulally said Ford has no plans to press its main union, the United Auto Workers, for additional costsaving measures.
Ford, along with U.S. rivals GM and Chrysler is pursuing a governmentfunded $25 billion loan that Mulally said would help the automaker to step up its pace of producing more fuel-efficient cars.
The surge in gasoline prices over the past two years and a resurgent concern about auto emissions of carbon dioxide, a greenhouse gas associated with global climate change, have made Washington increasingly interested in fuel-efficient cars.
A 2007 law allowed for low-rate loans to automakers as part of an increase in federal fueleconomy mandates. Congress is now debating how to fund that initiative, which would reopen the door to affordable borrowing by automakers.
“It’s just turning out that that’s a very important feature of the legislation they put in, because with the credit markets tightening, everybody’s cost of capital is higher,” Mulally said.
Democratic Congressional leaders have said they would like to push through the funding before Congress breaks in weeks for the general election. Michigan and Ohio, two key auto industry states, also are potential swing states in the election.