Ford: In Good Form

By Rajesh Marwah - May 31, 2012 | Tickers: F, GM, TM | 0 Comments

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The US automobile industry is boosting the economy’s GDP, since consumers are increasingly spending on cars. Industry sales are up and automakers are improving their offerings with added features to improve design and fuel efficiency. Ford Motors (NYSE: F), which reported an operating profit of $2.1 billion in North America for the first quarter of 2012 and paid a dividend for the first time in almost 6 years this March, has even more reasons to celebrate. Let’s check them out.

The Blue Oval returns
One of the recent developments bringing reasons for Ford to rejoice is that it got back its iconic logo Blue Oval and trademarks like Mustang and F-150. Back in 2006, the automaker had pledged its logo, factories and other assets to secure a $23.5 billion loan. This credit facility was taken to avoid the risk of bankruptcy that fellow rivals General Motors (NYSE: GM) and Chrysler couldn’t keep away from.

The credit ensured that the company would remain self sufficient, and not require the bailout package from the government like GM and Chrysler, to survive the recession. The cash reserve also helped Ford to continue to invest in its product development through the worst of the economic slump where competitors like GM and Toyota Motors (NYSE: TM) were losing ground.

However, unlike GM and Chrysler that filed for bankruptcy and walked away from paying their debts during their reorganization, Ford didn’t get the advantage of evading the debt that it had on its book. Also, as per the terms and condition of the loan, Ford had to get investment grade ratings from at least two of the three rating agencies to recover its mortgaged ‘heritage’.

Ford in sound health
Ford has been managing to serve its debt obligation graciously. This led to improvement in the company’s credit rating. Last month, the company earned its first investment rating from Fitch. This was big news for Ford as it officially marked the return of the carmaker to sound financial health. The second upgrade of its credit rating by Moody’s to Baa3 was even bigger. The company finally met the condition of reclaiming the collateral security.

The company’s progress in chipping its debt shows its strengthening financial position. Even now, Ford’s automotive debt totals to $16.6 billion but the company’s liquidity is strong with a cash balance of $23 billion. The positive cash balance reduces concern about its repayment obligation. Also, the smooth repayment of its loan and the investment grade rating will enable Ford to obtain credit at lower rates.

Building for the road ahead
Ford is known for its innovation. The company plans to introduce new vehicles and revamp the existing ones at the rate of 26% between 2013 and 2016, fastest in the industry. GM replaces at the rate of 25%, followed by Toyota at 24% and Nissan at 23%. Revamping models is one of the fastest ways of growing market share, and so it should not be astonishing if Ford captures bigger markets with its refreshed vehicles.

What about launching new models? Introducing new cars is not on the back burner.

Ford dealers have already started taking order for the company’s C-MAX Hybrid which is scheduled for 2013. C-Max, which directly competes with Toyota’s Prius V, is not only lower priced but is more fuel efficient too. The other introduction is that of Ford Focus Electric, which is on the way to the dealership outlets and ready to battle it out with Chevy’s Volt and Nissan’s Leaf.

My takeaway – Ford to ‘feel the difference’
Ford is set to make a difference for itself and is poised to rise with solid models bearing attractive features. The return of its Blue Oval has lifted the company’s moral and given it a mental boost. Though the company never lost the right of using the emblem on its vehicles, the official return of the same is a significant achievement for the carmaker.

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