Ford Hunkers Down for a Lean Summer
Bulking up on cash to ride out the health crisis
Shutting down all your plants, even for a couple of weeks, is no small thing for any manufacturer.
When you’re a global giant, the cost can seem downright scary.
Consider Ford. Today it maxed out two lines of credit to the tune of $15.4 billion to cover the hit of idling its factories in the U.S. and Europe because of the coronavirus health crisis.
Ford world headquarters (Image: Ford)
Those funds are on top of $22 billion in cash Ford has ready to go already. Not to mention the $35 billion in liquid assets it can quickly convert. Both those amounts are more than what Ford considers adequate to face down an economic slump.
So why borrow the $15.4 billion anyway? It’s a strategy the company used a dozen years ago when the Great Recession hit. The idea is to go into a crisis with plenty of financial muscle so you can come out of it faster and stronger than the other guys.
In this case, Ford says the new borrowings will keep it topped up with working capital while production—and the ability to generate revenue through vehicle wholesales to dealers—dries up temporarily.
The company also knows that consumer demand won’t just bounce right back to normal in a couple of months. The disruptions caused by the virus pandemic are already taking the wind out of the retail car market, and it’s sure to get worse in coming weeks.
Economists also figure the broader impact of the health crisis will drag the U.S. into a recession, meaning at least six months of a shrinking economy.
But this surrealistic mess won’t last forever. Ford, like the rest of the global auto industry, has a sharp eye on the inevitable recovery to come.
For now, the more decisively our industry goes into the maelstrom, the stronger it will be coming out.
Dan Nicholson is vice president of General Motors Global Propulsion Systems, the organization that had been “GM Powertrain” for 24 years.
The little car that could still can. And this time as a car that not only gets great fuel economy, but which has ride and handling that makes it more than an econo-box (and its styling is anything but boxy).
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