When measuring the plight of Detroit, you can look at the grim sales figures or the relentless drop in market share. You can talk about how many millions the Medium-Sized Three are losing every day. You can point to the balance sheets, which creak under the weight of tens of billions of dollars in debt.
When assessing their odds of survival, there's one thing that can't be measured in numbers. It's the value of goodwill - not the accounting term, but goodwill with the public. Taxpayers are car buyers too, after all. Will the people who resent the bailout - and there are lots of them - avoid the showrooms of General Motors and Chrysler in protest? No one yet knows. But the question is at the heart of the gamble that Ford is making.
Ford is, of course, the only Detroit auto maker that hasn't taken a dollar of bailout money from the U.S. government or secured the promise of same from the Canadian government. This means it has avoided the burden of writing "viability plans" to please the politicians and the embarrassment of having to return to those same politicians in Washington and Ottawa to beg for more. But one shouldn't misconstrue its lack of desperation as a sign that it's in Toyota-like health. If the market continues to deteriorate, expect Ford to end up like its Motor City brethren, and the cost of the bailout to grow.
For now, though, it's staying off the dole in the hope that it can get through the industry's depression on its own. This violates Lesson One in every chief financial officer's guide to handling a crisis - take money when it's available, because it might not be there when you really need it - but it is supposed to come with an offsetting benefit. A solvent auto company ought to be able to gain sales, in theory, because no customer will worry that if he or she buys a Ford today, the company won't be around in three years to honour the warranty. GM and Chrysler have trouble offering the same assurance (which was part of their argument for receiving U.S. government assistance, instead of filing for Chapter 11).
So how's that working out so far? In the fourth quarter and in January, Ford gained a little bit of market share. Then in February it pulled back on giving cash rebates and other incentives and - whoosh - the gains went away. Its U.S. sales for the month dropped 48 per cent, better than GM but worse than Toyota or Chrysler. In Ford's most popular line of pickup trucks, where the margins are better than in small cars, the drop was 55 per cent. Ford did better in Canada, but this country's a small part of the global market.
Over all, the numbers were ugly, but then, they're ugly everywhere. The real question is, what about the cash? Ford was able to avoid GM's cash crunch because it was better prepared for the auto industry's nuclear winter. Going into 2008, Ford had nearly $35-billion (U.S.) in cash. "The difference between Ford and GM and Chrysler comes down to the fact that when [Ford CEO]Alan Mulally took over two and a half years ago, he went out and mortgaged everything," said Dennis DesRosiers of DesRosiers Automotive Consultants. It even borrowed against the value of its trademark blue oval logo.
It looked desperate. It was prescient. The credit markets were easy and the rates were good. Ford raised about $23-billion. But last year, it burned through nearly all of that - $21.2-billion. (If you're keeping score, that's a cash burn of about $2.4-million per hour.) Its cash advantage over GM has dwindled. Arguably, it still has other areas of superiority: It doesn't have GM's problem of too many brands, and it builds a couple of well-regarded smaller cars, the Focus and the Fusion.
"They've done more right than wrong," Mr. DesRosiers said. "But they still have two decades of mistakes that they're living with. They still have the same union contract as everybody else. They still have the same legacy costs as everybody else. Their dealer structure is still very problematic - too many dealers in too many corners." Even a cheaper labour deal might not get Ford into a position where it can generate cash flow in 2010, says the debt analysis firm Gimme Credit.
And then there's the cost of that Mulally mortgage. Yesterday, Ford proposed to cut its debt by more than $10.4-billion by trading it for cash and stock. But that's not likely to be enough. Things are so bad in the auto sector that even Toyota has now gone to the Japanese government for a loan for its financial services unit.
Ford has already lined up a $9-billion line of credit from Washington. If it needs to tap it, you can be certain that a formal request for a cheque from Ottawa and the Ontario government won't be far behind.