More than a decade after the latest economic crisis, Ford Motor Company continues to repay a giant government loan created through Congress at the beginning of the Great Recession for automakers to carry out plant projects.
Critics at the time focused on General Motors and Chrysler, all pointing to bankruptcy and accepting government bailout loans through the U.S. Treasury Department’s Troubled Asset Relief Program (TARP) to reorganize the auto crisis that hit the industry between 2008 and 2010. Meanwhile, Ford took a different path.
But in the end, he took out a government loan.
The debt remains on Ford’s books as the company goes through a pandemic.
In September 2009, Ford entered into an agreement with the Department of Energy and borrowed $5.9 billion from a loan program created to finance automotive projects designed for U.S.-made cars to meet the needs of higher mileage and diminish America’s reliance on foreign oil.
The company is one of 3 recently indexed automotive industry beneficiaries on the Advanced Technology Vehicle Manufacturing (ATVM) website.
While critics of government aid, adding Ford executives, still focus on government bailouts, few have discussed in recent years the loan program that distributed cash over the same time to automakers explicitly.
Alan Mulally, then chief executive at the time, praised the foreing of lending just before this crisis, adding the Blue Oval, because Ford was angry before the others and acted before the others.
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Ford, Nissan and Tesla are indexed as loan recipients of a program that had a strict monetary solvency to qualify. Nissan earned $1.6 billion for operations in Tennessee and $465 million for its California operations.
Tesla and Nissan had repaid their loans in September 2017, according to CNBC. Ford hadn’t.
As Tesla’s stock soars, Ford tries to shore up his finances.
Loan with additional interest creates an additional burden for Ford as liquidity decreases.
“As of December 31, 2019, a total of $1.5 billion defaults,” Ford revealed in its latest 10-K filing with the U.S. Securities and Exchange Commission. “The ATVM loan is refundable in quarterly installments of $148 million, which began in September 2012 and will end in June 2022.”
Documents filed through Ford show that the company owes bills of $591 million in 2020, $591 million in 2021 and $289 million in 2022.
“They’ll have to find a way to pay, or they’ll ultimately pay more for the privilege of borrowing,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “It’s the kind of thing that helps keep other people awake at night. This is a challenge at 3 a.m. for the control team.”
Dark days
During smart times, car analysts said, Ford may have raised cash and paid off debts in anticipation of bad times. That’s what happened.
“It’s very unpleasant and very difficult now,” said Elson, whose public policy school is named after John Weinberg, Ford’s banker for years.
In its loan application, Ford said the cash would be spent to improve thirteen services in Michigan, Illinois, Kentucky, Missouri, New York, and Ohio, “resulting in production plants and meetings” with flexibility to manufacture energy-efficient cars that meet conversion demands. .
The government’s online page notes that “Ford has updated several amenities to continue the fuel power of more than a dozen popular vehicles, adding the Escape, Fiesta, Focus, Fusion and Taurus models, as well as the F-150 soft pickup.”
In addition, the Fiesta has been built in Mexico. Production of Fiesta, Focus, Taurus and Fusion will have stopped by the end of 2020. The company this year decided on an action of elegance related to a faulty transmission in its Focus and Fiesta vehicles.
Ford is praised by the government for its “commitment to introducing new hybrid, plug-in and all-electric vehicles.”
Changing fools
Ford says government debt bills are “relatively small” and not worried.
“The loan expires in June 2022. We plan to cancel the loan in full and on time,” Ford spokesman T. R. Reid told Free Press on Tuesday. “At the end of the first quarter, the principal balance $1.3 billion.”
When asked if Ford had requested deferment of loan payments, Reid said more data would be revealed in long-term regulatory filings.
$5 billion in blues
Ford is not in the fight, but entered in 2020 with a much lower than expected profit than his competitors. The leaders said they were disappointed and promised to do better.
Ford’s earnings report for the first 3 months of 2020 reflected a loss of $2 billion, the maximum of which was not similar to COVID-19. Ford then warned Wall Street that it expects a $5 billion loss this quarter, reflecting the effect of plant closures between March and May.
Tim Stone, Ford’s leading monetary official, said the corporate idea had enough coins to reach 2020. Ford reported in April that it had $34 billion in coins and $35 billion in coins at the end of the first quarter.
This month, Ford returned to the banks to apply for a $5.35 billion loan extension from the banks, J.P. Morgan Chase.
“The company will complete the expansion before its profits arrive on July 30,” Reuters said. “They need to be prepared to say something good. That they were able to generate more liquidity for some other year.”
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Cash flow, or liquidity, is a lifeline for the crisis.
On March 19, Ford announced that he was borrowing $15.4 billion on two lines of credit. The corporate also withdrew its monetary management role due to unforeseen circumstances.
“Ford Motor Company is carrying out a number of projects to increase the company’s monetary position amid the coronavirus fitness crisis,” the company said at the time.
However, prices related to the renegotiation of monetary settlements are negligible, said Professor Kara Bruce of Toledo College of Law, who specializes in bankruptcy law and advertising.
“I can tell you that when a company negotiates with its creditors, the choice of bankruptcy is at the forefront of those discussions,” he said. “Treating bankruptcy outdoors gives parties significant control that they don’t have in the event of bankruptcy.”
Ford CEO Jim Hackett issued a statement: “As we did with the Great Recession, Ford is handling the coronavirus crisis in a way that protects our business. Array… We plan to emerge from this crisis as a more powerful company.
Meanwhile, Ford refused to talk about the main monetary points when asked at two of his recent meetings organized through major banks.
“Ford is in the last days in a coding mode: paying for a credit card with a credit card until the end of the concert,” market analyst Jon Gabrielsen said.
One of the country’s most sensible bankrupt lawyers, whose company prevented him from being named because he works with the auto industry, said “Ford’s big losses are worrisome.”
Sad reality
Still, the franchise is not an option, said John McElroy, a longtime industry observer and host of Autoline After Hours.
“Although things are difficult, you have to say, “We’re passing by to get out of this and be okay,” he said. “Go out and say, “Dude, we’re in serious trouble”: money markets would go crazy. Suppliers would start to worry. Employees would be demoralized. It’s a real tightrope to say the fact without putting everyone’s hair on fire. “
Recent loans, however, have pointed to a regrettable reality.
“At the beginning of the pandemic, when General Motors and Ford announced how much cash they were going to borrow, he gave me the alarm,” McElroy said. “They were clearly expecting monetary devastation in the market and went looking for cash to get them out. Now, most recently, we’ve noticed fords going back to the banks and asking them for another year before they have to pay that money back. Cash. Array Therefore, Ford apparently believes that the scenario is worse now than he imagined 3 months ago.”
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Ford’s definitely surveillance.
“This will be a difficult effects report for Ford,” said David Kudla, chief executive and leading investment strata at Mainstay Capital Management, a Grand Blanc investment advisor who manages $2.7 billion in client assets that come with many Ford employees.
“Ford in trouble when times were booming,” McElroy said.
Keep hope alive
The ominous predictions about Ford are premature, Reid said.
“Ford’s record was consciously strong before the pandemic,” he said. “This money and liquidity, combined with greater money management, preservation and reduction of charges, is an explanation for why we can manage the crisis and invest strategically in Ford’s future.”
Ford’s worried, Reid said.
“We had monetary flexibility in 2008 and have intentionally controlled the balance sheet ever since to be prepared for economic recessions, adding this one,” he said.
Contact Phoebe Wall Howard: 313-222-6512 or [email protected]. Follow her on Twitter @phoebesaid. Learn more about Ford and subscribe to our newsletter.
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This article was originally published in the Detroit Free Press: Ford took out a $6 billion government loan in 2009, and the debt still haunts the company.
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