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Mounting Debt a Burden for Ford


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#1 OFFLINE   Austin

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Posted 12 July 2009 - 09:30 AM

Nothing really new here, but worth a quick read.

"Today, Ford has $25.8 billion in automotive debt -- much of which was accumulated to raise cash so the company could survive the economic downturn that it correctly forecast several years ago.

General Motors Co., by contrast, will exit Chapter 11 bankruptcy with a much lighter $17 billion in debt.

What's more, Ford's debt level could reach $36 billion by 2011, when Ford expects to be profitable again, Citibank analyst Itay Michaeli said in an interview with the Free Press.

That is about four times more than Ford's expected earnings. Healthy automotive companies usually carry about twice as much debt as earnings, he said."

Ford Debt







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#2 OFFLINE   ausrutherford

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Posted 12 July 2009 - 11:10 AM

They need to check their numbers badly.

#3 OFFLINE   BORG

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Posted 12 July 2009 - 12:20 PM

I thougth the NEW GM was in debt to the tune of $48 billion?

#4 OFFLINE   ausrutherford

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Posted 12 July 2009 - 12:28 PM

I thougth the NEW GM was in debt to the tune of $48 billion?


Exactly+ Fords debt is lower than what they said.

#5 OFFLINE   TomServo92

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Posted 12 July 2009 - 01:13 PM

They need to check their numbers badly.


This is the internet. Fact checking is irrelevant.

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#6 OFFLINE   Moosetang

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Posted 12 July 2009 - 02:39 PM

This looks like a hit job to scare people and try to knock down FoMoCo's big momentum, in favor of "New" GM.
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#7 OFFLINE   jpd80

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Posted 12 July 2009 - 03:30 PM

Ford lowered their debt by nearly $10 billion recently but don't let facts get in the way of a story.
Sure the debt is $25,8 billion but those figures could change rapidly for the better with increased sales.
Ford Nth America is getting by on roughly 65% of the sales it has two years ago, that bodes well....

#8 OFFLINE   Reigner92

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Posted 12 July 2009 - 03:49 PM

This looks like a hit job to scare people and try to knock down FoMoCo's big momentum, in favor of "New" GM.

agreed
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#9 OFFLINE   Austin

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Posted 12 July 2009 - 04:02 PM

Exactly+ Fords debt is lower than what they said.


I'm not so sure. If you go to the following slides which were part of Ford's 1Q results, Ford is reporting $25.8 billion of automotive debt (Appendix 17 of 19). And it looks like this number is after Ford did the final credit draw, and after the debt/equity swap. But of course we don't know the auto debt now until we see the 2Q results. And of course this is not a net number as Ford has cash on hand.

Ford 1Q

I'm not sure about GM's debt, but don't forget that the government's plan involved GM exchanging equity for debt among the partners that now control GM's stock. And some of the debt was just written down or eliminated. So, it seems logical to me that GM's automotive debt would be lower than Ford's at this point. But GM's ability to raise additional capital either through conventional loans or floating equity is non-existent; only the government would be able to help.

None of this means that Ford can't eventually right itself.

But it is like the good neighbor with the mortgage who faithfully makes his payments (even when his house is worth less than the mortgage), compared with his spendthrift neighbor who went belly up because he blew all his money buying crap and now is asking for a handout.

#10 OFFLINE   theoldwizard

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Posted 12 July 2009 - 04:33 PM

According to Reuters, GM owes the Federal Government $50B and has approximately $10B in debt.

As for Ford, I expect they will issue and sell more stock in the next 6 to 12 months.

Edited by theoldwizard, 12 July 2009 - 04:34 PM.


#11 OFFLINE   suv_guy_19

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Posted 12 July 2009 - 04:40 PM

That means that they also owe the Canadian Government $10B

#12 OFFLINE   Ralph Greene

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Posted 12 July 2009 - 05:25 PM

According to Reuters, GM owes the Federal Government $50B and has approximately $10B in debt.

As for Ford, I expect they will issue and sell more stock in the next 6 to 12 months.


I expect the same. The "pie" will get split into more pieces....each share representing less and less of the company. But the debt per share will go down also with an offering, increasing equity per share. If they can have another secondary offering at a good price, it could be a positive thing.

Ford is the best surving car company....whether or not it has the best stock to buy is the question. The new shares of a lean GM could be an interesting investment. I also expect what's left of Chrysler to just go away before long.
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#13 OFFLINE   weiweishen

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Posted 12 July 2009 - 09:57 PM

Nothing really new here, but worth a quick read.

"Today, Ford has $25.8 billion in automotive debt -- much of which was accumulated to raise cash so the company could survive the economic downturn that it correctly forecast several years ago.

General Motors Co., by contrast, will exit Chapter 11 bankruptcy with a much lighter $17 billion in debt.

What's more, Ford's debt level could reach $36 billion by 2011, when Ford expects to be profitable again, Citibank analyst Itay Michaeli said in an interview with the Free Press.

That is about four times more than Ford's expected earnings. Healthy automotive companies usually carry about twice as much debt as earnings, he said."

Ford Debt


Those debts are all long term debts. Ford does not need to pay them all back now. The crucial point is the rate between the cash flow and the current payable. Based on my algorithm, I guess Ford only burn very little cash this first half year. We will see at the 2Q report. If Ford can keep this trend and do one more cash/stock for debts exchange, debts should not be a real treaten to Ford. Ford stock is still just 5.70$, it still has enough charming for the debts exchange. What does GM has? GM will not issue any stock until earlier 2010. Before that how to control the operation loss will be a tremendous or even impossible task for GM. The new GM only has 16% market share and its expense is still as big as old GM. They just shed 40 billion debts and some dealer.

#14 OFFLINE   Joe771476

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Posted 13 July 2009 - 02:44 PM

Some people aren't sure that the new GM will survive either. We'll just have to wait and see.

#15 OFFLINE   jpd80

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Posted 13 July 2009 - 03:42 PM

For three years, Ford has been juggling a lot of debt and it's doing it successfully during major
restructuring and in the middle of the GFC. People have been predicting Ford's financial failure
all through that time, it hasn't happened yet and with an upswing on the way, doubtful in the future.

#16 OFFLINE   steve577

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Posted 13 July 2009 - 04:04 PM

GM doesn't owe the government anything. The debt was converted to
equity. If and when GM becomes profitable and confidence in the
company returns, the governments of US and Canada and the UAW
can sell their stock or a portion thereof via an IPO.

If Ford can continue to gain market share from Toyota, Honda, Hyundai,
GM and others, everything will be fine at Ford, even at the current
anemic sales rate. I think sales will bounce back to a 12 million
annual rate soon.

#17 OFFLINE   TomServo92

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Posted 13 July 2009 - 04:40 PM

GM doesn't owe the government anything.


Not according to this story:

General Motors is freshly out of Chapter 11 bankruptcy but the Detroit automaker is already contemplating an initial public offering of stock in 2010. The proceeds of the IPO could be used to pay down debts owed to the United States and Canada.

The United States Treasury current owns more than 60 percent of General Motors, with Canadian governments holding an additional 11.7 percent stake in the Detroit automaker. In addition to the $50+ billion tab GM ran up with the governments in anticipation of its Chapter 11 filing, another $8 billion in government loans will mature in 2015.


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#18 OFFLINE   7Mary3

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Posted 13 July 2009 - 07:21 PM

The thing is Ford needs to substantially increase sales. Lots of good press about Ford's market share, but that doesn't mean too much when the market is so much smaller than it was 2 years ago. That debt increases Ford's break-even point. Ford is still loosing money. As for GM, at this point I wouldn't even want to guess how it will turn out.

#19 OFFLINE   PREMiERdrum

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Posted 13 July 2009 - 07:37 PM

The thing is Ford needs to substantially increase sales. Lots of good press about Ford's market share, but that doesn't mean too much when the market is so much smaller than it was 2 years ago. That debt increases Ford's break-even point. Ford is still loosing money. As for GM, at this point I wouldn't even want to guess how it will turn out.


Good Lord you're a negative Nancy.

As has been reported many, many, many times: Ford is still estimating a profit in 2011, using today's numbers. If they keep doing what they're doing, they're going to be just fine. If they fall into the habits of old Ford (or "new" GM for that matter), they might not come out as well. :banghead:

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#20 OFFLINE   7Mary3

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Posted 13 July 2009 - 10:12 PM

Good Lord you're a negative Nancy.

As has been reported many, many, many times: Ford is still estimating a profit in 2011, using today's numbers. If they keep doing what they're doing, they're going to be just fine. If they fall into the habits of old Ford (or "new" GM for that matter), they might not come out as well. :banghead:


And are not those predictions based on the new car market recovering by 2011? Playing the 'if' game, 'if' the market increases back to something over 12M units/year, and 'if' Ford can at least hold on to their current market share (they have been able to grow share, as I pointed out), then Ford has a good chance of turning a profit sometime in 2011. I don't think it is a question of falling back on bad habits (and we have no idea what the habits are of this 'new' GM, it's not old enough to have habits) or really anything else Ford can do, but how well the economy recovers by 2011.