Ford fights back after bankruptcy forecast
By Simon English in New York (Filed: 07/03/2003)
Ford is fighting gloomy predictions that it could be forced into bankruptcy, weighed down by debts of $150 billion (£94 billion), stumbling sales and a sluggish world economy.
A scathing examination of the motor icon's balance sheet by the analyst famed for predicting that WorldCom and Enron would go bust long before Wall Street realised those companies were doomed puts Ford's future in doubt.
Sean Egan, founder of the Egan-Jones ratings agency, offers eight reasons why Ford could be in serious trouble including huge pension fund liabilities and a lack of cash to fund borrowings.
"If it didn't have the name Ford, it would be in bankruptcy right now," says Mr Egan.
Ford's shareholder equity of $11 billion would be wiped out completely if an adjustment was made for the pension fund liability, even before another $10 billion in healthcare costs for retired workers is included, he argues.
He believes Ford's survival is dependent on investors remaining supportive. The shares slipped 31 cents to $7.45 yesterday, close to an all-time low.
Mainstream rating agencies Moody's and Standard & Poor's rate Ford's debt at a little above junk level, though these firms rely for income on issuers of debt. Ford is the largest debt issuer in the US.
This week, the market treated Ford's bonds as if they were junk in any case, quoting them in dollars, a convention normally reserved for speculative investments.
Other concerns for Ford include the amount it has to repay by the end of the year - $18 billion, rising to $26 billion in 2004 according to Mr Egan - and the slim chance of a bail-out from the government should the worst occur.
No Wall Street firm contacted yesterday would come forward to defend Ford - analysts were "in meetings" or "very busy".
The last note from JP Morgan rates the shares a sell. Morgan Stanley says in a recent note to clients that "cost problems may not be abating", "cash flow is likely to be difficult this year", and "it remains unclear how the company expects to gain market share".
Ford lost $5.5 billion in 2001 after a disastrous year that saw Jacques Nasser ousted as the chief executive.
He was replaced by family scion Bill Ford, who has been praised as hard working and claims to "bleed Ford blue" but whose turnaround plan has yet to inspire recovery.
Last year he said America had fallen out of the love with the car, as a once mighty industry battled huge losses and fierce competition.
For all the difficulties faced by carmakers, rivals such as General Motors remain profitable. Ford lost another $980m in 2002 despite drastic cost cutting compared with $1.7 billion earned by GM.
A spokesman said: "Ford is fundamentally strong and we continue to improve our business performance. Our corporate revitalisation plan is gaining momentum on every front. As we prepare to celebrate our 100-year anniversary we are confident in our outlook for a successful future."
Ford insists its pension liability is "manageable".
A bankruptcy filing would add to the stream of business failures that have plagued corporate America and be a disaster for the company's hometown of Detroit, staff across the world and the Ford family that still owns a controlling stake.
Grant's Interest Rate Observer, a Wall Street newsletter, said that a crisis at Ford would "nudge Saddam Hussein off the front page".
Ford's brands include Jaguar, Aston Martin and Volvo.