Ford’s (F) Silver Lining

The stock market’s string of four positive days in a row came to an abrupt halt today as continuing bad economic news coupled with disappointing earnings dragged equities down. We did see something from Ford Motor (F) that at least demonstrates that the key tenets of capitalism are not completely forgotten by American industry. As most are aware, the U.S. automakers received funding from the government via executive order in the final weeks of the Bush administration. However, of the big three (General Motors, Ford, and Chrysler), one of these struggling companies took a stand against accepting government funding. Ford rejected the government rescue dollars, but the cynic in us figured that it would not be long before Ford requested some form of government assistance, especially given the horrendous sales numbers plaguing the industry. David Asman of Fox Business Channel put it this way:

“Ford Motor is facing the worst year in the company history facing fourth quarter losses of $6 billion, and the auto maker still doesn’t plan to seek federal loans.”

Ford MotorThe bottom line quarterly results for Ford were worse than analysts had expected as the company lost $1.37 per share excluding one time charges. Consensus estimates called for a loss of $1.30. Revenue was slightly better than expectations but, compared to a year ago, sales have slumped 36%. Interestingly, as bad as the results were, the company was able to reduce its cash burn rate which was $5.5 billion for the quarter, down from $7.7 billion in the prior quarter. The spokesman for the company also said that Ford thinks its burn rate will continue to slow through 2009, despite sales that are predicted to slump 10%. At the moment, the company has about $13.4 billion in cash on hand but there is an additional credit facility that adds $10.1 billion. Interestingly, Ford CEO Alan Mulally secured $23.5 billion in financing back in 2006 and 2007 in anticipation of “rainy days” in the future.

At some point in the future, Ford will emerge from this maelstrom a stronger company. Auto sales will pick back up again; according to the Federal Highway Administration there are 240 million cars on the road in the U.S. The December rate of auto sales was at a stunningly low annualized rate of 10.3 million cars, which equates to an average replacement rate of 23.4 years. Historically, the normal replacement rate is about 13 years. As the cars on the road continue to age, look past the grim current situation and realize that sales will not stay this depressed forever.

Now, please do not take this as an endorsement of Ford stock as the company will continue to struggle for some time. Ford’s fundamentals are awful and it carries far too much debt for a company that is losing money. After all, 2008 was the worst year in the company’s 105 year history, and thus it has earned our infamous “yellow sticky note of doom“. However, we do see this as evidence that Ford is the best managed of the Big Three, as it was only nine months ago that the company turned a profit because of a weak dollar and aggressive cost cutting. Furthermore, CEO Mulally won our respect by turning down government bailout money. Perhaps it is because Ford does not want to be subject to the strings that will likely come attached to the money, or it could be a more “old school” belief that you do not take bailouts that you don’t need. Either way, taxpayers should applaud Ford for trying to turn around its business independently by reigning in costs and, hopefully, making cars that American’s want to buy, such as trucks and SUV’s. The self-reliance of Ford and its management appears down-right American.

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