Howes: Talk turns negative on Ford, naturally, as COVID-19 headwinds intensify
Now that Ford Motor Co. says it expects to lose another $5 billion in the second quarter courtesy of the economic shutdown caused by the COVID-19 pandemic, talk naturally turns cataclysmic for the Dearborn automaker — 'cuz that’s how we roll in this town when things get tough.
Ford apparently should be for sale, says Forbes. It must be, given its present predicament, caught between a once-in-century contagion, weak international markets and a years-long restructuring still unspooling amid the economic shock.
Or it’s ripe for a merger, a leading Wall Street analyst recently told Automotive News, presumably with the Germans at Volkswagen AG who, well, don’t have a knack for playing well with others. Never mind that such deals (can you say, "DaimlerChrysler"?) struggle to muster the staying power of two product cycles, much less prove exemplars of strategic brilliance.
And Ford's renovation of the Michigan Central Depot in Corktown? It's doomed, despite a ranking source insisting it's not, just barely after it started. Meaning the gap-toothed hulk looming over the western edge of downtown will remain a testament to overreach that failed to account for the ravages of the coronavirus and relentless global competition.
That’s all one way to look at this dire economic moment. But the guy whose name is on the building, whose great-grandfather founded the automaker nearly 117 years ago in Detroit, offered a different take when asked in an April 16 “global team huddle” about the possibility of Ford agreeing to a merger with a global rival:
“No,” Executive Chairman Bill Ford said, according to two sources who participated in the call. “As a matter of fact, hell no.”
For anyone who knows Bill Ford, or has spent more than a few minutes listening to him riff on the automaker, his family's deep connection to it, or the commitment of the many employees to a company often called "Ford's," that reaction is totally, unequivocally unsurprising.
That's not to say Detroit's No. 2 automaker doesn't face some enormous strategic challenges. It does. Its European operations, seemingly in continual restructuring mode, got whacked hard by COVID-19 even as it struggled to find its footing. Its business in China, also slammed by the virus, continues to seek stability after misjudging the domestic market there by producing vehicles consumers didn't much want.
And South America — no one from this continent seems capable of making much money there, even in the best of times. That's why pressure for Ford to exit chronically underperforming markets is likely to intensify amid the pandemic swoon. But surrender? I wouldn't bet on it, not yet.
There are no guarantees. Ford's financial resources are not bottomless; it's competitive position is not unassailable, especially outside the fat profit centers of full-size pickups and SUVs; and its challenges managing the interdependent traditional business and the Auto 2.0 spaces of mobility, autonomy and electrification are every bit as difficult as those its rivals face.
Ford and crosstown rival General Motors Co. are girding for their biggest battles since their parallel fights for survival during the Great Recession a dozen years ago. They're drawing down credit lines to raise billions in cash, suspending dividends (never popular among the Ford family diaspora), and the Blue Oval raised even more cash by issuing $8 billion in new debt.
Defensive? Sure. Surrender? No. Predicting the subjugation of a company like Ford to some foreign rival angling for control of arguably the most profitable vehicle program on the planet — the F-Series pickup lines — would be the triumph of the very German schadenfreude over the economic interests of Detroit, Michigan and industrial America.
"Now that Ford has effectively secured its balance sheet to survive the COVID-19 pandemic and market crisis, the focus becomes restarting/ramping production, right-sizing cost structure, and managing product portfolio," Bank of America wrote in a note analyzing Ford's first-quarter financials.
"We believe the unprecedented market pressure has likely catalyzed Ford’s planned restructuring and cost reduction efforts, while a renewed focus on higher mix and franchise product coming out of the sales/production trough will help support price and margin."
Deutsche Bank is less optimistic: "Ford’s steep losses and cash use since the beginning of the Covid-crisis, which management expects to get dramatically worse in Q2, are a sobering reminder of the main reasons we are staying on the sidelines of U.S. automakers' stocks: large fixed costs and considerable working capital unwind are resulting in eye-popping cash burn in the current production shutdown."
There's a familiar saying in Dearborn that applies here. Paraphrased: Ford and its people do their best work when their proverbial backs are against the wall. Now, we can debate the exact confluence of events — at least one big one is beyond the Blue Oval's control — that led the Blue Oval to this particular cul-de-sac. But it's here.
Bill Ford's "hell no" doesn't speak just for him or the Ford family writ large. It evokes a spirit embedded in the employees who walked back into plants to assemble masks, face shields and ventilators to help medical professionals care for sick patients. It channels the engineers who took three weeks to do what otherwise would take a year or more, everyday folks who did their part to help flatten the curve.
It exemplifies the grit that helped the allies win World War II, helped predecessors overcome competitive challenges and the dulling pall of mediocrity, helped states suppress COVID-19. Yup, hell no.
Daniel Howes’ column runs most Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN. Or listen to his Saturday podcasts at detroitnews.com or on Michigan Radio, 91.7 FM.