Executives at the Ford Motor Company have insisted they are willing to bet the company’s future on a turnaround plan put in place earlier this year.
On Monday, they essentially did just that, mortgaging nearly all of Ford’s domestic assets — its plants, office buildings, patents and trademarks — along with stakes in Ford Credit and Volvo, to raise $18 billion.
Ford will use the money, which includes cash and an expanded line of credit, to cover several years of restructuring costs. Under a plan called the Way Forward, Ford expects to eliminate more than 40,000 jobs and close more than a dozen plants.
Remember, this is a plan to become a "profitable company" again. Not to regain the market share it is losing to foreign automakers. Not to improve its quality or to produce more fuel efficient vehicles. Not to increase lagging sales.
There could be hope in the future then. Just as the merger with Daimler saved Chrysler, perhaps a merger with Toyota or Honda could save this Detroit Dinosaur and install a new business model. The old model obviously isn't working, and by taking out essentially a "home equity loan" management isn't demonstrating a changed attitude.
For decades, its credit was so good that it could easily borrow without pledging assets. But it is now taking out the corporate equivalent of a home equity loan and in doing so, signals that it expects even more stormy times before its restructuring is complete.
Analysts said the step, which Ford executives signaled early this fall, could put the company’s independence at risk. If management fails to make the ailing company profitable, Ford may be left with little choice but to find a buyer or merger partner or file for bankruptcy protection.
“It’s a historic moment for the company,” said Sean Egan of the Egan-Jones Ratings Company in Wynnewood, Pa. “It underscores the gap between the domestic manufacturers and Toyota, who’s sitting with over $80 billion of cash on its balance sheet and a stellar credit rating.”
Henry Ford is looking on from that great executive boardroom in the sky wondering why his legacy is being mortgaged when the obvious answer for the company is start building cars that people want to buy. Of course, Ford was the one who created that philosophy when he said consumers could have any color Model T they want as long as it's black. Sounds like the same family is running the company, doesn't it?