A US$14bn investment in fuel saving technology, including electric commercial and passenger vehicles due out by 2011, should boost Ford’s overall and North American automotive business pre-tax results to at least break-even in 2011, Ford said in a submission to the US Senate Banking Committee today, ahead of a second congressional hearing starting on Thursday.
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The automaker, in the best cash position of the Detroit Big Three thanks to locking in fresh liquidity arrangements ahead of the credit crunch, said it was asking for access to up to $9bn in bridge financing, but reiterated that it hopes to complete the changes without drawing on any loan Congress agrees to make available.
It also said it would sell its five corporate aircraft – the subject of much controversy after all three CEOs each used a private jet to last month’s first hearing on Capitol Hill, and earlier, when media learned that senior executive Mark Fields was using a private jet to commute weekly to Dearborn from his home in Florida.
In its formal submission, Ford insisted it had been making restructuring plans before the global credit crisis struck.
“We would ask Congress to recognise, however, that Ford did not wait until the current crisis to begin our restructuring efforts, but has already begun a fundamental restructuring in the way we do business. Our early efforts showed promise before the credit and economic crises hit earlier this year,” it said.
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By GlobalDataWe share Congress’ concern that our industry needs an aggressive restructuring, and we at Ford already have undertaken many of the decisive actions that we believe are necessary to ensure our future success.”
Although its cash position is better than its two domestic rivals, Ford said it was “in our own self-interest, as well as the nation’s, to seek support for the industry at a time of great peril to this important manufacturing sector of our economy.
“We are aware that our domestic competitors are, by their own reporting, at risk of running out of
cash in a matter of weeks or months. Because our industry is an interdependent one, with broad overlap
in supplier and dealer networks, the collapse of one or both of our domestic competitors would threaten
Ford as well.”
Ford also said CEO Alan Mulally would work for a salary of $1 a year – “as a sign of his confidence in the company’s transformation plan and future” – should the company need funds from a potential government bridge loan.
The company added that it hoped that submitting its plan to Congress would hasten approval of its application with the FDIC to establish an industrial loan company as part of finance arm Ford Motor Credit Company.
“Having an industrial loan company will place us on a more equal footing with our major competitors who
already have such banks. More importantly, it will benefit consumers by providing us another resource for reasonably priced capital, thus helping us provide credit to our customers and dealers,” the submission said.
Transformation of its North American automotive business would continue to accelerate through “aggressive restructuring actions and the introduction of more high-quality, safe and fuel-efficient vehicles – including a broader range of hybrid-electric vehicles and the introduction of advanced plug-in hybrids and full electric vehicles”.
It plans to speed up a “vehicle electrification plan” for a line of hybrids, plug-in hybrids and battery electric vehicles – developed in partnership with battery and powertrain systems suppliers – including a battery “van-type vehicle for commercial fleet use in 2010 and a BEV sedan in 2011”. Details of the plan due for completion by 2012 will be outlined at next month’s North American International Auto Show in Detroit.
The switch from large truck-type vehicles is also continuing – it is increasing its investment in cars and crossovers from approximately 60% in 2007 to 80% of the total product investment in 2010.
Despite the serious global economic downturn, Ford insisted it did not expect a liquidity crisis in 2009 – barring a bankruptcy by one of its domestic rivals or a more severe economic downturn that would further cripple automotive sales and create additional cash challenges.
“For Ford, government loans would serve as a critical backstop or safeguard against worsening conditions, as we drive transformational change in our company,” said president and CEO Alan Mulally in a statement.
In the plan submitted to Congress, Ford reiterated that its ‘One Ford’ remains in place with the four key priorities of restructuring to offer a model mix produced to match current demand, develop new products customers want, manage finance to improve the balance sheet and operate the company more “as one team, leveraging our global assets”.
“We appreciate the valid concerns raised by Congress about the future viability of the industry,” Mulally said. “We hope that our submission today helps instill confidence in Ford’s commitment to change, including our accountability and shared sacrifice during this difficult economic period.”
Ford is now expecting US industry sales of 12.5m units in 2009, 14.5m in 2010 and 15.5m in 2011 and, if this holds, expects both its overall and its North American automotive business pre-tax results to be break-even or profitable in 2011, excluding any special items.
It said half of its light-duty Ford, Mercury and Lincoln models would qualify as “advanced technology vehicles” under the US Energy Independence and Security Act in 2010 – increasing to 75% in 2011 and over 90% in 2014.
Ford said it had included these projects in its application to the Department of Energy for loans under that act and hoped to receive $5bn in direct loans by 2011 to support its investment.
Ford also said it would improve the fuel economy of its fleet an average of 14% for 2009 models, 26% for 2012 models and 36% for 2015 models – compared with its 2005 fleet.
As previously announced, the automaker plans two additional plant closures this quarter and four more between 2009 and 2011. It has also said it would close or sell what will be four remaining ACH (ex-Visteon) plants and continue to “aggressively” match manufacturing capacity to actual demand.
By the end of this year, Ford estimates it will have 3,790 US dealers, down 606 or 14% from the end of 2005 – with a cut of 16% in large markets.
It has also reduced its major supplier count from 3,400 in 2004 to about 1,600 today, a reduction of 53%. And it will eventually reduce this to 750.
Ford also reiterated it is cancelling all 2009 management bonuses worldwide and bonuses for all employees in North America. It also will not pay merit increases for North America salaried employees.
“Ford has a comprehensive transformation plan that will ensure our future viability – as evidenced by our profitability in the first quarter of 2008,” Mulally added.
“While we clearly still have much more work to do, I am more convinced than ever that we have the right plan that will create a viable Ford going forward and position us for profitable growth.”
