Ford Motor Q1 Prelim Results Hint at COVID-19 Illiquidity

As of 9 April, the company had about $30 billion in cash on its balance sheet, including $15.4 billion of proceeds from borrowings last month against two existing credit lines.

In an unusual move, Ford Motor Company today provided some preliminary Q1 2020 and other balance sheet data, as it considers possible additional financing actions while the coronavirus pandemic stalls commerce around the world. (Ford Stops Production in India, South Africa, Thailand and Vietnam, Ford Britain Shuts Dagenham and Bridgend Engine Plants, UAW Pressure: Ford Further Postpones NA Production Restart, Ford Stops North American Production)

The implication is that Ford is facing the COVID-19 pandemic that is likely causing a Greater Depression than its namesake with more unknowns than can yet be imagined.  Will the Dearborn-based automaker have to once again return to the credit markets to forestall bankruptcy an issue that many major conglomerates are now facing? Actual Q1 results are due 28 April after the markets close. There may or may not be more answers then*.

“We continue to opportunistically assess all funding options to further strengthen our balance sheet and increase liquidity to optimize our financial flexibility,” claimed Tim Stone, Ford’s CFO.  “We also are identifying additional operating actions to enhance our cash position.” (Ford Motor to Help 3M and GE Healthcare Expand Respirator and Ventilator Production)

In March, Ford suspended its $0.6 billion regular quarterly dividend and share repurchase program.  Stone said the company is taking other steps to preserve cash, including by lowering operating costs, reducing capital expenditures and deferring portions of executive salaries.

As of 9 April, the company had about $30 billion in cash on its balance sheet, including $15.4 billion of proceeds from borrowings last month against two existing credit lines. (Ford Motor Maxes Out Lines of Credit)

Only Ford’s joint ventures in China, where coronavirus risks are now apparently moderating for the moment, are making and wholesaling vehicles. Ford of course is re-considering a scenario for a phased restart of its manufacturing plants, supply network and other dependent functions beginning in Q2, with “enhanced safety standards” in place to protect workers.  Ford claims that in spite of its recent actions, any decisions on resumptions will be made in cooperation with local unions, suppliers, dealers and other stakeholders.

“However, we believe we have sufficient cash today to get us through at least the end of the third quarter with no incremental vehicle production and wholesales or financing actions,” said Stone.

Ford’s Q1 vehicle wholesales were down 21% from a year ago, largely as a result of lower production and demand related to the coronavirus.  Ford currently expects to report revenue of about $34 billion and first-quarter adjusted losses before interest and taxes of about negative -$0.6 billion, which excludes about $0.3 billion of special-item charges. The company has not yet calculated its tax rate for the first quarter and is not able to provide its preliminary net loss or loss per share but anticipates valuation allowance adjustments against deferred-tax assets of about $0.9 billion.

Ford Credit continues to be a source of support for customers and dealers during this crisis. Ford Credit’s balance sheet is inherently liquid, reflecting a policy that ensures cumulative debt maturities have a longer tenor than cumulative asset maturities. Ford Credit is generating liquidity as its wholesale and consumer financing requirements have declined because of the crisis. Translation Ford customer will have to repay their vehicle loans or leases long before Ford has to repay its debt.

Ford Credit remained above its $25 billion liquidity target with $28 billion at the end of the first quarter and has access to diversified funding sources.

Caveats

Ford has not yet completed the close of its first-quarter 2020 books and the preliminary financial data have not been subject to review or other procedures by the company’s independent auditor.  The company’s announcement of first-quarter financial results, including estimates of the economic effects of the coronavirus pandemic on the business, is planned for April 28.  In March, Ford withdrew all guidance for 2020 financial performance it had given on Feb. 4.

*Forward-Looking Statements

Statements included or incorporated by reference may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on expectations, forecasts, and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation:

1. Ford’s financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19.
2. Ford’s long-term competitiveness depends on the successful execution of global redesign and fitness actions.
3. Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs.
4. Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies.
5. Operational systems, security systems, and vehicles could be affected by cyber incidents.
6. Ford’s production, as well as Ford’s suppliers’ production, could be disrupted by labor issues, natural or man-made disasters, financial distress, production difficulties, or other factors.
7. Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints.
8. Ford’s ability to attract and retain talented, diverse, and highly skilled employees is critical to its success and competitiveness.
9. Ford’s new and existing products and mobility services are subject to market acceptance.
10. Ford’s results are dependent on sales of larger, more profitable vehicles, particularly in the United States.
11. With a global footprint, Ford’s results could be adversely affected by economic, geopolitical, protectionist trade policies, or other events, including tariffs and Brexit.
12. Industry sales volume in any of our key markets can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event.
13. Ford may face increased price competition or a reduction in demand for its products resulting from industry excess capacity, currency fluctuations, competitive actions, or other factors.
14. Fluctuations in commodity prices, foreign currency exchange rates, interest rates, and market value of our investments can have a significant effect on results.
15. Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors.
16. Ford’s receipt of government incentives could be subject to reduction, termination, or clawback.
17. Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles.
18. Economic and demographic experience for pension and other postretirement benefit plans (e.g., discount rates or investment returns) could be worse than Ford has assumed.
19. Pension and other post-retirement liabilities could adversely affect Ford’s liquidity and financial condition.
20. Ford could experience unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, perceived environmental impacts, or otherwise.
21. Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations that may change in the future.
22. Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, and data protection laws and regulations as well as consumer expectations for the safeguarding of personal information; and
23. Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations.