Ford’s gamble to leverage assets for debt pays off

In 2006, the chief executive fresh from Boeing Co. wanted to concentrate on making smaller, more fuel efficient cars, matching production with consumer demand, and focusing on the Ford, Lincoln and Mercury brands.

The company has announced the closure of 17 factories and eliminated 50,000 jobs since its latest restructuring started in 2005, many through buyout and early retirement offers. It sold non-Ford brands Jaguar, Land Rover and Aston Martin and is studying the sale of Sweden’s Volvo. Smaller cars produced by its European unit are coming to the U.S. starting in 2010.

But to fulfill that vision for the company, Mulally needed at least US$17 billion. He took his plan — one very similar to the one Ford submitted to Congress last week — to 40 banks at a time when credit flowed freely, and he ended up raising US$23.5 billion. He bet all of Ford’s buildings, stock, intellectual property, stakes in foreign automakers, and even its trademark blue logo as collateral. “At the time people were wondering if we were being too aggressive to leverage assets,” Mulally said in an interview with The Associated Press. “I erred on the side of being conservative on financing.”

The move to secure credit proved to be key to Ford’s assertion that it doesn’t need an emergency loan from Congress now like General Motors Corp. and Chrysler LLC do. While the company boasts how its fleet and future vehicles set it apart from its Detroit competitors, its ability to maintain operations through 2009 without government aid is a key differentiator.

The company had US$18.9 billion in cash on hand on Sept. 30 and still had about US$10.7 billion of its credit lines available.

Yet Ford could be standing on a melting iceberg. The company spent US$7.7 billion more than it took in the third quarter as U.S. auto sales fell, reaching an annualized sales rate of 10 million in November, the lowest level since October 1982.

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