Posted by
The CL Project on Tuesday, April 07, 2009 5:38:41 PM
Ah the beauty of capitalism... and the hope for a stock (umm my stock) that has been scorned.
Here's the deal, when your competitors have hobbled themselves by taking bailout money and letting the government run their businesses, just stay focused on the big picture: make a profit by selling cars that people want to buy. The ![[Ford.jpg]](http://2.bp.blogspot.com/_ykzARK84ICo/SdrRt7CecrI/AAAAAAAABrk/JQriU50n96g/s1600/Ford.jpg)
government can wish for a market for green econoboxes, but they can't make people buy them. Not yet at least. If you sell the only product people want, you will make a killing. Ford got an important boost from news that it had significantly bolstered its balance sheet by slashing its debt by 28%, equal to $9.9 billion, through an exchange of old debt for cash and equity, without any help from the federal government. The news sent shares of American auto maker soaring 16 percent Monday.
Ford's 28% reduction in its overall debt comes as General Motors Corp. and Chrysler LLC have failed to make significant progress in their discussions with bondholders and lenders. Both car maker are trying to shave significant debt obligations in coming weeks to meet the Obama administration's demand for a major reorganization in exchange for continuing federal support.
Because of the success of the effort, Ford will be able to slash its annual interest payments by more than $500 million. That will also enhance Ford’s ability to survive without resorting to federal loans. Some Wall Street types like Ford's grit.
The debt deal may have changed the minds of some on Wall Street, who had questioned whether Ford could avoid government loans.
J.P. Morgan auto analyst Himanshu Patel wrote in an investor note Monday that the debt restructuring may be a sign that Ford management "believes car sales have bottomed and faith in its own ability to execute" its plan without government aid.
The debt buyback is another example of how Ford has capitalized on government requirements imposed on GM and Chrysler to reach deals with stakeholders.
Ford has also been the first automaker to reduce its debt and modify its contract with the United Auto Workers union to cut costs. In addition to eliminating bonuses and cost-of-living increases for workers, Ford also agreed to make up to 50 percent of payments to a union-run trust for retiree health care benefits in stock instead of cash.
The effort demonstrates, yet again, how Ford restructuring is progressing quickly. It's also called making your competitors (and your government) pay for their mistakes.