INTRO: Ford.
The company that pioneered the modern car, the assembly line, the 40 hour work week,
and the creator of America’s best selling vehicle: the F150.
Despite this impressive and long lasting legacy, Ford is currently in a rather dire situation.
They’ve got over $200 billion worth of liabilities which generally puts them in the top 10 list
of most indebted companies.
While Ford doesn’t usually come in at the number one spot on these lists, something
that we should note is that all of the other companies on this list generally have a market
cap thats several times larger than Ford.
So, while Ford may not be the most indebted company in the world, they’re usually the
most leveraged company in the world.
Thankfully, they do have more assets than liabilities given that their assets come in
at $257 billion.
But, when we compare their cash reserves to their liabilities, it doesn’t look nearly
as pretty.
Ford currently only has $20 billion worth cash and cash equivalents.
In other words, their total liabilites is 10 times their current cash reserves.
Considering this, I don’t think you’d be surprised to hear that Macroaxis gives
the company a 44% chance of bankruptcy.
Now, it should be noted that Ford is the only American legacy automaker that has never filed
for bankruptcy in the past.
But, this may actually come back to haunt them because they never got a reset switch
like the other automakers.
And this is one of the main reasons they have insane debt levels in the first place.
So, is it just a matter of time until Ford goes bankrupt?
ONE BAD LEADER: Taking a look back, Ford’s liquidity problems
date way further than just the pandemic or even the 2008 financial recession.
In fact, the root of Ford’s financial problems can be traced back to the late 1990s when
a man named Jacques Nasser was appointed as the new CEO.
Jacques was an entrepreneur at heart.
In fact, he had been running businesses since he was a teenager.
He had a small bicycle-making operation and he ran multiple disco clubs.
So, it was only natural that he brought his entrepreneurial spirit into Ford.
Jacques didn’t just come in as an executive though.
He actually joined as modest financial analyst at age 20 in 1968.
And it wasn’t till 31 years later in 1999 that Jacques would become CEO.
In the meantime, he had made a name for himself as a shrewd businessman.
Many of his colleagues actually nicknamed him Jac the Knife and Black Jack.
Jac the Knife was a reference to how many jobs he had cut over the years.
And Black Jack was a reference to his intoleration for unprofitable sectors.
While these are by no means the kindest of traits, many successful CEOs share these traits,
so this in itself didn’t taint Jacques’ tenure.
What tainted his tenure and screwed over Ford financially was his business decisions themselves.
First of all, Jacques tried to transform Ford in some sort of lifestyle company.
He wanted people to have a high opinion of Ford, so he started buying out luxury competitors.
Two of these acquisitions included Land Rover for $3.3 billion and Volvo for $6.47 billion.
Not only were these expensive purchases, but it also led to Ford having to split their
attention between the companies which led to all of the brands suffering.
Aside from trying to make Ford into a lifestyle company, Jacques also placed a massive emphasis
on the internet.
Being an entrepreneur at heart, it was obvious to Jacques that the internet was the next
big thing.
And he strongly felt that the internet should play a significant role at Ford.
So, he spent loads of money developing Ford’s website, affiliate marketing, dealer portals,
and so on.
These efforts were actually pretty successful given that Ford garnered millions of visitors
every single month.
Looking back, these were pretty visionary moves, but Jacques missed the mark in two
areas.
First of all, he was diverting so much attention into the internet that it was taking away
from Ford’s core business which was making good cars.
While having a good online presence is definitely important, as a car company, you’re number
1 focus should be making the best cars you can, and that was unfortunately no longer
the case with Ford.
As for Jacques’ second short fall, his timing was terrible.
Not only was Jacques too early for his time, but he was doing all of this right before
the dotcom bubble burst.
So, when internet companies crashed 90 to 95% in the early 2000s, Jacques looked like
an absolute idiot.
And to a certain degree, he was.
He had completely dismantled Ford’s focus on creating cars while also burning billions
on acquisitions and the internet.
Hearing all this, I don’t think you’d be surprised to hear that Ford would replace
Jacques in late 2001, but the damage had already been done.
NARROWLY AVOIDING BANKRUPTCY: While Jacques was out of the company, Ford’s
pain had just begun.
First of all, the acquisitions that Jacques had completed weren’t performing that well,
they were actually performing terribly.
But, wait a minute, Land Rover and Volvo were only a couple billion dollars each.
So, how much could this possibly hurt Ford?
Well, while the companies themselves weren’t all that expensive for Ford’s standards,
the same could not be said about their balance sheets and cash flow.
You see, when you acquire a company, you don’t just acquire the good parts like the brand
image and the customers.
You also acquire the bad parts like their debt and negative cash flow.
It’s estimated that holding Jaguar and Land Rover cost Ford $35 to $50 billion.
A similar story could be seen with Volvo as well.
Not only were these companies a massive drag on Ford’s income statements while they owned
them, but Ford would also lose a lot of money trying to offload these companies.
For example, Ford would end up selling Volvo for just $1.5 billion.
As a reminder, they paid $6.47 billion to acquire the company.
Similarly, they would end up selling Jaguar and Land Rover for $2.3 billion.
Just 9 years before this, Ford paid $3.3 billion for Land Rover alone.
Clearly, these were massive losses for Ford, but this was just the beginning of their problems.
You see, oil prices would reach nearly $200 per barrel in mid 2008.
For perspective, if you thought oil prices were high a couple of months ago, these prices
were 60% higher than that.
So, I don’t think you’d be surprised to hear that people shied away from buying large
pick up trucks and SUVs given that they would lose a fortune just paying for gas.
And given that large pick up trucks and SUVs were Ford’s speciality, they were basically
screwed.
To make things even worse, the US was facing a serious recession in 2008 unlike the small
technical recession that we’re in right now.
This simply led to Ford’s sales declining even more.
All of this would climax in Ford losing a record $14.6 billion in 2008.
And at this point, it was only a matter of time until the government stepped in and bailed
out the company.
Ford would end up receiving a $5.9 billion loan from the Department of Energy which allowed
them to narrowly avoid bankruptcy and start focusing on developing energy efficient vehicles.
But, unfortunately for Ford, this was terrible timing as well.
You see, oil prices would crash hard over the next couple of years which meant that
Americans could once again indulge in their love for trucks and SUVs.
Given that Ford was preoccupied with cars like the Ford Focus, this gave GM the perfect
opportunity to make strides with their Tahoe, Suburban, and Escalade series.
And before you knew it, Ford was falling behind in the same industry that they had dominated
for decades.
So, while Ford was the only legacy American automaker to avoid bankruptcy, it’s not
like things turned out any better for them anway.
CROSSROADS: Over the past several years, Ford has shifted
their focus back onto what they’re good at: trucks and SUVs.
They’ve even gone ahead and announced that they’re gonna completely retire the Ford
Focus in 2025.
It seems that this approach has worked out pretty well for Ford given that they’ve
been able to make the F-150 the number 1 selling vehicle once again.
But, it’s not all good news.
Ford has never been able to work out of the debt mess that they got into in the 2000s.
Sometimes, their liabilities stand at $150 billion and sometimes their liabilities stand
at $250 billion.
But, for the most part, Ford hasn’t been able to reduce their average liabilities to
under $200 billion.
To make things worse, the automotive industry has been facing a pretty big cross road over
the past couple of years with EVs.
Fortunately, Ford has not been ignoring EVs like Toyota.
Ford has actually been taking EVs extremely seriously, and they were the first legacy
automaker to convert a popular gas model to fully electric.
So, they’re definitely on the right track, but this doesn’t mean that the path forward
will be easy.
Profitability scaling EV production is extremely challenging and Ford is experiencing this
first hand as we speak.
Take the Mach E for example.
Ford started Mach E production in Q3 of 2020, and they were able to ramp production for
3 quarters.
But, eversince then, they’ve not only been stagnating but declining.
When you put the Mach E’s production ramp next to the Model 3’s production ramp, you
can really start to see how far behind Ford is.
By the 7th quarter of production, Tesla was pumping out over 70,000 model 3s while Ford
was struggling to pump out 15,000.
Now, it’s not like this production ramp was easy for Tesla given that they nearly
went bankrupt trying to reach their production targets.
What this means for Ford is that they have yet to cross the hardest stage which is scaling.
To make things worse, Ford is having to do all this during a historic supply shortage.
According to Ford’s CFO, inflation along with the supply shortage have completely wiped
out the Mach E’s profit margin.
So, it’s just gonna be even harder for Ford to reach scale than it was for Tesla.
Not to mention, Tesla never had to deal with $200 billion worth of liabilities either.
So, at this point, it seems like all the cards are stacked against Ford whether its their
balance sheet or their production capabilities, but one attribute that is working in their
favor is demand.
Ford has over 200,000 Lightning reservations, and given the popularity of the F150, that
number will likely only go up with time.
So, Ford definitely has the demand to scale their EV business to the next level and remain
a popular automaker.
The question, however, is: will the company survive the transition.
THE STATE OF FORD: So far, I know this video has been rather
negative on Ford, but they deserve a lot of credit for many of their choices.
At no point has Ford tried to half ass the transition to EVs.
The company is literally all in on EVs having committed to invest $50 billion into EVs by
2026.
Also, there doesn’t seem to be any doubts amongst the leadership either.
It seems like they all unanimously believe that successfully transitioning to EVs is
the only way forward.
This sort of confidence and clarity is exactly what every automaker needs.
And honestly, in my opinion, if any legacy automaker is gonna make it to the other side,
it’s gonna be Ford.
But, with all of that being said, it’s not gonna be an easy journey by any means.
Jacques well intentioned but poorly executed initiatives from 20 years ago are still weighing
down the company to this day.
And honestly, there’s no easy way out for Ford.
All they can do is continue doing what they’re already doing.
Try their best to transition to EVs while also protecting the financial integrity of
the company as much as possible.
But only time will tell if their ambitious plans actually end up working out.
Do you think Ford will make it to the other side?
Comment that down below.
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