Ford Motor Company: The Non-Bailout Taker
Ford Motor Company: The Non-Bailout Taker
The
big three in Detroit that consists of Ford, General Motors, and Chrysler have
been taking huge losses in the struggling economy. The losses for these three
motor companies are staggering Ford reported a 14.6 billion dollar loss in
2008.(Vlasic 1) General Motors losses are even worse according to Motor Trend,
“lost $16.8 billion in 2008, or, $30.9 billion, after "special
items."(Motor Trend 1) Chrysler LLC lost a total of 8 billion in 2008.(Gopwani
1) The losses triggered the Big Three (Ford, General Motors, and Chrysler) to
go to congress and ask for a bailout. By January 2009 the three auto companies
got their Christmas present $24.9 billion that came out of the $700 billion
bailout package which was signed into law on Oct 3, 2008. The 24.9 million was
split with 17.4 billion going to GM and Chrysler, 6 billion in GMAC, and 1.5
billion into Chrysler Financial. Ford however, did not take any of the bailout
money, but why? (about.com 1) There are
many ways in which Ford was in a better shape than GM and Chrysler in terms of
operations. According to Autonorth,” Ford Motor Co. has finalized a $23.4
billion (USD) financing package today to fuel its restructuring costs and cover
expected losses in its automotive operations over the next two years.”(Autonorth
1) The deals that were reached with the United Auto Workers union played a big
part in why Ford could do without a penny of the bailout money however; Ford
was not the only one who made deals with the United Auto Workers (UAW) so did
GM and Chrysler. According to cbs5 news article which was published in February,
“Terms of the deal were not announced, but they were expected to eliminate the
jobs bank in which laid-off workers get most of their pay, as well as make work
rule and other changes that the government loan terms set out so the companies'
labor costs are competitive with their Japanese counterparts that have U.S.
factories.”(cbs5 1)
This means the terms with the UAW of all three companies
will be identical.
The UAW according to
the official UAW website reaches tentative understanding with Ford, Chrysler
and GM stating in a press release from their president Ron Gettelfinger,
“"The UAW has reached tentative understandings with Chrysler, Ford and
General Motors on modifications to the 2007 national agreements. The changes
will help these companies face the extraordinarily difficult economic climate
in which they operate. Discussions are continuing regarding the Voluntary
Employee Beneficiary Associations (VEBAs) at all three companies.”(UAW News
Release 1)
The
company that stands out the most is of course Ford Motor Company who did not
take bailout money from the government. One of the biggest moves ford made was
in 2006 when Ford finalized a 23.4 billion financial package which was
restructuring and covering losses in auto operations in the next two years.
Ford Motor Company in 2006 trying to fight rising costs and competition
expected to burn about $17 billion in cash in 2007. Ford filed with US
Securities and Exchange Commission that this package includes 7 billion term
loan, 4.95 billion in convertible notes and a credit line of 11.5 billion.
According to the International Herald Tribune, “Ford said last month that it
would get about $18 billion in financing, using its domestic plants and other
automotive assets as collateral, to protect itself against a recession or other
unanticipated events”. In 2006 about 38,000 of Ford Motor Company’s workers
signed buyouts and early retirement packages a part of the “the Way Forward”
restructuring plan and also plans to shut 16 plants down.(International Herald
Tribune 1) The “Way Forward” is a plan that does in effect make the Ford Motor
Company on top of the rest. On the Ford website there are key points that are
specified in the plan that was established in 2006 “the Way Forward” the
website represents this in bulleted fashion:
- More clarity for the Ford, Lincoln and Mercury brands – with a sharper focus on the customer and a clear point of view that will appeal to more buyers than today.
- A renewed commitment to design, safety and technology innovation to differentiate Ford Motor Company and its products in the marketplace.
- New product investments – utilizing Ford’s global architectures and scale – to deliver more new products faster, including more crossovers, hybrid vehicles, new small cars, increased spending on Ford’s truck leadership and new “white space” products.
- Material cost reductions of at least $6 billion by 2010.
- Continued straightforward pricing that is clear, credible and simple, which will further improve residual values.
- A lean and flexible manufacturing system combined with capacity matched to demand. Capacity will be reduced by 1.2 million units or 26 percent by 2008, representing the majority of actions within the plan’s 2006-2012 periods.
- Plant-related employment is reduced by 25,000-30,000 people in the 2006-2012 time periods, in addition to salaried personnel reductions and a reduction in the company’s officer ranks. Additional information from the same source “This is in addition to the previously announced reduction of the equivalent of 4,000 salaried positions in the first quarter of 2006 – or 10 percent of salary-related costs – and a reduction in t he company’s officer ranks by 12 percent by the end of the first quarter.” (from the Ford Motor Company Newsroom)
The
plan also specifies that Ford Motor Company wants to be a “Smaller, Nimbler
Organization”. Ford in 2006 planned to shut down 14 manufacturing facilities by
2012 which include 7 vehicle assembly plants. These plants would include St.
Louis assembly, Atlanta assembly, Wixom assembly, Batavia Transmission, Windsor
Casting, and two additional assembly plants.(Ford Motor Company Newsroom) In
today’s economic crisis Ford seems to be ahead of the pack once again. I In 2009 Ford Motor Co is
expecting to eliminate as much as 10.4 billion of debt Ford will do this by, “giving cash and
stock to debt holders as part of a revamping of its balance sheet.(Vlasic &
Bunkley 1) This move is almost the same to what
GM and Chrysler are required to do however Ford is freely acting by itself
in this venture. According to the NY Times, “Ford said it would put up $2.2
billion in cash, including $1.8 billion from its lending arm, Ford Motor
Credit, and 500 million shares of stock to persuade bondholders and other
creditors to accept its restructuring offer.” Ford has 25.8 billion in
outstanding debt which 20.7 billion can be restructured and the company hopes
to cut the restructured outstanding debts in half. The debt eligible for
restructuring according to Ford Motor Co. consists of “$4.9 billion convertible
notes, $6.9 term loans and $8.9 billion in other debt” According to Ford
convertible note holders were offered 108 shares of Ford’s common stock and $80
dollars for every $1000 notes exchanged the offer will expire on April 3rd.
The company will also pay 30 to 50 cents to each dollar of debt, according to
the type of note.(Vlasic & Bunkely 1 ) There are perks especially in
today’s recession for Ford not taking the bailout as Chrysler and GM did. This
leaves the door open for Ford to be the front runner in making concessions and
deals with the UAW. The week of February 20th, 2009 proves the fact
that Ford is seeking concessions more quickly than GM and Chrysler are stated
in the Wall Street Journal, “This week, Ford and the UAW reached an agreement
to cut pay for laid-off workers, ease work rules and eliminate wage increases
tied to the cost of living -- two days before GM and Chrysler reached the same
deal.” Ford is also benefiting by negative news that is coming out of Chrysler
and GM that there is a concern that they may file for bankruptcy protection,
this is causing Ford to gain more customers from their two Detroit competitors.(Dolan
1) Ford made a new agreement with the
UAW of new contract changes that will freeze wages and cut benefits to make
Ford more competitive in the automotive market. UAW members from Ford ratified
modifications from the Ford 2007 labor agreement and agreed to changes to the
fund to the Voluntary Employment Beneficiary Association(VEBA). The VEBA was a
deal by the three auto companies: Ford, GM, and Chrysler in 2007 that that
shifted responsibility for retiree health costs on union-run trusts. According
to a Fox News article, “The United Auto Workers said Monday a majority of
hourly workers voted in favor of modifications to the 2007 contract with Ford,
eliminating cost-of-living increases and cash bonuses.” The concessions were
voted yes by 59% of production workers and 58% of skill trades workers. This
deal ends jobs bank programs according to the Fox News article, “that let
workers collect most of their pay from the company,” after they were laid off. Ford is the first US automaker to settle an
agreement with the UAW ahead of their counterparts GM and Chrysler.(Fox News 1)
The president of the UAW Gettelfinger said in a quote from the UAW website
stating, "Once again UAW members have stepped up to make the difficult
decisions necessary to deal with the reality of the current economy, the
deteriorating auto industry as a whole and specifically the negative impact the
economic climate is having on Ford Motor Co.,” a later quote that is gets
straight to the point of intentions is “"We are focused on doing
everything possible to rebuild a great industry and keep manufacturing jobs in
the United States."(UAW Newsroom 2) Mr. Gettelfinger noting the fact that
Ford Motor Co. needs to stay in business to keep jobs and preserve more jobs in
the US. The United Auto Workers union is willing to make fringe
benefit concessions in these harsh economic times. In 2009 the U.A.W agreed to
make concessions with Ford in terms of their retiree and health care fund. The
agreement allows Ford quoted from the New York Times, “The agreement, announced
Monday, would allow Ford to substitute its stock for as much as half of the $13.6
billion it owes the fund.” According to the Wall Street Journal the 187,000
retirees are in risk of the funding structure because, Ford’s stock can become
worthless if the company financial situation grows worse and declares
bankruptcy. This model that Ford is making on this concession of replacing
stocks for this fund might be a guideline also for GM and Chrysler as quoted in
the New York Times, “It could also form the basis for similar deals with General Motors and Chrysler, which need to cut costs and demonstrate that they can
survive under the terms of their loans from the federal government.”(Bunkely 1)/(Dolan-Bennett
1)
GM
and Chrysler unlike Ford took the bailout which gave them part of the 17.4
billion that is shared with Chrysler provided that both companies have
turnaround plans. GM made an attempt in the week of February 14, 2009 to try
and negotiate with the UAW which ended in a walk out by the UAW over a dispute
on retiree health care fund. According to AZ Central, “The breakdown comes at a
critical time as GM races against a Tuesday deadline to submit a plan to the
government showing how it can become viable.” As cited earlier in this report
GM needs to have the treasury Department approve their viability plan to
essentially get more money to stay alive. The terms of loans that GM and
Chrysler are that both companies have to gain concessions UAW and debt holders.
The union’s reason for walking out on the negotiations quoted from the AZ
central, “detrimental to retirees and the ability to provide health care.”
Rushing negotiations to get benefits from the government will usually get
nowhere because the company doesn’t want to waste much time in negotiating what
is best for both parties only for themselves. The other reason for the rush of
concession deals for GM is according to the AZ Central, “GM has said its total
per-employee labor costs, including wages, pensions, benefits and retiree costs
are now $69 per hour. Toyota Motor Corp., GM's biggest competitor, says its
hourly costs are $53. GM's costs will drop to $62 once the retiree health care
trust takes effect, the company has said.” This means GM is trying to be as
competitive as their counterpart Toyota Motor Corporation and what GM calls
their biggest competitor has their workers hourly cost average at $53, 16
dollars lower of what GM is paying their workers. (AZ Central 1)
On the hourly rate case that GM
is struggling with, UAW and Ford announced a deal that would save the Ford
Motor Company $500 million a year and bring labor costs down to foreign
competitors. In an article from the New York Times, “Ford said the deal, which U.A.W. members ratified this week,
immediately reduces its “all-in” hourly rate, which includes benefits, to $55.”
The figure will continue to decline according to Ford as more workers take
buyouts and when the market for new vehicles recovers. The labor costs of Ford
now are about 60 dollars an hour which includes health care of retirees.
According to Ford cited from the New York Times, “Labor costs for the so-called
transplant automakers, including Toyota and Honda, have been about $49 an hour in the United States and
are rising, Ford estimates.” According to Bloomberg, “Ford, which is not
seeking U.S. aid, said today that a new labor agreement and modifications to a
Voluntary Employee Beneficiary Association union retiree health-care fund will
save $500 million annualized, with about 75 percent of that realized this year.(Bloomberg
1)”/(Bunkley 2) GM’s labor deal is
similar to that of Ford’s in fact a top UAW official quoted from CNN Money
states, “General Motors Corp. (GM) will get many of the same concessions
granted this week as Ford Motor Co. (F) received, though some elements of GM's
revised labor deal will differ " drastically" from its rival.” GM and
UAW agreed to a tentative deal for revisions of the 2007 labor deal, that
includes, wage concessions, job security and work rules. The deal will not be
completed until GM and UAW agree to the new terms, “that will help make it
easier for GM to fund around $20 billion in obligations to retired hourly workers
in the form of a trust known as a Voluntary Employee Beneficiary Association.
Members must then ratify changes.” Union member are not able to ratify the new
deal until UAW and GM finishes debating on the restructuring of the retiree
health care trust.(CNNMoney 1) According to freep, “Terms of GM's $13.4-billion
federal loan require the automaker to push the union to accept half the money
owed to the fund in company stock instead of cash. The automaker must also
restructure its debt with bondholders.” (Higgins 1) The UAW and GM have reached
a tentative agreement that was done in February 17 that include contract
changes for 62,000 workers a plan that have more savings than the GM deal
according to Bloomberg, “GM’s savings are bigger than Ford’s in part because of
additional work rule changes” (Bloomberg 1) GM also needs concessions totaling
$20.4 billion of future obligations to (VEBA), “or half that in cash and the
rest in equity as part of U.S. Treasury requirements.” GM also needs to win an
agreement of bondholders according to Bloomberg, “exchange about $27.5 billion
in existing debt for $9.2 billion and new GM equity. The bondholders are still
negotiating that demand.(Bloomberg 1)
GM was successful just recently
striking a restructuring agreement with the Canadian Auto Workers Union. The
agreement will freeze wages and pension until 2012 and is planned to decrease
the cost of labor per hour. This will cause cost of living wage to be frozen
and workers and retirees pay health care premiums until June 2012. The news is
even grimmer as GM plans to,”cut 47 thousand jobs globally this year and would
shut five more production facilities.” Chrysler along with GM and Ford is going
to reach the same type of agreements of the two companies.(RTT News 1) Chrysler
has a buyout offer imitated until March 27th. Chrysler is extending
its time to give workers an opportunity to according to freep.com, “consider
changes that could be made in a modified labor contract” Chrysler’s buyout and
early retirement payment offers include 50,000 to 75,000 and vehicle voucher
offers.(Freep 1) However, for now GM and Chrysler haven’t agreed on concessions
and the article in the Washington Post, March 12th states that GM
will need at least 2 billion and Chrysler will need at least 5 billion to not
cave in to bankruptcy. Stated in the Washington Post, “Stakeholders still
haven't agreed on concessions. The Treasury Department is pressing bondholders
to accept equity for debt to ease the burden on the automakers. It also wants
the United Auto Workers to lower wages and benefits to levels competitive with
foreign automakers such as Honda and Toyota.”(Washington Post 1) As throughout
this report the automakers have a worry about the competition from foreign
automakers.
GM along with Chrysler
are going through more hardship by being scrutinized by top Obama’s automotive
task force because they’re not showing any viability yet as the deadline
approaches (March 31st). With GM and Chrysler staying alive with
17.4 billion dollars in loans both companies are still asking for more money,
quoted from mlive, “GM is asking for as much as $16.6 billion more, including
$2 billion by March 31. Chrysler says it needs $5 billion by March 31 to stay
in business.”(Haglund 1) Even though RTTNews states, “In an updated viability
plan submitted to the U.S. Treasury, GM said it may need as much as $22.6
billion in additional aid from the U.S. government and that it would run out of
cash as soon as next month without new federal funding.”(RTT News 1) The taskforce visited GM’s technical center
and a Chrysler truck plant in Warren, they also test drove advanced vehicles as
well. GM and Chrysler are still attempting to get concessions from the UAW
dealing with according to mlive, “retiree health care costs and with bondholders
on converting bond debt to equity. Agreements with both are due by March 31.”(Haglund
1) This means while Ford has been winning concessions from the UAW, GM and
Chrysler are lagging behind which is coming to be a concern by the Obama’s Auto
taskforce.
Ford
made a great decision not taking the bailout money. The favor is in Ford’s
hands in terms of competition between GM and Chrysler as well as the UAW
tentative deals. Ford Motor Company does not have a dependence on loans as GM
and Chrysler which opens up negotiations with the UAW because, the UAW feels
that Ford is in a better position financially and is not pushing them as much
as GM and Chrysler are. The negotiation between Ford and UAW one might imagine
is far more relaxing and calm, than GM and Chrysler’s mandate to get deals from
the UAW to receive more government loans to stay alive. The outlook looks great
for Ford who might become a competitor against Toyota and all the other foreign
auto companies in the near future.
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