Coronavirus has rocked the auto industry at a very bad time for Ford. But smart moves might help the automaker weather the storm.
DEARBORN, MI — In the first three months of 2020, Ford spent $3 billion. In April alone, the automaker spent nearly $8 billion.
The impact of the novel coronavirus on the economy has been one of the most tense conversations at all levels of government. The balance between public safety and financial stability is a tough needle to thread, and it has hit automakers particularly hard. But Ford has been preparing to weather the storm.
Last week, Ford posted its first quarter earnings report for 2020 showing a loss of $2 billion. The second quarter will be a lot worse, the company projects. Losses up to $5 billion are possible, says Chief Financial Officer Tim Stone.
Ford was initially expecting to post a profit over $1 billion in the first quarter, Stone said, and he pins the losses firmly on the coronavirus. Aggregated data from Macrotrends show that Ford had a hard end to 2019 as well, and small gains in the quarters leading up to that. But Ford’s expected profits do line up with the first quarter of last year.
Having to shut down plants came at a hard time for the automaker. The extremely high “burn” of Ford’s cash on hand has been the result of paying off $13 billion in payments to parts suppliers. But with that debt paid down, the rate at which the company is burning money will drop dramatically in May.
Without reliable production and sales to balance those payments off, though, Ford’s situation looked grim. But Ford came prepared.
“We’ve taken decisive actions to lower our costs and capital expenditures and been opportunistic in strengthening our balance sheet and optimizing our financial flexibility,” said Stone.
What that translates to in actions is a shedding of about $8 billion in bonds the company was holding on to and taking out $15.4 billion in loans in March. Because of those early, decisive actions Ford actually has more cash on hand today than it did in January, despite losses and a huge rate of cash burn.
Ford actually has $12.3 billion more on hand than it did before its rough first quarter.
That positions the company to be able to handle a hard second or even third quarter just on the money it brought in over the early months of this year alone. Stone said there is enough cash on hand to make it to the end of the year, even in worst-case scenarios. Ford is even continuing with its $11 billion restructuring plan.
And Ford’s forecasts don’t include any possible changes in economic conditions or other mitigating factors that may be introduced over the coming months.
Ford has yet to reach an agreement with their union, the United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) over when to reopen closed factories, and has delayed implementation of its autonomous ride-hailing and goods delivery service in Miami to 2022.
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The Motley Fool reported Friday that Ford has outlined its nationwide plans related to reopening. Ford Chief Operating Officer Jim Farley outlined best practices like wearing personal protective equipment (PPE) and keeping social distance while manufacturing. Farley said the company’s experience manufacturing medical devices during the pandemic has shown that this is an effective strategy.
Ford also said it is working with unions, including the UAW, on “on initiatives to keep people safe, including completing daily health self-certifications, scanning temperatures and more.”
The Associated Press contributed to this report.