Ford Motor Co (F.N) is focused on cash management with the economy still a major concern rather than the competitive positions of its U.S. rivals who have gone through bankruptcy, Ford's chief financial officer said on Thursday.
General Motors Corp (GMGMQ.PK) and Chrysler have slightly cleaner balance sheets than Ford after the Obama administration financed sales of their businesses, but Ford's competitors also face a range of continuing problems Ford CFO Lewis Booth called bankruptcy residue.
Ford, meanwhile, remains focused on improving its balance sheet by somewhat less extreme methods than going through bankruptcy, Booth told Reuters in an interview at Ford headquarters.
There is no argument that one of the benefits of going through bankruptcy is that you improve your balance sheet, but there are lots of other disadvantages attached to bankruptcy.
So we are staying focused on our plan to improve our business, to continue to finance ourselves, to continue to be in charge of our own destiny and be winners, he added.
GM is expected to complete the sale process of its best assets to a government-controlled company on Friday, wrapping up a 40-day pass through bankruptcy. Italy's Fiat SpA (FIA.MI) bought Chrysler's best assets in June.
Ford posted a company record $14.7 billion net loss in 2008. The automaker borrowed more than $23 billion in late 2006 to support its restructuring and has avoided seeking emergency government loans, leaving cash flow a key focus for investors.
At its first-quarter earnings release Ford said it expected sequential improvement in cash outflow each quarter in 2009 and to become cash flow break even or better in 2011. The automaker is expected to release second quarter results within weeks.
CASH IS KING
Booth, who became CFO effective last year, said Ford checks its cash flow daily, a switch from past practices where the focus was on profit and loss. The change has among other things made it possible for Ford to reduce inventory on dealer lots.
Ford currently has about 57 days supply of inventory and may be able to reduce that, he said.
Earlier this year, Ford reached a modified contract with the United Auto Workers and restructured funding for a union retiree healthcare trust allowing it to make up to half of its contribution to the Voluntary Employee Beneficiary Association in stock instead of cash.
Ford also cut its automotive debt by nearly $10 billion, raised $1.6 billion in a stock offering and drew down on a $10.1 billion secured revolving credit facility to protect it from instability in capital markets and the economy.
We are not working on anything specific at the moment, but we know that, as we go forward as business improves, we have work to do improving our balance sheet, Booth said.
The one part of the balance sheet strategy I can reveal without it being misunderstood -- the single most important thing that we can do is return the company to profitability and generating positive cash flow, because then you have some choices. You can use the cash to improve your balance sheet, you can invest in the business.
For Ford, the economy remains its major concern.
With all the efforts of governments around the world, we will begin to see economic recovery in the markets that have been most stricken, in the U.S. and Western Europe, he said.
Booth said the U.S. economy was probably bumping along the bottom and that June retail sales were encouraging.
The automaker has long forecast a second-half recovery in U.S. auto sales above current levels, supported in part by government incentive programs to turn in old vehicles. Similar so-called scrappage programs have boosted sales in Europe.
European auto sales have been supported tremendously by the scrappage programs that have had the biggest impact on the sales of smaller and cheaper cars, Booth said. Sales of larger cars and commercial vehicles remain weaker, he said.
Hopefully we have seen the absolute worst in the U.S. and, hopefully, when the scrappage programs begin to wind off in Europe, the signs of economic activity are already improving, that we don't get too much of a bump down in Europe.
(Reporting by David Bailey; editing by Andre Grenon)