"The sight of the gallows focuses the mind." So said Samuel Johnson.
With Ford taking on $25 billion in debt, almost doubling its cash and liquid assets, Wall St. has to wonder if the company got too much money too fast. Merrill Lynch liked the move, upping Ford from a "sell" rating to "neutral".
Part of Merrill’s argument is that Ford will have a better time with the UAW in the spring if it has the reserves to negotiate from a position of strength. Or, is the extra cash a weakness?
The UAW will be on its way out of business as a large, storied American labor union if it cannot hold the line on jobs and benefits in its 2007 negotiations with the Big Three. If Ford is cash rich, the unions may believe that it is in better shape to keep more of their workers. A cash-poor Ford makes a better beggar.
By taking on the additional debt, Ford sends a message to the entire company that its US market share is likely to stay at 14% or lower and that raising money and cutting costs are the only way out fo the tunnel.
If Ford built cars that consumers wanted to buy, the extra money would be unnecessary.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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