In April 2006, Bill Ford, then CEO of the company which carries his name, say that Ford (F) would not file for bankruptcy. His comments were a reaction to credit agencies and research firms that thought the car firm would not make it. Ford shares traded at $7 then, and dropped to $6.17 three months later.
Now, Ford’s shares are below that level. Today they dipped to $6. There appears to be almost no chance that the company is in the imminent danger that it was in 2006, but Wall St. clearly doesn’t like Ford’s long-term prospects.
Ford’s poor product line-up, especially its heavy mix of pick-ups and SUVs, combined with an extremely soft US car market have investors thinking that Ford may not make money for the next two or three years. If the savings that the company got from cutting costs and a new UAW contract are not enough, Ford could have to go back to the capital markets for cash. During a credit crunch whatever money it has to raise will come at a very, very dear price.
In other words, a lot of dilution.
Seeing the value of Ford’s common stock move closer to zero may not be the same as bankruptcy, but the difference could end up being subtle.
Douglas A. McIntyre
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