Ford (F) may have cut costs to the point where the company cannot even operate properly anymore, the number of people in product development, management and marketing has gone so low. That still may not be enough to save the company.
Ford’s US September sales were only 116,734 vehicles, an annual run rate of 1.4 million. The car company cannot stay in business at that rate. With credit so hard to come by even people who want to buy cars and trucks may not be able to
Ford’s shares are down almost 15% today to a multi-year low of $3.32.
Fitch cut the issuer default rating on Ford to CCC today. According to MarketWatch, the firm said "Despite significant progress in Ford’s cost reduction efforts and an easing of commodity price pressures, Fitch projects that without additional capital raising or asset sales, Ford will reach the minimum required operating cash levels in the second half of 2009."
If the current credit environment persists into 2009, Ford will not be able to raise cash, which raises a number of questions. The first is what will happen to Ford’s shareholders including the Ford family which has voting control of the company’s board. If the financial firms which own Ford’s debt step in to take the corporation’s assets, those common shareholders will be wiped out.
If creditors take control of Ford, they almost certainly have no interest in operating it. That means that the pieces of the company would be auctioned. Most of Ford’s overseas divisions make money. In North America, the car company may be losing a billion dollars a month. Could that portion of the firm be sold? The only potential buyer may be VW, the largest car company in Europe. VW could take out tremendous costs and finally have some market share in the US.
Or, Ford could merge with GM, which might not work out so well.
Douglas A. McIntyre
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