Ford's Risky Move: Betting It All To Avoid Crisis

During the 2008–2010 automotive industry crisis, Ford Motor Company, the second-largest US-based automaker, struggled financially but did not need a government bailout. In 2006, then-CFO Don Leclair led a team that raised $24 billion by mortgaging the company's key assets, including foreign subsidiaries, factories, office buildings, and trademarks. This move protected Ford from bankruptcy, while its major competitors, General Motors and Chrysler, were forced into government-ordered reorganization. In 2009, Ford did take a $6 billion government loan, which remains on its books today.

Ford's refusal of a government bailout

During the 2008–2010 automotive industry crisis, Ford Motor Company, unlike its two major US competitors, did not have to be rescued by the federal government. In 2006, Don Leclair, then Ford’s chief financial officer, led a team that raised almost $24 billion in cash by mortgaging the automaker’s key assets, including foreign subsidiaries, factories, office buildings, and trademarks such as the blue oval and the Mustang insignia. This strategy, initiated before the crisis, protected Ford from bankruptcy.

In 2008, Ford's CEO Alan Mulally stated that the company had enough liquidity but requested a credit line of $9 billion as a safeguard against worsening economic conditions. Ford did not receive any money under the Automotive Industry Financing Program (AIFP), which was created under the Troubled Asset Relief Program (TARP) to provide government bailout loans to automakers. However, in 2009, Ford did receive $5.9 billion in government loans to retool its manufacturing plants to produce more fuel-efficient cars. This loan was part of a loan program created to finance automotive projects and was separate from the AIFP bailout program.

Borrowing money before the economic collapse

Ford Motor Company, commonly known as Ford, is an American multinational automobile manufacturer. It was founded by Henry Ford and incorporated on June 16, 1903. During the 2008–2010 automotive industry crisis, the company struggled financially but did not have to be rescued by the federal government, unlike other major US automakers.

Ford began borrowing money when rates were low before the economic collapse. By the time the recession hit, banks were not loaning money, which hurt competitors like General Motors and Chrysler. They were ultimately allowed to borrow money from the government, while Ford took a different path. In 2006, Ford's then chief financial officer, Don Leclair, led a team that raised almost $24 billion in cash by mortgaging the automaker's key assets. This included foreign subsidiaries, factories, office buildings, and trademarks such as the Blue Oval and the Mustang insignia. This strategy protected Ford from bankruptcy and gave it enough liquidity to survive the recession without government loans.

In 2008, Ford's CEO Alan Mulally stated that the company had enough liquidity but was preparing for the prospect of further deteriorating economic conditions. He requested a credit line of $9 billion as a safeguard against worsening conditions. This foresight to mortgage everything just before the crisis is praised as it allowed Ford to avoid bankruptcy and maintain its independence.

In March 2020, amidst the coronavirus health crisis, Ford announced it was borrowing $15.4 billion against two lines of credit to bolster its cash position. The company has since returned to profitability and was ranked 11th overall on the 2018 Fortune 500 list based on global revenues of $156.7 billion in 2017.

The mortgaging of key assets

The decision to mortgage these assets was made prior to the crisis, when Ford was already in trouble. This foresight is praised as it allowed Ford to avoid a government bailout, which its two major US competitors, General Motors and Chrysler, were forced to accept. By the time the recession hit, banks were no longer loaning money, and Ford's competitors suffered as a result.

Ford's refusal of a government bailout also attracted shoppers who withheld consideration from GM and Chrysler due to their acceptance of government assistance. This contributed to Ford's ability to maintain its independence and avoid bankruptcy, making it the only remaining American automobile company to do so during the crisis.

While Ford did eventually take a $6 billion government loan in 2009, this was after the company had already mortgaged its key assets and refused a bailout during the height of the crisis. The debt from this loan continued to haunt the company, which was still paying it off over a decade later.

The 'One Ford' strategy

The One Ford strategy, also known as the One Ford plan, is an innovative business strategy adopted by the Ford Motor Company in 2007. The credit of initiating this plan goes to former CEO Alan Mulally. This plan helped Ford to remain financially sound during the 2009–2010 auto industry crisis. Notably, this was the period when other US auto giants such as General Motors and Chrysler filed for bankruptcy.

The One Ford plan expands on the company’s four-point business plan for achieving global success. The plan has benefited the company in many ways, including saving money by taking cost-cutting measures, focusing on higher profitability, and making changes to the product mix. Other measures included developing customer-oriented products and focusing on balance sheet improvement.

Global platform consolidation under the One Ford plan has helped Ford to reduce its vehicle development-related costs. Platform consolidation refers to the process of producing more vehicle models based on a smaller number of platforms. In 2007, the company was utilizing 27 platforms in the development process. Currently, this number has been reduced to just nine platforms, with plans to further reduce this to eight. Notably, Ford is producing more vehicles now than it was in 2007, even with a smaller number of platforms.

The One Ford strategy has been critical to Ford's success and remains relevant to the company's strategy today. Moving down to five module vehicle platforms will help Ford save costs and boost the efficiency of its supply base.

The impact of the 2008 financial crisis

The 2008 financial crisis, considered the worst since the Great Depression, had a significant impact on the automotive industry, with the "'Big Three' US car companies of General Motors, Chrysler, and Ford facing potential insolvency. During this period, Ford mortgaged its key assets, including foreign subsidiaries, factories, office buildings, and trademarks, to raise almost $24 billion in cash, a move that ultimately protected the company from bankruptcy. This decision, initiated by then-chief financial officer Don Leclair, allowed Ford to weather the crisis without direct government assistance, which positively impacted its public perception.

In the lead-up to the crisis, Ford had also begun borrowing money when interest rates were low, providing it with sufficient liquidity to navigate the recession without resorting to government loans. Ford's CEO at the time, Alan Mulally, played a crucial role in the company's strategy, testifying before Congress in support of legislation to aid the struggling auto industry. While Ford did not receive bailout funds, it did request and secure a $9 billion credit line from the government as a safeguard.

The impact of the financial crisis on Ford was not limited to its financial challenges. The company made difficult decisions to consolidate its product line, selling brands such as Jaguar, Land Rover, Volvo, Aston Martin, and Mercury. Additionally, Ford had to negotiate with unions, release workers, and close factories, impacting its operations and workforce.

In the aftermath of the crisis, Ford focused on strengthening its core brand and investing in small cars, fuel-efficient engines, and lightweight, aluminum-bodied trucks. The company's strategy aligned with government mandates for higher fuel economy standards and shifting consumer preferences. Despite these efforts, Ford faced challenges due to plunging gas prices, which drove consumers back to large SUVs, benefiting competitors like General Motors. Overall, the impact of the 2008 financial crisis on Ford was profound, shaping the company's financial strategies, product offerings, and public image.

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