Ford Drops $1.4 Billion in Q1; Faces “Rabbit in a Python” Problem By Robert Farago April 25, 2009 You may have noticed that TTAC hasn’t joined the MSM’s (mainstream media) celebration of Ford’s Q1 financial report. While FoMoCo didn’t lose as much money as analysts predicted—”only” dropping $1.4 billion in Q1—danger lurks around every corner. For one thing, the “it wasn’t as bad as everyone expected” rejoicing represents exactly the same logic GM deployed as it slouched towards Bethlehem. Look how well that turned out. For another, as we also pointed out during GM’s Long March to C11, you can’t cut your way to profits. At some point, Ford’s going to have to build something the North American car market really really wants. The forthcoming Transit van, turbo’ed Taurus, Fusion, etc. ain’t it. Fiesta? I wouldn’t don those sombreros just yet. And even if Ford’s products suddenly prove popular, the US new car market has to recover (thing three) for that to meme anything. Some pundits are [still] predicting that new car sales have . . . wait for it . . . bottomed out. Q3 and Q4 will see a lift. Maybe. Probably not. And even if the recovery clocks in on schedule, or Uncle Sam juices the market with cash for clunker mania, there’s the fourth item on our agenda of despair: Chrysler and GM’s “restructuring” (i.e., death and dissolution). More specifically, The Mother of All Fire Sales. At some point soon, there will be an AWFUL lot of new cars going for peanuts. All the inventory marked HUMMER, Saab and Pontiac are about to go for cheap. And then there’s everything else Chrysler and GM makes. The Detroit News taps JPMorgan analyst Eric Selle to make the point (in the last sentence of a story entitled “Mulally: Ford plan working”): ”The threat to our Ford model is the potential for its competitors to file for bankruptcy and slash prices to maintain volumes.” In other words, Ford will have to compete with Chrysler and GM products going for a song. Say goodbye to the possibility of maintaining Ford’s margins (should they even exist). There’s more potential fallout from the fallout. Never mind the supplier collapse problem; the feds have shown themselves willing to keep the big 2.8’s parts makers in business, come what may (or may not). How about the Chrysler/GM fire sale’s effect on “the perception gap”? Chrysler and GM redux will have sealed for all time their rep as discount brands. Can Ford’s “we didn’t take any bailout bucks” mien protect them from a more general “domestics are cut rate automobiles” branding problem? As always, cash burn is the best way to judge Ford’s prospects. Ford burned through $3.7 billion in cash in the first quarter, down from $7.2 billion in the fourth quarter of 2008. That left the company with $21.3 billion in cash to fund its automotive operations. If you multiply Ford’s Q1 cash burn by four, assuming that the market doesn’t get worse, that’s $14.8 billion per year. Assuming Ford needs a $5 billion “pad” (low-balling) to keep the lights on, The Blue Oval Boys will be down to their last couple of billion in just over a year. Just in time for another bailout?