Of all the sporting events with corporate underwriting, none is more emblematic than Ford’s sponsorship professional bull riders.
Its “Built Ford Tough Series,” sponsors the best and toughest bull riders on the circuit.
Locked in the lead to become the world’s top bull rider is a Colorado cowboy named Kody Lostroh.
There doesn’t seem to be a bull in the shoots ornery enough to toss Lostroh. Yesterday in the first round of the Las Vegas Championships, in the race to be declared the world’s greatest, Lostroh stayed on all three bulls he rode.
When asked about his chances of being declared the world’s best, Lostroh, in typical no-nonsense fashion said, “The (world title) race is for the judges to figure out. My job is to ride bulls.”
With the news today that Ford Motor Co. — the only automaker not to take direct federal government assistance – posted a third quarter profit of nearly $1 billion, these same words could have been credibly uttered by its current CEO, Alan Mullaly.
Plenty of Automotive Sunshine
Like other automakers, Ford was a beneficiary of the Cash-for-Clunkers program. Unlike American counterparts G.M. and Chrysler, Ford eschewed direct federal aid. Through shrewd financial management and planning, the company kept itself out of bankruptcy.
Ford already reported $834 billion of income for the first half of the year. For an industry that has fallen on hard times, Ford — literally — has bucked the trend.
Mullaly, who kept his company out of Chapter 11 bankruptcy, increased Ford’s market share and, in the process, collected more from each sale. Ford improved net pricing, transaction amounts after discounts on its vehicles by $1.9 billion in the third quarter as it cut incentives and sold a mix of cars and trucks with more costly options or extras.
Ford appears to be in a full turnaround mode. It has projected continued profitability through 2010 and into 2011. While it may not be able to supplant Toyota or Honda on the number of cars sold in the U.S., its fortunes seem to be on the rise. Despite the move toward greater fuel efficiency, Ford’s F-Series pick-up truck remains the top selling vehicle in the U.S.
Ford’s sales in the United States are down 22 percent this year through September, the smallest decline among the six largest automakers. Overall, the industry is down 27 percent.
As other American automakers were struggling to keep the lights on, Ford issued $565 million in “quiet equity” in the third quarter, completing a $1 billion stock issue it began in August 2008. That equity was used to improve Ford’s balance sheet and should give the Dearborn-based carmaker a positive cash flow in the fourth quarter.
Despite its otherwise bright prospects, there may be a bull in the shoots that Ford won’t be able to handle without federal intervention.
Today, the United Automobile Workers union (U.A.W.) is expected to announce that its members soundly rejected a deal to help Ford further cut its labor costs. The deal generally would have matched concessions that workers at Chrysler and General Motors approved in the spring.
So They Yield on a Bonus
U.A.W. members at Ford ratified a deal in March that saves the company an estimated $500 million a year, but this time many expressed anger at being asked to make more sacrifices at a time when the company’s finances and market share are improving.
The labor deal proposed by Ford would have frozen wages for newly hired workers until 2015, combined some job classifications and barred the union from going on strike to demand higher pay or benefits. In rejecting the deal, Ford workers will give up a $1,000 bonus that the company would have paid them in March 2010.
At the end of 2008, Ford lost $14.6 billion, the most in its history. In spite of its improvements, Ford remains heavily in debt. It borrowed $23.5 billion in 2006, an amount that is still outstanding on its books.
If the federal government had not aided both G.M. and Chrysler while the two were in the clutches of bankruptcy, it is doubtful that the U.A.W. would be rejecting the cost concessions sought by Ford. It is exactly because Ford has been able to avoid the financial minefields of its two American competitors that the U.A.W. has suddenly become emboldened.
The U.A.W. leadership has correctly concluded that Ford is in a position to better meet its wage demands than were either G.M. or Chrysler. Even if Ford is forced to seek bankruptcy protection to avoid a strike, leaders at the U.A.W. have surmised that the automaker is in the category of those companies that are too big too fail. If Ford begins to suffer competitive disadvantages and sustain losses because the union refuses to yield ground, the U.A.W. leadership likely believes that the worst that will happen is that the federal government will recapitalize Ford at the expense of the American taxpayers.
If recent precedent is a guide, union leaders assume that if Ford is forced into a Chapter 11 bankruptcy, its membership will be that the biggest beneficiary of a bankruptcy reorganization plan. Similar to the deals cut during the G.M. and Chrysler bankruptcies, the union has reasoned that it will receive a disproportionate share of any newly issued stock in relation to the debts owed to it.
As in the G.M. and Chrysler reorganizations, the bankruptcy court with the full backing of the White House, will probably endorse a higher priority treatment for Ford’s employee obligations than those of creditors who previously negotiated higher priorities as a condition to extending credit to Ford. In other words, employee obligations will be elevated at the expense of Ford’s bond and share holders.
While Ford may be sitting atop the standings for now, as any seasoned bull rider knows, you’re only one ride away from a critter who could stomp on your dreams of glory.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
