Cleveland, Ohio – With much of the world unable or advised against going out in public, auto sales have fallen, leading to a$2 billion loss for Ford in the first quarter. And, with suppliers still deserving to be paid, loses will nearly triple to more than $5 billion in the second quarter, officials warned.
“Ford people are keeping each other safe, limiting the spread of the virus, safeguarding healthcare workers and first responders, and taking care of customers,” said CEO Jim Hackett. “The imagination, initiative and execution of our team is helping save lives today, and those qualities will allow Ford to emerge from this as a stronger company.”
In the earnings announcement, Ford officials stressed the basics – the company has enough cash to weather the current climate thanks to drawing down is credit facilities, suspending dividend payments, cutting executive salaries, and taking other financial steps. The $2 billion loss during the quarter lowered the company’s cash on hand to $35.1 billion, a hoard of cash the company hopes to protect in the coming months.
The main reason for the expected rise in Q2 losses is supplier contracts. Ford was producing vehicles and generating regular amounts of income through early March, before the supply orders hit. Most supply contracts, executives explained, are on 45-day payment plans. So, orders cancelled in February and March are still being paid as late as May. After May, the company’s costs will likely fall in line with the lower revenue, lessening the cash burn.
CFO Tim Stone said the company should be able to survive the rest of the year even if shipments to dealers don’t resume.
“We’ve taken decisive actions to lower our costs and capital expenditures and been opportunistic in strengthening our balance sheet and optimizing our financial flexibility,” Stone said. “We believe the company’s cash is sufficient to take us through the end of the year, even with no additional vehicle wholesales or financing actions.”
While the high expenses couple with low revenues make Q2 fairly predictable, Hackett said anything later than that is speculation. Ford withdrew its full-year earnings guidance as the COVID-19 pandemic spread, and it has no plans of offering a long-term prediction until markets become more stable.
Ford’s North American plants have been closed since March 19, and the United Auto Workers recently rejected plans to reopen them by early May. Ford and the UAW have worked out some basic new work rules such as the need for all employees to wear face masks when production restarts. However, that restart is unlikely to occur until the middle or end of next month.
COO Jim Farley said Ford operations are restarting in some parts of the world, and the company hopes to apply lessons from Asia to North American production.
“Our team in China did a very good job managing through the crisis and provided us with a valuable template for bringing back up operations in the rest of the world,” Farley said.
About the author: Robert Schoenberger is the editor of Today's Motor Vehicles and Today's eMobility and a contributor to Today's Medical Developments and Aerospace Manufacturing and Design. He has written about the automotive industry for more than 20 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky; and The Clarion-Ledger in Jackson, Mississippi.