Is Ford Long For This World?

Is Ford Long For This World?

Ugly design language, cheap build quality (hope you like plastic and dated display technology, see our example at the end of this note), combined with a less than enviable financial position make one wonder if Ford (ticker: F), is long for this world. The same is true for other Auto OEMs that carry large debt loads at a time when all are making the unprofitable transition to Electric Vehicles as the global economy slows. Our view is that as this global economic slowdown intensifies, many Auto OEMs will dramatically slow their shift to Electric Vehicle production in favor of preserving cash flow in order to pay down debt which will be rolling over at higher interest rates. Our hope is that Treasury and the Fed do not bail out Auto OEMs. Allow them to restructure, fail, merge, etc. Ditto for the airlines and commercial banks, but I digress.

Ford has approximately $15 billion of Short-Term Debt between Ford and Ford Motor Credit and approximately $129 billion in Total Debt between the two entities. Ford generated approximately $7.6 billion in annualized Operating Cash Flow as of the June quarter on annualized revenue of approximately $160 billion. Ford’s cash flows could go to zero if the U.S. unemployment rate increases from 3.5% to 6-7% (The labor force is hardly robust as the Labor Force Participation rate is only 62.3%, well below the pre-COVID level of 63.4%).

A 2008-styled downturn could send the Auto OEMs hat-in-hand begging for a Government bailout as Debt is downgraded as demand dries up – a vicious circle in the waiting. Hopefully the Treasury and the Fed will choose to preserve taxpayer wealth and refuse to further dilute the purchasing power of the Dollar by way of executing corporate bailouts.

Labor force participation rate was 62.3% as of September 2022, well below pre-COVID levels.

2022 Ford Shelby GT 500, MSRP $113K: plastic dashboard, buttons and toggle switches.
2022 Ford Shelby GT 500, MSRP $113K: in addition to the plastic party, this LED display panel looks like it was pulled from a 1998 Mercedes SL. Awful display design.