Bill Ford Jr. dialed into the virtual town hall meeting from home in Ann Arbor, and he didn’t sugarcoat the situation.
He, like so many people working remotely Thursday to avoid potential exposure to the novel coronavirus, urged his 26,000 employees from around the world watching him on video to remain calm and keep the faith: The 116-year-old company is strong.
“As Bill Ford always has, he makes us feel as if we’re a real family,” said Bob Taenaka, a Ford engineer who tuned in from his home office in Plymouth.
Yet for the first time since before the Great Recession, the company would suspend its dividend payment Thursday to shareholders as industry stock prices plummeted.
Ford had insisted that it wouldn’t cut it. The return has offered value to shareholders, especially retirees, even as the stock price has eroded since hitting $17.62 in July 2014.
CEO Jim Hackett dialed into the morning meeting from his home in Grand Rapids. He said the company was at war with COVID-19 and he promised the company would win, a day after it announced temporary closure of all factories in North America.
Hackett talked about the necessary closing of factories, financing efforts and other ways forward as the company headed into a violent economic storm.
Ford, executive chairman of the company his great-grandfather founded, reminded his listeners the automaker had survived the Great Depression, the oil embargo and the 9/11 terrorist attacks. Survival was not in question.
He thanked his people because, he said, workers refuse to let the company fail no matter how devastating the circumstances and the challenges.
“We know that the days ahead will be difficult, and when people ask me how Ford managed its way through the Great Recession without declaring bankruptcy, I tell them it was because of our employees. People worked day and night to save our company,” Ford said in a note posted after the town hall. “Our employees refused to let our company fail, and we refused to let each other fail. “
More: Ford dividend cut a sign of more coronavirus troubles ahead
More: U-M economists say coronavirus disruptions put recession on horizon
Foreshadowing
“Part of this mindset is not to be recession-proof. It is to say, ‘Come on, recession, we’re ready for you.’ Ford will be ready for the recession,” Hackett said on April 9, 2019, during a speech to 400 people at the Detroit Economic Club.
Ford Motor Co. is the only one of the Detroit Three that avoided bankruptcy in 2009. Yet it is perceived to be vulnerable based on its shrunken market share and market value. Its stock closed Thursday at $4.47, the lowest since April 2009.
“The difference between Ford today and Ford during the Great Recession is that back then the entire auto industry was in trouble,” said John McElroy, a veteran industry analyst and host of “Autoline After Hours.” “Today, Ford is foundering all on its own. We’ve just come off five straight years of the best sales ever seen in the American market, yet the company is posting very weak earnings. Nothing short of drastic action will get Ford back into fighting shape.”
On Thursday, the company announced it would protect itself financially by taking out credit as sales stall and factories close.
Carmakers bleed cash when production is shut down and people have no spare money to spend.
“The crisis of 12 years ago was driven by the demand side. Credit markets froze, businesses went under, people lost their jobs, and auto sales plummeted,” said Charles Ballard, an economics professor at Michigan State University. “This time, the industry is being hit from both the demand side and the supply side. The demand side story is similar to last time. But this time, you have supply chains interrupted because of disruption in China, and now increasingly it will be a challenge to keep producing right here.”
After Bill Ford spoke on Thursday, one Ford employee tweeted, “Listening to Bill Ford on a global huddle this morning gives me hope this will all shake out okay! #Fordemployees” And another responded, “He was very comforting. I agree.”
Fact is, Ford is “a long way from bankruptcy,” said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor.
‘Uncharted waters’
“People are anxious, which is understandable,” Kumar Galhotra, president of Ford North America, said in an interview with the Free Press. “These are uncharted waters. For the first time a large part of our workforce is working from home. Then there is concern about their own health. There’s concern about not just our sales but the industry in general. And concerns about the economy.”
Again and again, Galhotra and other Ford executives say, Ford has a strong balance sheet.
“With the action this morning, we have even more liquidity. We have a strong product plan. We’re about to get to a place where we have the newest product portfolio in the industry,” Galhotra said. “This is a crisis, obviously, no doubt. But we’ve dealt with crises before and generally we’ve come out of them stronger. We’re going to come out of this crisis and we’re going to come out of this crisis very strong. We’ve been around for 119 years and we’re going to be around post this crisis. … We have the resources to get through the crisis.”
Ford is a company with a legacy for solving problems, and America expects as much now, Galhotra said. “Our customers expect us to lead, expect us to solve problems.”
‘Junk status’
In September 2019, Ford Motor saw its credit rating downgraded to “junk” status by Moody’s Investors Service. Such downgrades can increase the cost of borrowing money because the automaker is considered a higher credit risk — sort of like a higher interest rate on a car loan for someone with a low credit score.
Industry leaders predict automakers are going to see more downgrades, and Ford is getting hit especially hard.
Garrett Nelson, senior equity analyst at CFRA Research, lowered its opinion of Ford stock and downgraded it from “buy” to “hold” on Thursday, and “slashed” the 12-month price target on the shares from $10 to $4.
“With the fallout from Covid-19 likely to have a devastating impact on near-term earnings for Ford and other automakers, we lower our rating to hold,” Nelson wrote.
“We expect automakers to resort to draconian measures in order to preserve liquidity such as steep cost cuts, asset sales, and drawing down existing credit lines, as Ford announced today in tapping its remaining $15.4 billion of borrowing availability. The virus comes at an inopportune time, as Ford is in the midst of a restructuring and has a handful of promising forthcoming models including the Mustang Mach-E and Bronco.”
‘Concerned’
Meanwhile, Sam Pack, president and CEO of Pack Auto Group based in the Dallas metro area, said, “I think we’re all concerned.”
Pack, who has 13 dealerships in three states, said Ford’s latest moves are essential and a bellwether of things to come for everybody. He had been on the phone talking with the Texas lieutenant governor about the dire situation.
‘Scary’
Analyst Adam Jonas of Morgan Stanley wrote Wednesday to investors, “We’ve been getting greater volumes of incoming calls from investors on Ford than GM lately. … We convey our view that Ford’s balance sheet is flush with cash and gross liquidity within both the auto company and at Ford Credit.”
In an investor memo with a section labeled, “World is getting scary,” analyst John Murphy at Bank of America wrote that he viewed “Ford’s actions as prudent in the current environment.”
Liquidity is critical
In recent days, U.S. Rep. Debbie Dingell said she has been sleeping mostly between 1 a.m. and 5 a.m., and spending the rest of her waking hours trying to anticipate needs in the auto and restaurant industries, which are getting hammered.
No one likes using the term bankruptcy when talking about the automakers. Instead, industry officials focus on “liquidity.” If a company is liquid, it’s fine.
“I think all the members of our delegation, in a very bipartisan way, are watching what’s going on with the auto industry as we do this next economic stimulus package,” she told the Free Press. “And we’re asking and telling the companies -– all of them have identified liquidity as being critical. We need to know what they may need. This is moving very quickly. Everybody wants to help keep them strong and viable.”
Dingell has talked with Ford throughout the week, she said, and “they’re doing what they’ve got to do. Liquidity is the operative word. Ten years ago, people needed a bailout. Nobody wants that right now. That’s why they’re asking for liquidity. So they can get what they need to operate.”
Analysts are watching Fiat Chrysler, knowing the health crisis crippling Italy’s economy and much of Europe is particularly brutal. And while GM stock is dropping, too, its market value and stock price remain higher than its peers.
For now, the analyst Jonas writes that domestic automakers “each have relatively strong balance sheet and liquidity positions to ride out the level of disruption to business currently contemplated in the market.”
‘Not just us’
“It’s weird to work at home,” said a top-level Ford employee who was not authorized to share details about the internal meeting. “It’s depressing to see the stock go down. I think everybody is dealing with that and to not know where the end is also unsettling to people. Everybody is working from home and in their own office and you hear a dog barking in the background. But it’s not just us, it’s the whole industry.”
Contact Phoebe Wall Howard: 313-222-6512or phoward@freepress.com. Follow her on Twitter @phoebesaid. Read more on Ford and sign up for our autos newsletter.
Read or Share this story: https://www.freep.com/story/money/cars/2020/03/20/coronavirus-covid-19-bill-ford-motor-dividend/2878775001/