Authors: Bryce G. Hoffman
American Icon (65 page)
I
n April, a few days after the debt deal was concluded, Booth led a Ford delegation to Washington for the company’s first meeting with the task force. Because Ford had passed on a government bailout, the company decided that there was no need for Mulally to deal with the group directly. With Booth were Hinrichs, Ojakli, and Tony Brown, Ford’s global purchasing chief and resident expert on the supplier situation. They met with Rattner and Bloom in a small conference room at the Treasury Department. The two administration officials were still fuming over Ford’s decision to negotiate a separate peace with the UAW.
“Why are you guys intervening in this?” Rattner asked again. “Why don’t you let us take care of it?”
“We want to make sure we’re not disadvantaged,” Booth replied.
Rattner wanted to know how Ford was able to negotiate concessions from the union before it got them from bondholders. Hinrichs said it was all about trust.
“That was the foundation of all this,” he said. “We showed them our plan, and we committed to that plan.”
If Rattner was impressed, he did not show it. Instead he went over the terms of Ford’s agreement with the UAW.
“Is this really going to be competitive?” he asked Hinrichs.
“Yeah, by our numbers it gets us there—not today, but over the next couple of years. And it was ratifiable,” Hinrichs explained. “It keeps us moving on our plan to restructure the business.”
B
y the end of March, all the tracking data showed that Ford had opened a wide gap in public perception with General Motors and Chrysler. The American people were no longer mentioning the Dearborn automaker in the same breath as the other two manufacturers. After Obama’s speech, investors began buying Ford’s shares again—despite the fact that they were about to be diluted by the company’s massive debt-for-equity swap. On April 3, Ford’s stock closed above $3 a share for the first time since 2008. By April 9, it was trading above $4. On April 24, Ford posted a first-quarter loss of $1.43 billion. It no longer seemed to matter. The company’s stock ended the day at $5 a share. Wall Street was paying more attention to Ford’s cash burn rate, which had fallen to $3.7 billion. The company’s shares were knocking on the door of $6 at the end of trading on April 30. April also saw Standard & Poor’s boost Ford’s credit rating for the first time in a decade. The automaker’s debt was still deep inside junk bond territory, but it was finally moving in the right direction.
Since the stock float did nothing to diminish investor enthusiasm for Ford, the company decided to issue another $1.6 billion worth of new shares to further strengthen its balance sheet. This was not
part of the plan, but an unexpected benefit that put a lot more distance between the Dearborn automaker and the door of bankruptcy court. Barring another significant downturn, everyone at the top of the Glass House now believed the company really could make it without the government’s help.
Sales remained depressed, but Ford continued to outperform the market and gain share. In April, its sales were down more than 31 percent, but Toyota’s were down nearly 42 percent. It was the same story in Europe, too, where Ford posted its first double-digit share gain since 2001. The automaker’s share for the first quarter in the region was its highest in ten years.
The board was pleased. The directors had hoped that Ford would get credit for forgoing a bailout, but none of them expected the decision to generate as much goodwill for the company as it did. Two days after the UAW agreement was ratified, Ford’s board of directors awarded Mulally options for another 5 million shares at a strike price of $1.96. It was a sneaky way of making up for the pay cut he had taken to cinch the deal with the union. The company hoped that no one would notice. But the UAW did notice. Bob King felt betrayed. He had sold these concessions to his members on the principle of shared sacrifice. He would not forget it, nor would many of his rank-and-file members. And it would come back to bite both Ford and King later.
But for now, Ford just needed to steer clear of the cataclysm engulfing the rest of Detroit. The supplier situation had not improved and would only get worse if General Motors and Chrysler filed for Chapter 11 protection. But it was becoming clearer by the day that their losses would be Ford’s gains. By May 1, 63 percent of the car-buying public said it had a favorable view of the Dearborn automaker. In the depths of the worst crisis to afflict the American automobile industry in eight decades, Mulally and his team had done what many thought impossible even in the best of times: They had restored the American people’s faith in Ford Motor Company. The decision to pass on a bailout was a big part of that, but it would have mattered little if the company’s showrooms were still filled with the same old boring products. Fortunately for Ford, transports stacked with new vehicles like the redesigned Fusion and Fusion Hybrid were pulling into dealer lots
just as customers decided that the company was worth another look. Once again, Ford’s timing was perfect.
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Neither the outgoing Bush administration nor the incoming Obama one could figure out how to give Ford the $9 billion line of credit it requested,
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but it no longer needed it. The outpouring of support for the automaker’s decision to go it alone would soon become a groundswell. Three years after Mark Fields’ Way Forward speech, Alan Mulally had finally made Ford America’s car company.
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The Fusion Hybrid got 8 more miles to the gallon than the Camry Hybrid on the highway and 2 more miles per gallon in the city. Ford also offered a Mercury version in the form of the Milan Hybrid.
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Geithner’s maternal grandfather, Charles Moore, was Ford’s head of public relations from 1952 to 1963.
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The revolver would have to be paid back or refinanced by the end of 2011.
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After Joe Laymon left Ford in 2008, Hinrichs assumed responsibility for labor affairs, in addition to global manufacturing. Mulloy now reported to him.
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The company also agreed to new product commitments for certain plants and promised to keep the UAW informed of its efforts to secure comparable sacrifices from its bondholders, suppliers, and dealers.
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Bloom also served as adviser to the United Steelworkers and Airline Pilots Association.
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This offer applied to Ford’s 4.25 percent senior convertible notes due December 15, 2036. The $1,000 referred to the principal value of the notes, and the actual number of shares was 108.6957 per $1,000.
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The 30-cents-on-the-dollar offer was open to most bondholders who signed up by March 19. After that, most only got 27 cents on the dollar. The final amount subscribed was $1.1 billion.
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It was a prescient move. At both GM and Chrysler, investors would later gang up on the company to demand more favorable terms.
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Ford’s treasury team also demonstrated its financial acumen by moving to de-risk the company’s pension funds in 2007, before the global economic crisis began. At the time, these totaled approximately $60 billion, and about 70 percent of that money was invested in equity markets, with the remainder in safer fixed-income investments. Schloss decided to balance Ford’s funds evenly between the two—just before the equity markets tanked in the second half of the year. He also hedged on interest rates. Together, these moves saved Ford between $6 billion and $7 billion.
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If Ford had waited for GM and Chrysler to conclude their own deals with the UAW, it would have been the middle of summer before negotiations even began. By then, Ford’s business had improved to the point that rank-and-file members would never have agreed to such concessions. The company’s debt would likely have been trading higher as well, making it harder for Ford to buy back.
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Ford’s request for a $9 billion line of credit was actually approved by the House of Representatives.
Turning the CornerUnless you have courage, a courage that keeps you going, always going, no matter what happens, there is no certainty of success
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—H
ENRY
F
ORD
C
hrysler filed for bankruptcy on April 30, 2009. General Motors followed it into Chapter 11 a month later. Once again, the television was on in the Thunderbird Room when President Barack Obama told the American people that the United States government was going to invest $30 billion in GM and become the owner of the nation’s largest automaker.
“I recognize that this may give some Americans pause,” Obama acknowledged. “[But] their survival and the success of our overall economy depend on it.”
There were audible gasps in Dearborn.
“You mean they’re not going to have to pay it back!?” shouted one of the executives. The others just shook their heads.
Alan Mulally had not seen this coming. Neither had anyone else at Ford Motor Company. They all knew that GM and Chrysler were going to get substantial infusions of cash from the American taxpayers. They just assumed the two bankrupt automakers would have to pay it back. Now the president was explaining that the old GM and Chrysler would be allowed to convert this debt into equity in their successor corporations. In the case of Chrysler, it was expected that Fiat would purchase the government’s shares to complete its acquisition of the automaker. But in the case of General Motors, the United States would own a majority stake in the new company once it emerged from bankruptcy.
Mulally and the other executives sat in silence as they struggled to
digest the president’s words. They were no longer competing against two bankrupt manufacturers. They were competing against the United States government. As usual, Mulally was the first one to get over it.
“You have to expect the unexpected, and you have to deal with it,” he said. “Whining is not a plan. Wallowing is not a plan. We
have
a plan, and if we need to adjust it, we will.”
F
ord followed both bankruptcies closely. It hired an outside law firm to study every document its competitors filed with the courts. There were new ones submitted every day—often hundreds, sometimes thousands of pages—and Ford’s lawyers dissected them all for details about the two companies and their government-run reorganizations. The task of monitoring Washington fell to Ziad Ojakli. He and his operatives prowled the corridors of power trying to figure out what the government was doing to protect its investment. Mulally and his team continued to meet every day to go over the latest developments. These meetings soon settled into a routine.
“What’s everybody hearing?” Mulally would ask once all of the executives had taken their seats.
The answer usually involved some new, unanticipated benefit accruing to one or both of Ford’s crosstown rivals. Everyone inside the Glass House knew that GM and Chrysler were going to be able to walk away from most of their debt, but no one had expected Washington to authorize a sweeping purge of their dealer ranks or force the United Auto Workers to grant them even deeper concessions than the ones Ford had negotiated with the union. These things were hard for many of the Ford executives to swallow—particularly those who had been fighting for years to make the sort of progress that GM and Chrysler were now achieving with the stroke of a pen.
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