The legendary automaker Ford Motor Co. is making big progress in restructuring its firm after getting hit hard over the past years with economic down turn and increased competition. And while its American competitors in Detroit--GM and Chrysler--continue to depend on the government to survive, Ford, which rejected bailout money, is working towards recovery.
Ford plans to cut its debt 40% by giving its debtors equity stakes in the firm. Ford offered its debt-for-equity swap and 88% percent of those holding convertible debt notes accepted. According to the Financial Times:
The deals will cut the carmaker’s debt from $25.8bn to $15.9bn, and lighten interest payments by $500m a year, based on current interest rates... In addition, its financing arm, Ford Credit, has bought back $3.4bn of its parent’s unsecured non-convertible notes. Ford Credit previously took over $2.2bn of Ford’s term loans at a sizeable discount.
GM and Chrysler have been unable to agree on debt-for-equity swaps with their lenders – unsecured bondholders in GM’s case and banks in Chrysler’s.
And its not just with debt management that Ford is outpacing its American rivals. FT also reports that, unlike GM and Chrysler who have received billions from the government to pay its bills, Ford has finalized a deal with the United Auto Workers union to "accept shares rather than cash for up to half the carmaker’s contributions to a new union-managed healthcare fund." Ford doesn't have taxpayer money as its backstop right now, increasing its negotiations position with the UAW. GM and Chrysler on the other hand are being tacitly run from the White House.
Ford isn't perfect: they do have federal funds in their pockets (specifically from the $25 billion bailout fund to help the Big Three meet CAFE standards) and they also supported the GM and Chrysler bailouts in view of cascading effect their collapse would have on suppliers. However, Ford is now doing what private companies have to do in bad economic times: adjust, adapt, and change direction with knowledge that profit signals and demand numbers bring.
Meanwhile, GM should just declare bankruptcy is solve its problems, as my colleague Shikha Dalmia recently wrote about.
Update: Also see my colleague Sam Staley's post at Out of Control from last week about the progress of Ford.