Ford Credit bolsters liquidity as volume shrinks
After pulling “every appropriate lever” to bolster its liquidity, Ford Motor Co. and Ford Motor Credit hold $35.1 billion and $28 billion, respectively, Ford Chief Executive Jim Hackett said during the first-quarter earnings call late Tuesday.
This liquidity is expected to sustain the automaker through yearend, even with “no production or financing actions,” according to the company’s presentation. Ford is expected to burn between $14 billion and $19 billion of cash in the second quarter, according to a research note from J.P. Morgan.
Ford Credit alone holds $9.6 billion in cash and cash equivalents, with access to diverse funding sources. What’s important to note, Chief Financial Officer Tim Stone said during the call, is Ford Credit’s funding structure is self-liquidating. Basically, Ford Credit generates its own liquidity, which reduces its funding requirements as the balance sheet shrinks with lower automotive sales, he explained.
Ford Credit’s originations dropped 3.2% year over year to $12.2 billion as its total portfolio remained relatively flat at $54.9 billion.
In previous weeks, Ford drew more than $15 billion from existing credit lines, issued $8 billion of unsecured junk bonds, suspended dividends and its share repurchase program, lowered its operating costs, cut executives’ salaries and reigned in innovation initiatives.
Ford Credit paid its parent $300 million in distributions this quarter, down from $700 million last quarter, and posted $30 million in earnings before taxes, largely due to higher credit loss reserves, lower values of off-lease vehicles awaiting sale, and anticipated lease defaults. By comparison, Ford Credits EBT was $771 million in the same prior-year period.
Total U.S. vehicles sales dropped 12.5% YoY in the first quarter to 516,330 units. Ford’s stock [NYSE: F] was trading down 1.95% at $5.28 per share at 2:49 P.M. ET. The Detroit automaker’s market cap was $20.98 billion.
