Ford gets its iconic logo out of hock

The automaker posted its whole brand as collateral in 2006 but is now strong enough to take trademarks off the table.

By InvestorPlace May 23, 2012 10:07AM

By Jeff Reeves


Back in 2006, after posting a staggering $12.6 billion loss, Ford Motor Co. (F) knew it was in trouble. Deep trouble.


So the company crafted an ambitious turnaround plan. It closed more than a dozen plants, suspended its dividend and killed the storied Mercury name. Ford even took the drastic step of putting its entire brand up as collateral to restructure the company -- offering up trademarks like its iconic blue oval and the Mustang name to win over bankers.


It was quite a gambit, but it paid off. Because not only did Ford remain the only Detroit automaker to avoid bankruptcy in the wake of the financial crisis, but the automotive powerhouse is now trading above 2006 valuations.


And most importantly, Ford again has become healthy enough to take its world-famous logo out of the IOU bin, thanks to a stronger balance sheet and a credit upgrade Tuesday.

The headline was relatively ho-hum: Ratings agency Moody's raised Ford's debt ratings to "investment grade" for the first time in seven years. Its debt previously had been in a class that is kindly called "high yield" but more commonly known as "junk."


Anyone who has applied recently for a car loan or a mortgage with bad credit knows the burden that comes with an unfavorable rating. When you have a poor credit score, you have to pay extra -- in the form of higher interest rates or bigger payments up front.


That was the story with Ford. It needed money to restructure and change the scope of its business back in 2006, but banks weren't going to just give it an open line of credit to play with. The automaker was bleeding cash and had to show lenders they weren't going to get stuck holding the bag.


That's why Ford took the unprecedented step of putting its very brand in hock to get the cash it needed for a $23.5 billion loan that ultimately kept it out of bankruptcy.

Executive chairman Bill Ford, the great-grandson of company founder Henry Ford, told The Associated Press on Tuesday that giving up the rights to the oval was "enormously emotional for me personally and for my family."


No kidding. And it must be quite a relief to get the brand back in company hands.

So where does Ford go from here?


Well, consumers have been pretty pleased with the changes that the company has wrought since 2006. Ford won both car and truck of the year at the 2010 Detroit Auto Show for its Fusion Hybrid and Transit Connect van. Its European-styled Focus is appealing to small-car drivers looking for fuel efficiency, and it even offers a gas-free electric version that just started shipping to dealers. Oh, yeah, and those "built Ford tough" F-150s are still the best-selling truck for 34 years running.


Investors face a mixed bag, however. Yes, Ford is now sitting on $20 billion in cash and has reinstated its dividend at 5 cents a quarter for a roughly 2% yield annually. Revenue totaled $136 billion last year, up about 15% from 2009 lows and just shy of levels from before the Great Recession.


However, investors are less concerned with health than they are with growth. In its ratings outlook, Moody's said Ford's cars and trucks are increasingly competitive with those of Asian automakers, and it expects "robust" future products. But shares are down a staggering 40% since January 2011 because rivals General Motors (GM) and Chrysler finally have gotten their swagger back, Japanese automakers Honda (HMC) and Toyota (TM) have recovered since the brutal 2011 earthquake and tsunami that affected production, and Korean makers Hyundai and Kia continue to bolster their auto lines.


Throw in the fact that China auto sales are down for the year, showing softness in a market that has long been considered the biggest growth opportunity for automakers, and it's easy to see how tough the competition has become. Earnings for Ford in 2012 are expected to come in at their lowest level since 2009 as a result.


Investors should be warned that Ford has a tough path to growth in this environment. However, the good news is that the very real threat of failure has subsided. In its upgrade, Moody's said one of Ford's main strengths is its low break-even point in North America. Ford has to sell only 1.8 million vehicles domestically to turn a profit, and last fiscal year Ford shipped 2.7 million cars and trucks -- roughly 50% above break-even.


In short: The blue oval is safe and sound now that Ford is stable and profitable once more.


(Read more about what has happened to bailout funds for automakers GM and Chrysler.)



Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace​​.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the aforementioned securities.




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56Comments
May 23, 2012 3:39PM
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Hey look: A company that borrowed money, invested in itself, got its fiscal situation in order, then repaid the debt.  Maybe the US as a country should follow the same economic policy...nah, that makes too much economic sense.
May 23, 2012 12:20PM
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GM and Chrysler got their swagger back from the government.  I have total respect for FORD not taking the bailout from the government.  This was the American way to come back!! 
May 23, 2012 3:23PM
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I bought my last Chevy just before they went belly up, shafted their investors, took money that congress and the president stole from the tax payers, and lined the union pockets with part ownership after they helped run it into the ground. My next truck will be a Ford, I will never buy another GM or Chrysler product, I will not support Government Motors, and the crooked unions. Kudos to Ford, for turning it around on their own, that's what is really American, not hiding behind bankruptcy and leaching off the government.
May 23, 2012 1:03PM
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Neal in Denver, your quote "While I applaud GM and Chrysler for paying their loans back"

 

Man oh man, have you bought a pack of lies.  GM HAS NOT paid back it's "loan".  We own common shares of GM, which is about 25% of GM.  Those shares are currently selling at about $27 a share, those shares have to hit $57 dollars a share for "us" to break even.  When do you suppose that will happen?  How about NEVER.  It's still "government motors'" and it most likely will always be.  Chrysler was bought by another car company my friend, and is majority owned by them.  I'm so tired of the lying media saying "GM has paid all it's money back", that is outright deceptive, because they are pushing their agenda on the ignorant masses who buy it up like children buy candy. The lies never stop concerning this President saving the "car companies", he didn't save a thing, we the taxpayers did, and I for one are not happy how this "saving" happened, not in the least, we got short sticked while the UAW got away with screwing the taxpayers of this country.   

May 23, 2012 3:14PM
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Not to mention that Ford- as the only free market, American company has to compete on an uneven playing field against government subsidized companies- here, in Europe, and in Asia.  That they can do so and remain lean, mean, and profitable is a tribute to the American workers, the management, and the engineering genius of free American workers.  Let the socialized losers and Government Motors (GM) continue to get back their "swagger" after the "stagger" that resulted in Obama's unconstitutional and illegal bailout that gave them a mirage recovery, and let Ford develop the next best thing- an American creative revolution in engineering.  Ford should have been rewarded for doing the right thing in 2006, not forced to compete against the "too big to fail" welfare companies.  They should have reaped market bonanzas as GM and Chrysler wallowed in the the throws of bankruptcy reorganization like their airline counterparts.  Obama should apologize to the airlines that didn't get subsidies- as he should to all other American corporations who aren't favorite stepchildren of the Obama crony capitalists.  It is amazing that an economic illiterate community organizer gets to pick winners and losers arbitrarily in the American marketplace.
May 23, 2012 2:32PM
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I liked all my Ford SUV's and trucks

89 Bronco

93 Explorer Sport

96 F-150

98 F-150

99 Navigator

93 Bronco

2001 Expedition

2008 Xterra - oops Nissan ( I had to try something different) (it was built in Tennessee though)

I'll get another Ford for sure

 

May 23, 2012 3:03PM
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I think Ford is a Model of Success, perhaps they took loans from the goverment but in many cases these are for Product Research and Develoment, like hybrid, electric, saftey features and of course trying to make vehicles meet the ever increasing MPG goverment regulations, and these are not bail out loans but loans to further technology.  Hardly comparing apples to apples when one borrows money to meet goverment regulations/requirements vs going out of business.

Anyway's enough bantering about GM/Chrysler it is good to see US makers back in the thick of it, provides jobs to Americans at a time when we need them.  As for Ford I own Fords and have for a long time now as well Toyota's products, the World needs people working in the end we all benefit. 

May 23, 2012 4:18PM
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1997 Ford Ranger XLT 4.0 4x4 with 273,785 trouble free miles! 1970 Mercury Couger 351c 167.342 miles! GO FORD!
May 23, 2012 4:11PM
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I love my 73 mustang mach 1 and my explorer sport trac and will always buy fords. I am proud to support a American Car Company.
May 23, 2012 1:08PM
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jcbozark, then I sit corrected (who stands while they type?)  Applause for Ford standing on its own.  Applause (less) for Chrysler paying, but being Fiat now.  Boos for GM, who I have never liked, period.  Besides who actually wants to drive a Volt?  Too expensive up front, gas savings will not offset prices before the entire battery package has to be replaced (for an estimated $15k).  Still going to wait at least 20 years to see if they can keep going without reverting to their attitude in the 70s and 80s.

 

It's a pity that people do not like my attitude, but they won't change it.

May 23, 2012 3:30PM
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I think the American car makers tapped into a smart business with their domestic consumers. With Ebay blowing up they realized we are some of the most nostalgic generations ever. They reapproached their vehicles and the new models reminding us of the old is just what the American Dr. ordered. The Ford Mustang is simply awesome. I saw it at an auto show 2 years before its production release and everyone that saw it loved it. The classic reborn models all look good in my opinion. My favorites are the Ford Mustang and the Dodge Challenger. Ford also did well by the new Ford Explorer. It got a much needed face lift in 2012 and it has been selling well. The Mustangs overall have been quite reliable as well. Ford has done well with initial quality with a lot of their new models. If they can better their reputation across the board for reliability the sky is the limit. Also we need a big information update on the planet. GM paid their required interest payment off early which is still a positive thing. However there is still a ton of the American peoples money invested in GM. Hopefully there are deadlines some of those funds as well.  While I am still frustrated by the bailouts I certainly want Ford AND GM to succeed because even though I don't work for the auto industry there are a ton of great Americans that do.

May 23, 2012 4:34PM
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I have a 2000 GRAND MARQUIS with 165000 miles and still running strong. This is without a doubt the best car I ever owned. Love the ride on long trips, gets decent mileage. Would buy another just for a spare. LOVE IT. GO FORD.
May 23, 2012 5:12PM
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buying ford...the US dollar stays in the US.
buying  toyota,honda,kia,etc....the US dollar travels overseas,adding to trade deficit.....and please correct me if i am wrong.
thank you.

May 23, 2012 11:03AM
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Trans Am,

 

Were you born this dumb or just got that way sniffing the gas fumes from your piece of sh_t Pontiac?

 

Buy Ford or you are UnAmerican.

May 23, 2012 4:02PM
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I get tired of the whole, GM/Chrysler bailout whining. Why are you not complaing about the financial institutions who have not paid a single dime back!  What I  find upseting is, no one ever mentions Feddie, Sally and all the banks that got bail out money that said they would put it to good use, and then turned around and gave their CEO's big fat bonuses. Nothing says, "Let's celebrate underachieving" like getting a $20M bonus for bankrupting your business. No, everytime we hear about how well one of the domestics is doing, there has to be whiners about GM and Chrysler. So, you would rather them go bankrupt is that right? Millions of people around the world jobless. Is that what you are saying? What kind of economic crisis would that have put us in? I bet a lot worse off then just bailing them out. Oh, but that is right, you may not work for them, so it doesn't matter to you. And no, I do not work for either of them, but I do have compassion for my fellow man. And yes, I am a conservative.
May 23, 2012 2:07PM
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Sorry Freedom Ghost, but you are dead wrong about Chrysler.  The company's recent success in selling vehicles comes about from its chief marketing officer, a French man, Olivier Francois, who boosted ad spending by 36%, and it has paid off big time.  Sergio Marchionne stated on "60 Minutes" that he paid the government back 100% plus 19.6% interest.  Chrysler's sales are up 33% this year. I doubt Forbes magazine (Capitalist Tool) would print lies. And no doubt "60 Minutes" vetted the comments; the program would have too much to lose.  Ford hocked itself by selling subsidiaries' and property and took a gamble to raise cash a few years ago. It's good to see the company well on the mend.  When Chrysler was privately owned by Cerberus, they could not make a dime; it took a an automobile man, not some guys behind the desk.  And Chrysler Capital, now sold to TD Bank, never lost a cent.
May 23, 2012 5:37PM
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we love it that ford has made a comeback, and that gm and toyota are now falling! but kia is a koren product, and they don't like the japs, but gm does that is how they got out of bankruptcy, but it back fired toyota started to admit they cars are junk, but when the runaway car with a stuck throttle body due to electric problems, wel iwas a floor mat , that was the only way they could get the owners who were killed in crashes , but they could not speak for themselves so toyota did the talking, i am sorry liars, was a better word for toyota, so gm got help from toyota to get out of bankrupcy.  you know if there was no liars at gm and toyota, well there would not be any toyotas!
May 23, 2012 5:10PM
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brainwashed folks who BELONG to political parties THINK along 'their party lines'and often vote against their own interests,should learn to become CITIZENS,not party members.Then look for the common sense TRUTH,not what the party wants you to BELIEVE.Without the corrupted political interference we would'nt have had a recession,and would be" on top of the world".Believe only the neutral news reports and only what you see and vote accordingly,most of all be honest with yourself and believe only what YOU SEE!!!!!
May 23, 2012 10:21PM
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now if they can just make an engine that lasts longer than 30,000 miles......

 

lets see,the ford paperweight..ahem,ranger...in the garage needs its fifth engine

 

first one died form a defect at 30,000

second one siezed from basic wear at 55k

third one overheated too often due to not being able to run the ac in the summer died at 80k

fourth one,due to being driven to work every day,at about 7 miles each way,died at 115k,longest lasting one

thats total miles folks,so the engines lasted 30k,25k,25k,and 35k,each...trash

 

now,the infiniti QX4 that runs and i keep in my driveway,it has 168k miles,and has been in the shop 3 times for things other than basic maintenance like tires and oil changes and still hasnt had a single tune up,runs great

May 23, 2012 12:49PM
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While I applaud GM and Chrysler for paying their loans back and Ford for not taking them in the first place.  I am simply going to wait for all three to establish a 20-30 year reliability record to offset their 30-40 year record of "planned obsolesence", crappy mileage, faulty design, lousy customer support, etc, etc, etc.   Have owned Hondas since 1975 (except for a Renault I had while stationed in Germany, yuch) and intend to keep our current two until they completely collapse.  Detroit spent too much time depending upon public stupidity for me to go back to them any time soon.  They (and their unions) made their bed, let them lie in it ... alone.
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