Governments Help Ford Cut Debt
Ford Motor Co. is getting help from the U.S. and other governments around the world as it races to slash its debt and boost its credit rating—an ironic position for the only U.S. carmaker that didn't receive a government bailout last year, reported The Wall Street Journal.
Ford Chief Executive Alan Mulally and Chief Financial Officer Lewis Booth are on a drive to get back the auto maker's investment-grade credit rating, which it lost in 2005. Their goal, said a person familiar with the situation, is to get to investment grade in 2012 or possibly by the end of 2011, which may not be a stretch given the $7.3 billion profit Ford has made since the beginning of last year.
A higher credit rating typically lowers a company's cost of borrowing money.
For more than a year, car buyers have flocked to Ford, with some saying they wanted to support the only Detroit car maker that didn't receive a government rescue. Ford's U.S. sales so far this year are up 22% over the same period last year, well outpacing General Motors Co. and Chrysler Group LLC.
Ford increasingly has been able to pay back debt ahead of schedule in part by winning government loan guarantees that allow it to borrow funds more cheaply. It uses these government-backed loans to make investments in its operations, then uses its own cash to pay down its privately issued debt.
Ford officials say the company, like its competitors, looks for government assistance when appropriate. "If we can take advantage of attractive interest rates, we will," Ford spokesman Mark Truby said.
Ford's steep debt stems mainly from a decision in late 2006 to borrow $23.5 billion to fund its turnaround. While the move helped keep Ford out of bankruptcy, it left it with a debt burden for which it paid $318 in interest for each vehicle it produced in the second quarter.
Meanwhile, Ford's two Detroit rivals have relatively little debt thanks to their U.S.-funded reorganizations.
As of June 30, Ford's overall automotive debt totaled $25.8 billion, down from $32.6 billion at the end of the first quarter. Ford paid $951 million in interest on its debt in the year's first half.
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