Global automakers have become one of the main victims of the pandemic coronavirus in the industrial sector. Businesses are closed, and demand is declining; the global crisis in health care has worsened the financial position of many industry players. Ford Motor Co (NYSE:F), the second largest automaker in the world – is no exception.
Before the start of a pandemic, Ford faced serious problems. After many years of sales growth amid a steady global economy and strong consumer demand, the company was at the mercy of negative factors, as the demand for sedans slowed down. Last year, net profit fell by more than half.
The company decided to leave the markets of small cars and focus on SUV’s and trucks, at the same time intensifying their efforts to get to markets of electric vehicles and unmanned vehicles. Last year the company announced that it will spend $ 900 million on production of unmanned electric vehicles at its plant in flat rock, South of Detroit.
Ford followed the path of implementation of a major five-year restructuring plan worth 11 billion dollars, which includes a reduction of thousands of jobs, upgrading the line of SUVs and pickups and the abandonment of the sedans that are experiencing a slowdown in demand.
But the coronavirus has questioned the viability of this plan, forcing S&P Global Ratings to downgrade the credit rating of Ford this week. Before this decision was made by Moody’s Investors Service on Wednesday reduced its rating for the second time in six months.
These decisions accelerated the fall of stock Ford, who this year lost 41% of its value and dropped to 2009 levels. Yesterday they closed at $5,25, a decrease of 2.6%.
Dividends no more
S&P notes strong financial pressure on Ford, whose factories (including all North American facilities) remain closed, and the prospect of resumption of production is not defined.
“The stress caused by the stopping of all plants, different from the stress associated with traditional lower amid recession,” says the Agency, noting that Ford does not generate the revenue needed to cover costs. “The rate of burning cash even within a few months may be higher than that observed during a typical recession.”
Trying to prevent financial crisis and to preserve cash, the company last week suspended the payment of dividends (which management previously promised to keep). This step talks about the priority of financial flexibility and investment in a series of new products.
“While we certainly could not have predicted the pandemic coronavirus, we have maintained a strong balance sheet and sufficient liquidity in order to overcome economic uncertainty and continue to invest in the future”, – said in his statement, CEO Jim Hackett. “I am confident the steps we are taking to overcome the current uncertainty, continuing to build the future”.
Analysts were divided on whether Ford can survive this difficult time without the assistance of the government which is necessary for the companies who find themselves in a quandary due to the outbreak of COVID-19.
Adam Jonas, head of the research Department of the automotive market and market-share in Morgan Stanley, told CNBC on Tuesday that stocks Ford, facing financial uncertainty may not yet have reached the bottom.
Jonas said that the automaker has had some issues, but indicates the liquidity reserve of 30 billion dollars, and a strong team of financiers, which nurtured the financial crisis of 2008 (when the company has not received assistance from the state).
The current crisis even stronger pushing back the implementation of the restructuring plan Ford, which many analysts were expecting this year. The survival of the company depends largely on government assistance, which the Administration plans to give automakers, as well as from the ability of the company to benefit from a possible revival of demand caused by low interest rates and a sharp fall in the cost of fuel.