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Profitability = Smoke and Mirrors

Posted by Bill Sluben on November 19, 2009

First off – this is not a shot at Ford.  All automotive manufacturers are in this downsized mode and are facing extreme pressures to report profitability. 

We’ve heard the news:  Ford is profitable!!  But…let’s not get too giddy for our britches.  Could it be that this new fangled profitability is nothing more than accounting smoke and mirrors.  Consider the following: 

  1. 3Q revenue fell nearly $1.2billion.  Yes, fell by over $1 billion.  Revenue for the first nine months of 2009 has fallen by $34 billion worldwide.
  2. At least 7,000 total layoffs in 2009
  3. Ford has extended out the maturity dates by two years on revolving debt payments (were due in ’11; now due in ’13)
  4. Ford is offering up to $2 billion in senior convertible notes, due 2016.

So…bottom line:  Ford has less workers (both blue and white collar) on payroll, is extending their debt out, is offering investments to raise capital and is selling far fewer vehicles worldwide.  But they are able to reflect a profit because the size of their cost cutting & sales revenue outweighs the operating costs and short/long term commitments…with the emphasis on cost cutting

 

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