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Ford Family Fortune Takes Hits with Firm

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By Steven Mufson
Washington Post Staff Writer
Thursday, November 20, 2008

The Ford family is paying a heavy price to maintain its controlling stake in the automaker. In less than seven months, the family has lost $533 million on the special shares that give it 40 percent of the voting rights in the company.

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Its holdings in those shares are now worth about $89 million, down from more than $2.5 billion less than a decade ago.

Through a combination of trusts, the founding family owns 70.85 million Class B shares, but if it were to sell off a modest number of that stake, its voting rights would drop to 30 percent under rules established when the company went public in 1956.

Some Ford family members have taken additional financial hits through their holdings of ordinary common stock. According to the most recent disclosures posted by Bloomberg data services, William Clay Ford Jr. holds 5.2 million shares and Edsel B. Ford II owns 2.7 million shares. Their common stock holdings have lost $39 million and $20.3 million in value respectively since May.

William Ford sold about 1 million shares on Sept. 18 for $5 a share, four times what the stock closed at yesterday.

The financial setbacks for the Ford family contrast with the relative financial savvy the company showed two years ago. When Ford Motor mortgaged virtually the entire company -- down to its blue oval trademark -- to raise $23 billion in late 2006, many analysts took it as a sign of weakness. General Motors, by contrast, decided at that time that it had enough cash to see its way through a changing automobile market.

Two years later, that could make the difference between life and death for America's two biggest automakers. Ford Motor, while ailing, is not as desperate as GM for a government cash infusion. It says that it can survive 2009 and hope that better times, new products and better labor terms will kick in in 2010. GM said its cash could run out early next year without federal help.

"From an operational perspective, Ford is actually not in that much better straits," J.P. Morgan Chase analyst Himanshu Patel said in a report. "The key difference . . . is that Ford wisely mortgaged the near-entirety of its assets in late 2006 . . . GM, by contrast, has its most valuable assets still un-pledged but is unable to borrow against them in today's credit market."

If Congress provides a new $25 billion loan package for the Big Three U.S. automakers, GM said it would probably seek $10 billion to $12 billion, roughly commensurate with its share of the market. But, "each of us will be in a different situation," Ford chief executive Alan R. Mulally told the Senate Banking Committee on Tuesday. "How much [Ford Motor] would actually draw would be dependent on the situation and what happens in the economy, but we're not asking for a lot of money right now."

Ford Motor is generally in better condition to survive the onslaught of credit problems and sagging sales because of its financial decisions, not its car designs.

Mulally, in testimony prepared for a House hearing yesterday, pointed to the company's 2006 loan package, the sale of Aston Martin, Jaguar and Land Rover brands, and the sale of Hertz and other businesses to bolster liquidity.

"Speaking only for Ford, we are hopeful that we have enough liquidity based on current planning assumptions and planned cash improvement actions, but we also know that we live in tumultuous economic times in which rapid and unexpected change seems to be the norm rather than the exception," Mulally said in the prepared testimony.

Analysts are worried about just that.

A report by Citigroup analysts said that Ford Motor's $7.9 billion "cash burn" during the third quarter "was significantly worse than expectations," leaving cash balances at $18.9 billion at the end of September, down from $26.6 billion at the end of June. Including $10.7 billion of available credit facilities, Ford Motor's total liquidity is nearly $30 billion.

That sounds like a lot, but money-losing Ford Motor could run through nearly $15 billion in cash by the end of next year, Citigroup's analysts estimate -- and that's without new disruptions in credit or car markets. In addition, the automaker owes several billion dollars to the United Auto Workers to cover the health-care costs of workers. And it needs about $10 billion just to fund continuing operations.

Ford has plans to raise further cash through a combination of cuts in capital spending, financial measures, layoffs and the possible sale of its partial interest in Mazda. But analysts warn that capital spending cuts could delay improvements in the vehicles it produces.


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