Ford's balance sheet no longer comes in black

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The automaker reported a $5.9 billion dollar loss in the fourth quarter, hemorrhaging even more money than gloomy analysts had been expecting:

Ford Motor Co., which has already slashed thousands of jobs, will cut even deeper and draw on available credit lines after the auto maker burned through $5.5 billion in cash in the fourth quarter and posted its third consecutive annual loss.

For the fourth quarter, Ford recorded a net loss of $5.9 billion, or $2.46 a share, as its full-year loss ballooned to $14.6 billion compared with $2.72 billion for 2007.

Ford, which succeeded at easing its cash burn during the fourth quarter, now has $13.4 billion on hand to get it through 2009.

Keep in mind that this is the auto company in the best shape of all the US domestics.  Whether through luck or wily strategy, Ford managed to mortgage everything but the little blue logo before the financial crisis hit.   They're drawing down about $10 billion in credit to supplement the $13 billion worth of cash they finished up the fourth quarter with.

Meanwhile, back at the ranch, GM has announced that it's putting an end to the program that has annoyed anti-union forces more than any other:  the jobs bank.   About sixteen hundred workers are going to have to go on unemployment, which GM will top up to about 72% of salary and benefits.  There's little realistic hope that those people will ever work as auto workers again:

The automakers instituted jobs banks at a time when they were modernizing their factories and needed to win labor support for innovations that would mean a loss of jobs.

The auto companies provided nearly all of an autoworker's pay and benefits when he or she was put into a jobs bank. UAW members went into a jobs bank if they remained laid off beyond 48 weeks.

Jobs bank compensation is different from the money the company pays workers who are laid off -- which is known as sub pay -- to offset government unemployment benefits.

"There's a huge difference in terms of what the supplemental unemployment -- the sub pay -- was doing and the jobs bank. The jobs bank was when they completely eliminated your plant and they had almost no hope of ever being called back," said Arthur Wheaton, a labor expert from Cornell University.

"Sub pay was: You're on unemployment and it's going to have all of the same rules and requirements, you're only allowed so long, and there's a big component in there to say, 'OK, you've got to go back and get some retraining or you've got to get some education or do something to get back to work.' "

The elimination of the jobs bank was one of the conditions that were placed on government money.  Though I don't think the defenders of the UAW were correct to say that labor relations aren't a serious problem at the Big Three, they are right that cuts like this will not be enough to save the firm.  The credit contraction has been catastrophic for auto sales--I don't believe, as some news reports claim, that no one with a sub-800 credit score can get a loan, but there's no denying that the cutoffs for credit quality are locking a major percentage of potential buyers out of the market.

How long until Ford has to step up to the government handout window, and start dancing to Uncle Sam's tune?  They say they have at least enough money for a year, but I don't see how they make it.  The folks in the finance divisions at Chrysler and GM have got to be talking seriously about the attractive prospect of a competitive bankruptcy to shed debt and contracts--they're only held back now because of warranty worries.  And if they don't go to a bankruptcy judge, the signs are very clear that they'll be heading back to Uncle Sam.  Even though its operations are in better shape, and its management has a much firmer tether to reality, Ford cannot compete indefinitely against free financing from the Feds.

 

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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