Smart, in retrospect

Bill Vlasic wrote an article for The New York Times about how Ford saved itself, years before it had to:

On 29 November 2006, the Ford Motor Company made a surprising pitch to the nation’s biggest banks. In a packed ballroom at a New York hotel, Ford’s chief executive, Alan Mulally, said he would mortgage all the company’s assets for billions of dollars in loans to finance an overhaul of the troubled automaker. Although the economy was healthy then, Mr. Mulally said the money would give Ford “a cushion to protect for a recession or other unexpected event.”
At the time, the request was considered an act of desperation. But the $23.6 billion in loans it received turned out to be Ford’s saving grace. Plunging car sales have driven its two American rivals, General Motors and Chrysler, to the brink of bankruptcy, forcing them to borrow $17.4 billion from the federal government to stay in business. The future of both companies will be decided in the weeks to come by President Obama and his special auto task force.
But Ford, because of the money it borrowed in the private sector nearly three years ago, is in far better shape than its two crosstown rivals. The loans have kept it independent, and on a course to survive the worst new-vehicle market in nearly 30 years. “It was a defining moment for us,” Mr. Mulally said in an interview. “But they never would have been willing to lend us the money if we weren’t on a different path.”
Ford has accelerated along that path, pursuing a top-to-bottom transformation into smaller cars, fewer brands, and a leaner cost structure. As a result, for the first time in decades, Ford’s fortunes no longer seem so closely tied to the broader fate of Detroit. While GM and Chrysler wait for more federal aid, Ford is capitalizing on its status as the only member of the Big Three to make it, so far, on its own.
Some surveys are showing consumers migrating away from GM and Chrysler to shop for Ford products. Inside Ford headquarters here in Dearborn, management sees a unique opportunity to grow its market share and further separate Ford from the competition. “I don’t take any joy in watching General Motors and Chrysler struggle,” said William Clay Ford Jr., the company’s executive chairman. “I wish them well, but I wish us better. I want us to win.”
But Ford is hardly out of the woods. The company lost $14.6 billion last year, when its vehicle sales in the United States slumped twenty percent, compared to twenty-two percent at GM and thirty percent at Chrysler. Its once-bulging bank account is dwindling as well. Analysts estimate that Ford has about a year’s worth of cash left to carry it through a still-depressed car market that, in the first three months of this year, is running 38 percent below 2008 levels.
Still, Ford’s decision to borrow billions in 2006 when the capital markets were thriving will go down as one of the most significant moves in the company’s 105-year history. “We believe this foresight to strengthen the company’s balance sheet is what has separated Ford from its crosstown rivals during the economic downturn,” a Merrill Lynch analyst, John Murphy, said in a report to investors this week.
The Obama administration is forcing GM and Chrysler to get big concessions from union workers and lenders to qualify for more federal aid. However, Ford is having better success on both fronts. The company has reached agreement with the United Auto Workers to finance half of its new retiree health care trust with company stock.
Earlier this week, Ford also completed a deal with its bondholders to retire $9.9 billion in corporate debt— some of which was part of the 2006 borrowing. The debt restructuring has impressed investors. Ford’s stock climbed to $3.76 today in midday trading, its highest point since last October. Not coincidentally, that was when the economy collapsed and the American car companies capsized. A month later, Mr. Mulally was in the spotlight— along with GM’s chairman, Rick Wagoner, and Chrysler’s chairman, Robert Nardelli— during Congressional hearings on Detroit’s financial woes.
Mr. Mulally said Ford never intended to ask for federal help, but needed to support the industry during its crisis. “From Day One, we had no desire to access the government money,” he said.
Ford parted ways with GM and Chrysler last December, when its two rivals effectively came under government supervision as part of their loan agreements.
Last month, the presidential task force forced Mr. Wagoner to resign at GM and began an effort to replace its board of directors. Meanwhile, Mr. Ford, whose great-grandfather founded the auto company, and Mr. Mulally continue to pursue their long-range turnaround plans. “Ninety-seven percent of the people know that Ford is not taking taxpayer money to create a viable company,” Mr. Mulally said. “This is America. This is about making products people want and being self sufficient.”

Rico says there's a reason he has no memory of this brilliant move; on 29 November 2006, he went down with a brain bleed, and didn't get really cognizant of the rest of the world for a year or two. But all they have to do to complete their triumph is to follow Rico's advice on how to sell cars...