219
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Ford Wants A Repeat Of "Cash For Clunkers" As New Car Sales Tank

zerohedge News ford wants repeat cash clunkers sales tank All https://www.zerohedge.com   Discuss    Share
Ford Wants A Repeat Of "Cash For Clunkers" As New Car Sales Tank

Authored by Rob Stumpf, via The Drive,



The coronavirus pandemic has left no part of the global economy untouched. People are staying indoors, businesses are shuttering left and right, unemployment is skyrocketing and virtually nobody is buying cars. Now, as we edge toward a downturn worse than the 2008 financial crisis, Ford is nudging the U.S. government toward another Ca

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sh for Clunkers-style car buying incentive program.




“We think some level of stimulus somewhere on the other side of this would help not only the auto industry and our dealers, which are a huge part of our overall economy, but will help the customers as well,” said Mark LaNeve, Ford’s vice president of U.S. marketing, sales and service, in a phone interview with Bloomberg. “We’re in discussions about what would be the most appropriate.”




After the U.S. auto industry got its $80 billion taxpayer-funded bailout (minus Ford, which survived through private loans), a $3 billion taxpayer-funded initiative called the Car Allowance Rebate System (CARS) was signed into law, aimed at promoting consumers to trade in their old "clunkers" and purchase a brand new vehicle—ideally a cleaner and more fuel-efficient one. Anyone who owned a car built after 1984 with a rating of 18 MPG or less could be given a voucher worth between $2,900 and $4,500 toward their new car. Their old vehicle would then be disabled and taken out of circulation.





The program was nicknamed Cash for Clunkers and on the surface, it was a politician's dream; better cars, more jobs, a boost to the economy, and an overall less harmful environmental impact.





Consumers bit the hook and auto sales immediately spiked. In total, 677,842 cars and trucks got traded in under the CARS program, totaling vouchers worth $2.85 billion. Fast forward 11 years and Ford is looking for a repeat.



“Cash for clunkers was very effective at that time,” LaNeve told Bloomberg. “It would be nice to think we could have something equally as effective for 2020 when we get out of this because it was a great program.”



Except, it wasn't really a great program.



While Cash for Clunkers did result in a significant number of new cars parked in the driveway of Americans, the spike was brief. In fact, the program ran out of its initial $1 billion in funding within a month, prompting the U.S. government to provide another $2 billion influx. Its second round of funding was exhausted in just 17 days.



Economists also believe that sales weren't really sustainable, and that instead of generating new transactions, it instead pulled forward later sales "from a far more distant future" by consumers who were already in the market for new vehicles.





Statistics indicate that the program benefited wealthier and better educated Americans more than it did lower income people. The idea that the program would create more jobs was correct, though not nearly as much as a reduction of payroll tax or an increase in unemployment aid.



It also wasn’t really that great for American automakers. Despite domestic cars representing at least 71.8 percent of all trade-ins, Detroit accounted for just 32.6 percent of all new car sales and leases under the CARS program.





Furthermore, the program took a substantial number of decent used cars off the road, many of which were still operable and roadworthy that could have been bought by lower-income families who live in areas where public transportation infrastructure is lacking. Instead, the vehicles exchanged under the program were destroyed.



It was the dealership's responsibility to disable the vehicle's engine after trade-in. This was typically done with a few quarts of sodium silicate solution (water, silica, and salt) and a minute or so of flat-footed revving until the inevitable seizure of ill-lubricated metal components was achieved. Disabled vehicles were then sent to recycling facilities where they would be crushed or shredded.





It’s worth noting that enthusiast vehicles suffered in this, too. Rare rides like the 1987 Buick ASC GNX and 1992 GMC Typhoon were sent to the crusher, though other fan favorites were also disposed off, including a BMW M3, 123 examples of the Subaru SVX, 381 Nissan 300ZXs and even four MK4 Toyota Supras. (One imagines Bring a Trailer would take care of many of those today.)



So in the end, Cash for Clunkers was a limited, mixed success at best. It was certainly a clever idea and a well-intentioned one, but if it happened again, some fine-tuning would absolutely need to be in order. 



Having said all that, Ford hasn't officially solicited the U.S. government for this type of assistance—yet. Politicians are aware of the thought, though no movement appears to have been made in either direction at this time. Via Bloomberg once more:



U.S. Representative Debbie Dingell, a Michigan Democrat whose district is home to Ford’s headquarters, said a vehicle scrappage or purchase incentive to spur demand has been discussed as a possible form of relief for the industry, but said no consensus has been reached on the issue.



“It’s out there as an idea along with many other ideas,” she said. “We’re working with the entire ecosystem of automakers, workers, their unions, suppliers, dealers and consumers.”



There's no denying that the auto industry will need to perk up in the future. Even before the global pandemic, the industry was already slowing for its fifth consecutive year. It's difficult to say what the correct next move will be, especially while manufacturing plants across the nation are idled and unemployment has skyrocketed, but surely there's a better answer than clunkernomics.




Tyler Durden

Sun, 04/05/2020 - 10:30
212
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S&P Downgrades Ford To Junk - Biggest Fallen Angel Yet

zerohedge News downgrades ford junk biggest fallen angel All https://www.zerohedge.com   Discuss    Share
S&P Downgrades Ford To Junk - Biggest Fallen Angel Yet

Given where Ford's CDS was trading - more in line with B1/BB- rated American Axle - it should hardly come as a surprise that S&P has finally bitten the bullet and downgraded Ford debt to junk.





Via S&P,




The decision to downgrade Ford Motor Co. from investment grade to speculative grade reflects that the company’s credit m

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etrics and competitive position became borderline for the investment-grade rating prior to the coronavirus outbreak, and the expected downturn in light-vehicle demand made it unlikely that Ford would maintain the required metrics.



Ford Motor Co. announced it is suspending production at its manufacturing sites in Europe for four weeks and halting production in North America to clean these facilities and boost containment efforts for the COVID-19 coronavirus. We expect Ford's EBITDA margin to remain below 6% on a sustained basis and believe that its free operating cash flow to debt is unlikely to exceed 15% on a consistent basis.



Ford has drawn $13.4 billion on its corporate credit facility and $2 billion on its supplemental credit facility. We believe the company's current cash position stands at about $36 billion.



We are downgrading our long-term issuer credit rating to 'BB+' from 'BBB-'. At the same time, we are assigning issue-level ratings of 'BB+' on Ford's unsecured debt.



We are also placing the ratings on CreditWatch with negative implications, which reflects at least a 50% chance that we could lower the ratings depending on factors such as the duration of the plant shutdowns, the rate of cash burn, and the adequacy of Ford's liquidity position.




This S&P move follows Moody's cutting Ford's long-term corporate family rating to Ba2 from Ba1 earlier in the day.



With a total amount of public bonds & loans outstanding around $95.8 billion, according to data compiled by Bloomberg, Ford has just become one of the largest fallen angels yet.





 



Will this sudden large fallen angel lead to further repricing in the junk bond market, just as the market is dead-cat-bouncing on Fed intervention?




Tyler Durden

Wed, 03/25/2020 - 17:09
223
32 Views

Ford Suspends Dividend, Draws-Down $15bn Credit Line Fully, Withdraws Guidance

zerohedge News ford suspends dividend draws-down 15bn credit line fully withdraws guidance All https://www.zerohedge.com   Discuss    Share
Ford Suspends Dividend, Draws-Down $15bn Credit Line Fully, Withdraws Guidance

A day after the Big 3 shutdown factories amid the virus lockdown, Ford is out with a kitchen sink 8K as it braces to ride out the worsening economic situation in the US (and worldwide):




  • $15.4 billion of additional cash on balance sheet, drawing from two credit lines




  • Dividend suspension

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    > to preserve cash and provide additional flexibility in the current environment




  • Withdrawal of company guidance for 2020 financial performance



Full Press Release:




Ford Motor Company is taking a series of initiatives to further bolster the company’s cash position amid the coronavirus health crisis, maintain strategic flexibility on behalf of its team and customers, and set up Ford to separate itself from competitors when the global economy emerges from the current period of acute uncertainty.




“Like we did in the Great Recession, Ford is managing through the coronavirus crisis in a way that safeguards our business, our workforce, our customers and our dealers during this vital period,” said Ford CEO Jim Hackett. 



“As America’s largest producer of vehicles and largest employer of autoworkers, we plan to emerge from this crisis as a stronger company that can be an engine for the recovery of the economy moving forward.”




The company today notified lenders that it will borrow the total unused amounts against two lines of credit: $13.4 billion under its corporate credit facility and $2 billion under its supplemental credit facility. The incremental cash from these borrowings will be used to offset the temporary working capital impacts of the coronavirus-related production shut downs and to preserve Ford’s financial flexibility.




“While we obviously didn’t foresee the coronavirus pandemic, we have maintained a strong balance sheet and ample liquidity so that we could weather economic uncertainty and continue to invest in our future,” Hackett said.



“Our Ford people are extremely resilient and motivated, and I’m confident in the actions we are taking to navigate the current uncertainty while continuing to build toward the future.”




Ford has regularly described targets of having $20 billion in cash and $30 billion in liquidity heading into an economic downturn.  At the end of 2019, those levels were $22 billion and $35 billion, respectively.



At the same time, Ford announced it has suspended the company’s dividend, prioritizing near-term financial flexibility and continued investments in an ambitious series of new-product launches in 2020 and long-term growth initiatives.



Also, Ford said it is withdrawing the guidance it gave on Feb. 4 for 2020 financial performance, which did not factor in effects of the coronavirus, given uncertainties in the business environment.  The company will provide an update on the year when it announces first-quarter results, which is currently scheduled for April 28.



Ford this week announced plans to temporarily stop production at its plants in North America and Europe starting today.  The actions were taken to protect the health and safety of employees and respond to issues with the supply chain and other constraints. The company will work with labor representatives to safely and effectively restart production in the weeks to come.



Hackett noted China was the first country to face the virus and is now emerging from the coronavirus crisis and showing improvements in automobile demand. This news on the China recovery should be a source of optimism about the overall economic recovery as the virus abates, he said.




*  *  *



Why this is all a problem? Because CDS markets are now pricing a 45% chance of the automaker defaulting...





How long before they demand a government bailout too?




Tyler Durden

Thu, 03/19/2020 - 09:15
1
38 Views

Cheap Used Car Dealership Atlanta GA

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The used car industry has been around for many years. Hundreds of auto dealerships have helped people obtain their dream cars at reasonable rates. But it's not always a happy ending. Some dealerships were crooked enough to offer compromising deals to many buyers. If you want to purchase a used car, you need to be careful. You should only look for a real provider that can be trusted. One fine examp
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Used Car Dealership Atlanta GA

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The used car industry has been around for many years. Hundreds of auto dealerships have helped people obtain their dream cars at reasonable rates. But it's not always a happy ending. Some dealerships were crooked enough to offer compromising deals to many buyers. If you want to purchase a used car, you need to be careful. You should only look for a real provider that can be trusted. One fine examp

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