Sell the Ford because it's already on welfare and it's still a balance sheet disaster

I’ve been digging deep into Ford’s latest quarter and trying to understand why everybody’s so bullish on this company.  Let’s start simple – Ford’s market cap is $24 billion, as the market values its common stock at about that much.  Meanwhile, (gulp), the company’s sitting on $103 billion in debt.  I’m pretty sure that’s how much cash and debt they have, but I’m not sure anybody’s sure.  That’s because if you actually bother to read the company’s filings and transcripts you have to parse through things like:

*    Excludes marketable securities related to insurance activities.

    **   Primarily related to market valuation adjustments to derivatives due

         to movements in interest rates.  Adjustments to debt are related to

         designated fair value hedges and adjustments to equity are related to

         retained earnings.

    ***  Includes on-balance sheet receivables, excluding unearned interest

         supplements related to finance receivables of $1.8 billion and $1.3

         billion at September 30, 2009 and December 31, 2008, respectively;

         and includes off-balance sheet retail receivables of about

         $100 million and about $600 million at September 30, 2009 and

         December 31, 2008, respectively.

It does look like more than half of Ford’s profits came not from selling cars, but from benefiting like all the banks and lenders have from all the free money and 0% Fed Funds rates and other tricks that are redistributing trillions from the taxpayer to big corporations like Ford and GE.

“Finally, Financial Services had an operating profit of $661 million, a $502 million increase from a year ago.”

But don’t judge this car by its paint job.  Because while Ford might claim a billion in profit, let’s try to see if the company’s generating any cash.  The company tells everybody who will listen that they “have ended the third quarter with $23.8 billion in automotive gross cash, up $2.8 billion from the end of the second quarter of 2009.”

Hmm, let’s dig into that a little bit and see some of the ways they were able to increase their cash:

“This reflects primarily improved cash from earnings from the receipts of the Canadian government tax refund, other changes in automotive gross cash, included personnel reduction action payments of $200 million and pension contributions of $100 million, net receipts from our financial services sector of $600 million. This includes a $400 million receipt related to our Ford Credit distribution. This is part of Ford Credit’s revised plan to make $3 billion of cash and non-cash distributions for Ford Motor Company through 2010, up from the previously announced $2 billion.  For the first nine months of 2009, $1.5 billion of this amount has been remitted. Equity issuance proceeds of about $600 million related primarily to completion of our previously announced plan to issue up to $1 billion of equity and receipt of about $900 million in loans from the US Department of Energy for development of more fuel efficient vehicles, offset partially by net debt to payments of about $300 million. Including these impacts, the total increase in automotive gross cash through the third quarter was $2.8 billion.”

Let’s do the math here and see if Ford’s actually generating cash from operations as everybody seems to think they are.  So far this year, the company’s gotten $1.5 billion in payments from Ford credit, the company’s sold $600 million worth of equity, the company’s gotten $900 million in welfare taxpayer loans from the US Dept of Energy, and has paid out $300 million in “net debt payments”, whatever those are.

Add all those numbers up and subtracting the “net debt payments” means that Ford’s gotten $2.7 billion in cash so far this year from gimmicks and welfare loans.  Read on and you’ll see they also got a one time “400 million receipt of a Canadian government tax refund was offset by timing differences related primarily to healthcare payments.”.  Taking out all those special government subsidies and private market capital raises would mean that Ford’s cash position has actually DECREASED some $200 million in the last year or so.

Call me crazy, but I only invest in businesses that actually generate real profits and cash with funding they’ve attained on their own.  I’ve spent the last 48 hours reading, highlighting and otherwise poring over the latest reports and transcripts from Ford, and I can’t come up with a single reason to buy the stock other than:

Well, they didn’t take TARP welfare, they haven’t gone bankrupt because they’d finally stopped borrowing billions to buy back their own stock like they had for years at much higher prices and they actually borrowed money and sold some stock before the credit crisis was full blown.

That’s not much of a bullish thesis.  On the other hand, when I step back and look at this company from a pure fundamental analytical perspective, I sure think this stock’s a screaming sell right now.  Yeah, this is a company that’s going to have to eventually pay back some $103 billion in debt and while the $23 billion in cash they’ve got right now will get them through the next year or two, it’s going to take some serious market share momentum and some real, sustained sales growth for the next five or ten years for this company to get back in fiscal shape.

As cash for clunkers ends, as the company tries to negotiate against the unions who’s biggest assets is actually the stock in Ford’s largest competitors, GM and Chrysler, as the company is borrowing another $5.9 billion from the Department of Energy and will eventually, supposedly, have to pay that money back too…well, I’d be a seller of Ford.  I’m not willing to say it’s going to go bankrupt as I did about GM on these pages and on The Tonight Show with Jay Leno, long before GM actually went bankrupt, but I’m willing to say that this stock is a definite sell right now with lots of downside risk and at best there’s very little upside to this name from here – maybe another buck or two.

Btw, you know why Ford won’t use the “We didn’t take welfare money like GM and Chrysler did” as a marketing tool?  Because FORD’s ALSO ON WELFARE – what else do you call the Dept of Energy loans to a company that’s shedding thousands of jobs and downsizing as fast as it can?

Sell the Ford.

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