Ford. The company that pioneered the modern car,
the assembly line, the 40 hour work week, and the creator of America’s best selling
vehicle: the F150. Despite this impressive and long lasting legacy,
Ford is currently in a rather dire situation. They’ve got over $200 billion worth of liabilities
which generally puts them in the top 10 list of most indebted companies. While Ford doesn’t usually come in at the
number one spot on these lists, something that we should note is that all of the other
companies on this list generally have a market cap thats several times larger than Ford. So, while Ford may not be the most indebted
company in the world, they’re usually the most leveraged company in the world.

Thankfully, they do have more assets than
liabilities given that their assets come in at $257 billion. But, when we compare their cash reserves to
their liabilities, it doesn’t look nearly as pretty. Ford currently only has $20 billion worth
cash and cash equivalents. In other words, their total liabilites is
10 times their current cash reserves. Considering this, I don’t think you’d
be surprised to hear that Macroaxis gives the company a 44% chance of bankruptcy. Now, it should be noted that Ford is the only
American legacy automaker that has never filed for bankruptcy in the past. But, this may actually come back to haunt
them because they never got a reset switch like the other automakers.

And this is one of the main reasons they have
insane debt levels in the first place. So, is it just a matter of time until Ford
goes bankrupt?

ONE BAD LEADER:

Taking a look back, Ford’s liquidity problems date way further than just the pandemic or
even the 2008 financial recession. In fact, the root of Ford’s financial problems
can be traced back to the late 1990s when a man named Jacques Nasser was appointed as
the new CEO. Jacques was an entrepreneur at heart. In fact, he had been running businesses since
he was a teenager. He had a small bicycle-making operation and
he ran multiple disco clubs. So, it was only natural that he brought his
entrepreneurial spirit into Ford. Jacques didn’t just come in as an executive
though. He actually joined as modest financial analyst
at age 20 in 1968.

And it wasn’t till 31 years later in 1999
that Jacques would become CEO. In the meantime, he had made a name for himself
as a shrewd businessman. Many of his colleagues actually nicknamed
him Jac the Knife and Black Jack. Jac the Knife was a reference to how many
jobs he had cut over the years. And Black Jack was a reference to his intoleration
for unprofitable sectors. While these are by no means the kindest of
traits, many successful CEOs share these traits, so this in itself didn’t taint Jacques’
tenure. What tainted his tenure and screwed over Ford
financially was his business decisions themselves. First of all, Jacques tried to transform Ford
in some sort of lifestyle company. He wanted people to have a high opinion of
Ford, so he started buying out luxury competitors. Two of these acquisitions included Land Rover
for $3.3 billion and Volvo for $6.47 billion. Not only were these expensive purchases, but
it also led to Ford having to split their

Attention between the companies which led
to all of the brands suffering. Aside from trying to make Ford into a lifestyle
company, Jacques also placed a massive emphasis on the internet. Being an entrepreneur at heart, it was obvious
to Jacques that the internet was the next big thing. And he strongly felt that the internet should
play a significant role at Ford. So, he spent loads of money developing Ford’s
website, affiliate marketing, dealer portals, and so on. These efforts were actually pretty successful
given that Ford garnered millions of visitors every single month. Looking back, these were pretty visionary
moves, but Jacques missed the mark in two areas.

First of all, he was diverting so much attention
into the internet that it was taking away from Ford’s core business which was making
good cars. While having a good online presence is definitely
important, as a car company, you’re number 1 focus should be making the best cars you
can, and that was unfortunately no longer the case with Ford. As for Jacques’ second short fall, his timing
was terrible. Not only was Jacques too early for his time,
but he was doing all of this right before the dotcom bubble burst. So, when internet companies crashed 90 to
95% in the early 2000s, Jacques looked like an absolute idiot. And to a certain degree, he was. He had completely dismantled Ford’s focus
on creating cars while also burning billions

On acquisitions and the internet. Hearing all this, I don’t think you’d
be surprised to hear that Ford would replace Jacques in late 2001, but the damage had already
been done.

NARROWLY AVOIDING BANKRUPTCY:

While Jacques was out of the company, Ford’s pain had just begun. First of all, the acquisitions that Jacques
had completed weren’t performing that well, they were actually performing terribly. But, wait a minute, Land Rover and Volvo were
only a couple billion dollars each. So, how much could this possibly hurt Ford? Well, while the companies themselves weren’t
all that expensive for Ford’s standards, the same could not be said about their balance
sheets and cash flow. You see, when you acquire a company, you don’t
just acquire the good parts like the brand

Image and the customers. You also acquire the bad parts like their
debt and negative cash flow. It’s estimated that holding Jaguar and Land
Rover cost Ford $35 to $50 billion. A similar story could be seen with Volvo as
well. Not only were these companies a massive drag
on Ford’s income statements while they owned them, but Ford would also lose a lot of money
trying to offload these companies. For example, Ford would end up selling Volvo
for just $1.5 billion. As a reminder, they paid $6.47 billion to
acquire the company. Similarly, they would end up selling Jaguar
and Land Rover for $2.3 billion. Just 9 years before this, Ford paid $3.3 billion
for Land Rover alone. Clearly, these were massive losses for Ford,
but this was just the beginning of their problems. You see, oil prices would reach nearly $200
per barrel in mid 2008.

For perspective, if you thought oil prices
were high a couple of months ago, these prices were 60% higher than that. So, I don’t think you’d be surprised to
hear that people shied away from buying large pick up trucks and SUVs given that they would
lose a fortune just paying for gas. And given that large pick up trucks and SUVs
were Ford’s speciality, they were basically screwed. To make things even worse, the US was facing
a serious recession in 2008 unlike the small technical recession that we’re in right
now. This simply led to Ford’s sales declining
even more. All of this would climax in Ford losing a
record $14.6 billion in 2008. And at this point, it was only a matter of
time until the government stepped in and bailed out the company.

Ford would end up receiving a $5.9 billion
loan from the Department of Energy which allowed them to narrowly avoid bankruptcy and start
focusing on developing energy efficient vehicles. But, unfortunately for Ford, this was terrible
timing as well. You see, oil prices would crash hard over
the next couple of years which meant that Americans could once again indulge in their
love for trucks and SUVs. Given that Ford was preoccupied with cars
like the Ford Focus, this gave GM the perfect opportunity to make strides with their Tahoe,
Suburban, and Escalade series. And before you knew it, Ford was falling behind
in the same industry that they had dominated for decades. So, while Ford was the only legacy American
automaker to avoid bankruptcy, it’s not like things turned out any better for them
anway.

CROSSROADS:

Over the past several years, Ford has shifted

Their focus back onto what they’re good
at: trucks and SUVs. They’ve even gone ahead and announced that
they’re gonna completely retire the Ford Focus in 2025. It seems that this approach has worked out
pretty well for Ford given that they’ve been able to make the F-150 the number 1 selling
vehicle once again. But, it’s not all good news. Ford has never been able to work out of the
debt mess that they got into in the 2000s. Sometimes, their liabilities stand at $150
billion and sometimes their liabilities stand at $250 billion. But, for the most part, Ford hasn’t been
able to reduce their average liabilities to under $200 billion. To make things worse, the automotive industry
has been facing a pretty big cross road over

The past couple of years with EVs. Fortunately, Ford has not been ignoring EVs
like Toyota. Ford has actually been taking EVs extremely
seriously, and they were the first legacy automaker to convert a popular gas model to
fully electric. So, they’re definitely on the right track,
but this doesn’t mean that the path forward will be easy. Profitability scaling EV production is extremely
challenging and Ford is experiencing this first hand as we speak. Take the Mach E for example. Ford started Mach E production in Q3 of 2020,
and they were able to ramp production for 3 quarters. But, eversince then, they’ve not only been
stagnating but declining.

When you put the Mach E’s production ramp
next to the Model 3’s production ramp, you can really start to see how far behind Ford
is. By the 7th quarter of production, Tesla was
pumping out over 70,000 model 3s while Ford was struggling to pump out 15,000. Now, it’s not like this production ramp
was easy for Tesla given that they nearly went bankrupt trying to reach their production
targets. What this means for Ford is that they have
yet to cross the hardest stage which is scaling. To make things worse, Ford is having to do
all this during a historic supply shortage. According to Ford’s CFO, inflation along
with the supply shortage have completely wiped out the Mach E’s profit margin. So, it’s just gonna be even harder for Ford
to reach scale than it was for Tesla. Not to mention, Tesla never had to deal with
$200 billion worth of liabilities either.

So, at this point, it seems like all the cards
are stacked against Ford whether its their balance sheet or their production capabilities,
but one attribute that is working in their favor is demand. Ford has over 200,000 Lightning reservations,
and given the popularity of the F150, that number will likely only go up with time. So, Ford definitely has the demand to scale
their EV business to the next level and remain a popular automaker. The question, however, is: will the company
survive the transition.

THE STATE OF FORD:

So far, I know this video has been rather negative on Ford, but they deserve a lot of
credit for many of their choices. At no point has Ford tried to half ass the
transition to EVs. The company is literally all in on EVs having
committed to invest $50 billion into EVs by

2026. Also, there doesn’t seem to be any doubts
amongst the leadership either. It seems like they all unanimously believe
that successfully transitioning to EVs is the only way forward. This sort of confidence and clarity is exactly
what every automaker needs. And honestly, in my opinion, if any legacy
automaker is gonna make it to the other side, it’s gonna be Ford. But, with all of that being said, it’s not
gonna be an easy journey by any means. Jacques well intentioned but poorly executed
initiatives from 20 years ago are still weighing down the company to this day. And honestly, there’s no easy way out for
Ford. All they can do is continue doing what they’re
already doing.

Try their best to transition to EVs while
also protecting the financial integrity of the company as much as possible. But only time will tell if their ambitious
plans actually end up working out. Do you think Ford will make it to the other
side? Comment that down below. Also, drop a like if you think more legacy
automakers should embrace EVs. And of course, consider checking out our discord
community to suggest future video ideas and consider subscribing to see more questions
logically answered.

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