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Last Thursday night, as General Motors and Chrysler representatives huddled with Senate leaders trying, in vain, to hammer out a financial-aid deal, a representative for another big automaker sat in an adjacent room. That's just where Ford wanted to be, near enough to have a voice but far enough removed to escape the "cram down" of equity, as Republican Senator Bob Corker of Tennessee called the shareholder dilution that the Senate leaders were crafting. While the White House is now figuring out the best way to rush billions in much-needed bridge loans to the automakers, one thing seems almost certain: Ford Motor Co. will make sure that any deal leaves the Ford family's four-generation grip on the company intact.
Alan Mulally, Ford CEO, has made it clear to Congress and the media that unlike GM and Chrysler, Ford is not seeking a bridge loan to get through the current economic crisis. Instead, Ford asked for a backup line of credit that could be used if the economic downturn continues for an extended period. "We are more balanced. We are more efficient. We are more global, and we are more focused. In short, we are on the right path to become a profitable, growing company," Mulally said during his congressional testimony earlier this month. (See TIME's top 10 financial collapses of 2008.)
But Ford's go-it-alone strategy reflects more than just confidence in its own viability. Observers around Detroit suggest that the Ford family's continuing control of the company has surely influenced the decision to not seek federal assistance. "Any dilution of equity has to be an issue for the family, and also the loss of dividends," says Brad Coulter, a specialist in bankruptcy and loan workouts with O'Keefe & Associates of Bloomfield Hills, Mich. (Any dividend payment would likely need the approval of a new "car czar," which the White House might appoint if it moves to provide aid.) Alan Baum, an analyst who follows the industry for the Planning Edge in Birmingham, Mich., agrees that the Ford family's control of the auto giant was an issue. "Sure it was," he says. Ford spokesman Oscar Suris denies that Ford's decision not to seek federal assistance was influenced by such concerns. (See the 50 worst cars of all time.)
Should the White House provide funds from the Wall Street–bailout fund (known as TARP) for a bridge loan, Ford would likely gain some access to credit. Ford would also stand to benefit from United Auto Workers wage and benefit concessions in the Senate negotiations, which the White House might look to duplicate as part of any assistance agreement. If GM and Chrysler wind up in bankruptcy court early next year — a distinct possibility, even if a bridge loan materializes; it is also something the Bush Administration might push on the two automakers as a condition for any assistance now — Ford would be the only one of the Big Three to escape the court's restrictions, and the only one whose retail image would not be tarnished by bankruptcy. Its market appeal, too, might even be strengthened should Ford be the only one of the Big Three not to get taxpayer money.
Not that Ford's finances aren't stressed. Instead, its biggest advantage over its beleaguered rivals is that it benefited greatly from a decision to mortgage all its assets more than two years ago, raising more than $19 billion in cash and $11 billion in credit lines. Even the company's famous blue oval logo was pledged as collateral for what Mulally has described as "the world's biggest mortgage." That cash gives Ford, and the Ford family, the leeway to play the crisis differently than its Detroit neighbors.
The Ford family currently owns less than 3% of the company's common shares, but it exerts control through its Class B stock, which is reserved for family members and has been ever since the company first went public in its landmark IPO back in 1956. The family shored up its control in 2000 through another well-timed transaction, which gave the company's shareholders a onetime dividend of $20 per share in cash or new stock of equal value. The payout amounted to about $10 billion in cash dividends, but it also shored up the Ford family stake in the company via a distribution of additional B shares, which have 16 votes to every one vote for ordinary common shares.
Two big pension funds, TIAA-CREF and the California Public Employees' Retirement System, did criticize the 2000 plan, asserting that the structure of Ford's proposal unfairly enhanced the voting rights of class B shareholders at the expense of stockholders. Nevertheless, Ford's voting shareholders quickly approved the transaction.
Long-term family-owned automakers also appear to have a competitive advantage over their publicly traded counterparts, which are under intense pressure to show positive quarterly results. Some of the world's most stable automakers — Germany's BMW, France's Peugot and Japan's Toyota and Honda — all operate under corporate structures in which the founding family has a significant stake. The companies, which often need years to nurture new products, new technology and new markets, seem to benefit from the longer term outlook that comes with family control.
And throughout the tortured Detroit bailout saga, that fact alone may be putting a small smile on the face of Ford's family members.
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