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Cash in hand

27 March 2020 By Antony Currie

Ford Motor and General Motors are keeping six months’ distance between themselves and a coronavirus-driven crash. That’s how long before they risk running out of cash.

Each now has in excess of $31 billion in cash, having drawn down their credit lines, though GM has yet to follow Ford in suspending what for both is a more than $2 billion-a-year dividend.

Based on last year’s costs at their automotive divisions, the greenbacks they now have in the bank would keep them going for three months at best. But perhaps half of those expense are fixed, a rule of thumb Volkswagen’s boss seemed to confirm on German TV on Thursday when he put that statistic at 2 billion euros a week, which equates to 46% of last year’s outlays for the maker of Audis and Porsches.

Ford and GM are tinkering with those: Both said on Thursday they’re deferring or reducing salaried workers’ pay – including for GM boss Mary Barra and her Ford counterpart Jim Hackett and its executive chairman, Bill Ford.

There’s far more leeway on the remaining expenses. Marketing budgets can be slashed, and there’s no need to buy parts and commodities if no cars are being made, though that can’t all be stripped out: They probably still owe providers for goods shipped in recent months. And automakers want to support their suppliers: If they go under, production can’t restart.

Assuming they can, overall, halve their outgoings. GM’s cash would, if plants stay closed, last for 27 weeks, Ford’s for 29. They’ll need help before then, as carmakers usually need a few billion dollars of working capital. Both also have just over $5 billion in interest payments and maturing debt in 2020.

Chances are, U.S. and European lockdowns will lift earlier. Some factories are already reopening in China. Ford is clinging to hopes it can start producing some high-margin F-150 trucks next month. And retooling to make medical supplies could bring in a bit of cash. Carmakers could also appeal to their unionized floor workers to take a pay cut.

If such developments fail to materialize, expect the next government bailout of Detroit by September.

 

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