Late in 2006, the Ford Motor Company took steps to increase its financial flexibility and increase its liquidity. $23.5 billion of new liquidity was obtained in December 2006, includ- ing proceeds from a convertible bond offering of $4.95 billion, a secured term loan of $7 billion, and a secured revolving credit facility of $11.5 billion. At year-end it had total liquidity including cash and available credit of about $46.5 billion. In addition, long-term debt was reduced and some noncore assets were sold. According to the 2007 annual report (page 16) management believed this amount “should allow us to fund the restruc- turing and product development . . . and provide us with a cushion for a recession or other unforeseen events in the near term.” This amount of liquidity was substantial: almost 17 percent of the overall asset base of $280 billion and equivalent to over 30 per- cent of sales.
Preparing for such unforeseen events proved vital to the company’s survival and success. We now know that the financial crisis and worst recession since the Great Depression was about to unfold, forcing Ford’s main U.S. competitors—General Motors and Chrysler—into bankruptcy protection and reliance on huge government bailouts. In such times, financial flexibility and liquidity are of vital importance.
Questions:
What decision making strategy would you choose in this situation to avoid the bankruptcy and government bailout? Explain your strategy.
arianadj
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