Company Background

The automotive Industry is a significant contributor to the United States’ economy. Three of the main players, often referred to as the Big Three, are Ford, General Motors, and Chrysler.

The Ford Company, founded in 1903 by Henry Ford, is an American automaker headquartered in Dearborn, Michigan. The Ford Company sells automobiles and commercial vehicles under the Ford brand and luxury vehicles under the Lincoln brand. Ford also owns Troller, a Brazilian SUV manufacturer, and FPV, an Australian performance car manufacturer. Ford has joint ventures in China, Thailand, Turkey, and Russia. After General Motors, Ford is the second largest US automaker and the fifth largest in the world. Ford went public in 1956 and is listed on the New York Stock Exchange, but the Ford family still owns 40% voting rights.1

Over the last couple of years, the automotive industry has faced many challenges. In the mid 1990’s high oil prices forced consumers to shift away from purchasing vehicles that consumed a lot of fuel that the US automakers were producing. Instead, consumers were purchasing lighter and more compact cars that were more fuel-efficient. This shift in consumer behavior caused American automobile companies sales to plummet as consumers purchased smaller fuel-efficient Japanese cars over American trucks and SUV’s.

When the financial crisis hit in 2008, the automotive industry was severely impacted. Many automobile companies needed significant government bailout funds. At the time of the bailout, the automobile industry contributed 3.6%, about $500 billion, to the total U.S. GDP. By the end of 2008, automobile sales were 30% lower than the previous year. This 30% decline in auto company sales translated directly into a 1% decrease in U.S. economic output. GM and Chrysler had the worst decline, while Ford's loss was about the same as industry leaders Honda and Toyota. The U.S. Government ultimately issued over $80 billion in bailouts from 2009 to 2014.2

Company
Invested
Sold For
Profit/Loss
Date Bailout Ended
GM
$51 billion
$39.7 billion
-$10.3 billion
December 2013
GMAC (Ally)
$17.2 billion
$19.6 billion
+$2.4 billion
December 2014
Chrysler
$12.5 billion
$11.2 billion
-$1.3 billion
May 2011
Total
$80.7 billion
$70.5 billion
-$9.2 billion

Ford Motor Company however did not take a government bailout. Instead, Ford requested a $9 billion line-of-credit from the U.S. government, and a $5 billion loan from the Energy Department. In exchange, Ford pledged to accelerate development of hybrid and electric vehicles, and work with plants to increase production of smaller, more fuel-efficient cars.3 Since 2008, the industry has made a recovery. As of 2010, the automotive industry contributed approximately 4% of the U.S. GDP. Sales have risen 11% since last year and are expected to continue to grow.4

This paper will further analyze the financial health of Ford Motor Company by examining its financial statements and relevant financial ratios. We will then discuss Ford’s strengths and weaknesses and make recommendations for its future success.

Reliability of Statements

It is important when assessing the financial health of an organization to understand the reliability of their financial statements. Reliable statements indicate that Ford Motor Company has accurately depicted the financial position of the firm with regards to their consolidated income statement, balance sheet, and statement of cash flows. Ford’s financial statements used in this paper are their 2012 and 2013 10-K reports. These reports were filed with the United States Securities Exchange Commission (SEC) and audited by Pricewaterhousecoopers LLC (PWC). PWC offered Ford an unqualified opinion which indicates that in the opinion of PWC, an external auditor, Ford prepared their financial statements in accordance with U.S. GAAP regulations, and thus there is no concern over the reliability of their statements. Note that all numbers