Ford’s Booth Guards Carmaker’s Cash to Steer Clear of U.S. Aid

One of the first decisions Lewis Booth made after stepping into the job as Ford Motor Co. chief financial officer in November was tapping a $10.1 billion revolving credit line to preserve the company’s access to cash.

Some Ford executives didn’t want to take on more debt and interest as sales plummeted. Others argued that the company should take the cash before it vanished as the credit markets deteriorated. Booth settled the debate, opting to tap the money.

Executive Chairman Bill Ford cites that move as helping ensure the automaker would not have to accept federal aid to continue operating, as competitors General Motors Corp. and Chrysler LLC have done.

“Our plan was, is and is going to be to thread the needle” of not taking federal aid, Ford said in an interview. “Lewis has pushed our company to get out ahead of our issues and not to react.”

Booth, son of a Liverpool car dealer, also drove the largest debt restructuring Ford has undertaken to retire as much as $10.4 billion. He is also helping to lead the effort to sell Volvo, Ford’s lone remaining European luxury car brand.

Prior to becoming CFO, Booth, 60, spent the last 12 years running Ford carmaking operations around the world, starting in South Africa, moving to Asia and finally in Europe. He engineered a turnaround at Mazda in Japan and overhauled Ford’s European car lineup. He also led the sale of European luxury lines Jaguar, Land Rover and Aston Martin.

“He literally knows how the entire Ford world works more than any executive we have in the company,” said Bill Ford, 51.

‘We’re in Charge’

Booth sees his job now, as conservator of the cash, as the last line of defense against taking federal aid.

“We want to continue without the sort of government loans that GM and Chrysler have received and applied for,” Booth said in an interview. “The biggest benefit is that we’re in charge of our destiny. We’re running our company.”

A growing chorus of analysts like Brian Johnson of Barclays Capital doesn’t believe Ford, which lost a record $14.6 billion last year, can remain self-sufficient. He predicts the No. 2 U.S. automaker, which consumed $21.1 billion in cash last year, will spend down its last line of revolving credit by the end of the year and need government aid to operate.

‘Wood to Burn’

“The revolver is providing operating cash; it’s wood to burn,” said Chicago-based Johnson. Unless U.S. auto sales rise 24 percent “they’ll need federal money in late 2009 or early 2010.”

Ford rose 11 cents, or 6 percent, yesterday to close at $1.96, after announcing $500 million in annualized savings from UAW concessions. Ford has lost 67 percent of its value over the last year.

Ford’s 7.45 percent bonds due 2031 fell 18.8 cents on the dollar to 28.75 cents on the dollar, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The $1.1 billion bonds of its finance arm Ford Motor Credit Co. maturing in 2015 were quoted at 27 percent yield today, according Pershing LLC prices.

Credit-default swaps protecting Ford’s debt for five years fell 209 basis points to 9,129 in New York yesterday, CMA DataVision prices show. The contracts have jumped by more than 50 percent this year. Credit-default swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.

‘Disconcerting’ Reports

Booth, who keeps two Bloomberg terminals streaming automotive news and data into his office, said he tries not to be distracted by forecasts of Ford’s failure.

“It can be disconcerting to see another analyst report” predicting Ford will need a bailout, he said. “What we’re doing is improving our business such that we don’t need that help. That’s what drives us.”

Booth detailed Ford’s plan to go it alone in a two-hour meeting with President Barack Obama’s automotive task force Feb. 27, according to people familiar with the session. Booth declined to comment on the meeting.

Ford, which had a 48 percent decline in U.S. sales in February, is adjusting its plan as demand collapses. Ford lowered its forecast for 2009 U.S. auto sales by 1 million vehicles to as low as 10.5 million in a Feb. 26 regulatory filing. Ford said it now believes it can forgo federal funding as long as U.S. auto light-vehicle sales don’t fall below 9 million vehicles this year, the level in February.

‘Holding the Chalk’

“Lewis is the one who is holding the chalk, assembling the data worldwide, providing a final tally and rolling up where we are,” CEO Alan Mulally said in an interview. He and Booth discuss Ford’s fragile cash position daily, Mulally said, and actions like the debt restructuring are key to making Ford profitable by 2011. “We believe we have sufficient liquidity to make it through this recession.”

Ford is tapping some of that liquidity to finance its debt restructuring. It is using as much as $392 million of its $13.4 billion in automotive cash and offering stock to entice bondholders to convert debt into equity. Ford Credit, its finance unit, is spending as much as 10 percent of its $18 billion in cash to repurchase unsecured and secured debt.

The debt restructuring could reduce automaker’s $25.8 billion in borrowings by as much as 40 percent. Booth pulled it together without approaching bondholders for concessions, as GM and Chrysler LLC are attempting to do.

“We’re not doing this under any obligation to a loan agreement,” said Booth. “I wouldn’t let ourselves be disadvantaged by the other restructuring efforts of our competitors.”

‘He’s a Realist’

Booth, who serves as Volvo’s chairman, is involved in the effort to sell the Swedish luxury brand. China’s Geely Automobile Holdings Ltd. is in discussions with Ford about a possible sale, according to people familiar with the matter. Booth declined to comment on Volvo.

Bill Ford praised his willingness to dispose of assets he once nurtured.

“He’s a realist,” Ford said.

This approach was critical in leading the debate on the revolving credit line, said Mark Fields, Ford’s president of the Americas. The revolving credit line, the final unused piece of $23 billion in loans previous CFO Don LeClair arranged in 2006, was all that was left between Ford and federal assistance. The credit line was provided by 40 lenders, including Citibank NA and Goldman Sachs Credit Partners.

“There were a lot of opinions going back and forth,” recalled Fields, who favored tapping the loan. “Lewis’s role was critical because we’re watching our cash every day. We don’t have a lot of room for missteps as we try to self-fund ourselves and not touch government money.”

Money Man

Booth has been on both sides of debates throughout his career at Ford. Hired as a financial analyst in 1978, he crossed over from the finance staff to running the carmaking operations in 1997, where he fought for money to develop new models. Now he’s back on the other side of the table.

“Lewis can be moved off his initial position if the logic is there,” said Fields, who recalled Booth at first resisted and then embraced efforts to get top executives break barriers between business units.

Booth became fascinated with cars growing up working at his father’s Ford, Austin and Morris dealership just outside Liverpool. He began reading car magazines at 11.

“At age 12 and 13, we talked nothing but cars,” recalled John Booth, his twin brother who now runs the family dealership and is often mistaken for Lewis at auto shows. “Lewis was always more interested in the mechanical workings of the car.”

Liverpool Lads

Like many kids in Liverpool in those days, the Booth boys saw the Beatles play at the local Empire Theater. Four decades later, while running Mazda, Lewis Booth was serenaded by Beatles music while attending a Japanese baseball game because the team executives knew he was in the audience.

Booth began his career as a mechanical engineer at British Leyland, but decided he wasn’t the best at it so he went back to school for a finance degree. At British Leyland, now defunct, Booth got a low-level view of an automaker on government aid.

“There are conditions applied to government help,” he said. “This is a very tough business to react quickly to. It’s difficult enough to respond to everything that’s going on when you’re masters of your own destiny.”

Profitable automaking is especially difficult amid the lowest U.S. auto sales rate in decades.

“Absent a sizeable U.S. volume recovery, we think Ford is only 9 to 12 months behind GM in terms of needing federal assistance,” JPMorgan Chase & Co. auto analyst Himanshu Patel wrote in a Feb. 23 research note to investors. He has a neutral rating on Ford shares.

No Help Wanted

Now, as Booth overhauls Ford’s balance sheet and hoards cash, he has no interest in turning over control to a federal overseer.

“We are managing our business to not require government help,” he said. “If things got a lot tougher for longer and things happen in the industry either to our competitors or to the supply base, we may need to apply for help. But that’s not our intent. Our intent is to run our business.”
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