LEWIS BOOTH: If I’m your definition of a rock star, you guys need to get a life. Okay. I’m delighted to be here, and I was just sitting on the plane last night rehearsing the presentation. I thought, I’m really glad it’s this year we’re doing it rather than two years ago when I became CFO, because two years ago it was just after Lehman Brothers had gone bankrupt, and we were really beginning to wonder what the rest of the world was going to look like.
So I’m going to try and take you through the turbulent times we’ve been navigating, actually for about the last five years for Ford. Because we had our own turbulence before the world economy fell apart. I’ve simplified, I’m going to talk about the automotive company only. I’m not going to talk about how we kept Ford Credit Finance, because frankly that’s also been a pretty interesting tightrope walk, but I couldn’t cover all of that. I’m not going to cover selling Jaguar Land Rover to Toyota and selling Volvo to Geely, because again that’s another story.
So having just given you the backdrop, let me just tell you what we were doing about it. By the end of 2006, early 2007, we had a plan, and the plan as you’ll see was aggressively restructuring to operate profitably at current demand and changing global mix. We had no idea that the current demand was going to drop as far as it was, but the discipline we put in place is, we were going to stop shipping cars to dealers that customers didn’t want to buy. We were going to stop building cars that nobody wanted, and that was a real significant step forward for Ford.
So we went out in December and raised $23.5 billion of liquidity: $11.5 billion of a five- year secured revolver; $7 billion of a seven-year secured loan; and then $5 billion of senior convertible debt. We mortgaged everything, you know, right down to the Ford Oval, to our banks, and we had frankly a fantastic response from our banking partners to provide us with these loans. They bought into the plan; we took them through the plan. They bought into the recovery actions we were taking, and they provided us with all this financing to ensure that we could get through these really tough times.
And then into 2008, we thought the plan was beginning to work. We made money in the first quarter, and then after the first quarter things began to go pretty sour as the industry starts falling down. As you can imagine, we’re a capital-intensive business with very, very high fixed costs. If you take the industry down by as much as 50%, we start burning a huge amount of cash, not just because of our high breakeven, but also our payables were running off very fast as we stopped buying parts from our suppliers.
We didn’t need the funds for day-to-day expenditures. We determined that we thought during 2009, we could manage our internal cash flow to insure that we did not dip into our minimum operating cash levels, but we were also concerned that if we waited any longer, with the fragility of the banking system, that we may lose more capacity if we had another bank go under. So this was a big decision to draw down the revolver, and we did that in January, and got the cash into our accounts early in February.
And the first choice was we could start raising some equity, and in May—and in an extraordinary piece of timing, this was the month after Chrysler had gone into Chapter 11, and the month before General Motors went into Chapter 11, we went to market and raised equity for a domestic auto company. And I think that really was for us the turning point in terms of the investors beginning to believe in the Ford story, because they were prepared to put their money where our mouths were at that stage.
And by the way we don’t—I get asked this question so I’ll answer it before I get asked it again—we don’t think of our debt burden as a disadvantage compared to GM or Chrysler. I think none of us, including GM and Chrysler, none of us think Chapter 11 is a good business strategy. We went through this very tough period under our own steam, and in return for not being able to get rid of debt, we have an intact management team, we have an intact business plan, we have intact product investments, we have intact relationships with our dealers, our suppliers, our employees, our retirees, all the stakeholders. And I think as you can see in our business results, we’ve also been able to use this as an opportunity to encourage people to go into the Ford showrooms and look at Ford vehicles.
So that’s our turbulent times. You can see the stock price at the end of 2005 was $8.58. You can see in November 2008, it got down to into day trading at $1, I can’t tell you how demoralizing that was to work for a company that had a stock at a value of a dollar and a penny, and it closed yesterday at $14.23. And the other message of this is, we’ve been watching our liquidity, and at times our liquidity has given us chances to do things where the timing opportunity opened up, we had enough liquidity to do it.
So we carried on spending money on products, and this is just an example of the number of new products we’ve been able to launch around the world in these troubled times. And I think that more than anything is the reason you see market share growth from Ford in North America. And we’re doing it much more efficiently as a result of One Ford. In the past, we used to develop cars that looked pretty similar, but shared very little in the way of parts.
It’s probably a deck of 300 or 400 slides that we go through, but they’re completely consistent in a common format, and we show changes in a separate color, so we only spend time on changes. And the purpose of the review is to identify where we have problems. It’s not a congratulatory process; we’re not interested in where things are going well, although we will celebrate success, but the intent is to have complete transparency of the way we operate.
When we went to the markets to buy back our debt, we did pick—actually there’s an element of luck here—but we did pick when the debt was almost as cheap as it got. And when we went to the board, it was a very short discussion, because we’d taken them through the rationale of what we wanted to and the explanations several times before they actually had to make a decision about it.
This is such a fantastic story. I mean we wrote this out last week, and it was like a thriller. They’re galloping towards the cliff, and they’re going to go over, no, no, you know, all that. And it’s really been like that, and what you’re actually seeing is Ford operating, I think, absolutely cohesively and coherently as a team, and all our problems are shared.
BOOTH: I’m going to ask Kathleen Gallagher, who will be here this afternoon, who was one of the architects of the plan, to talk about that in more detail, but we’ve seen benefits from alternatives. We’ve been a bit slower to get into them than I think we originally envisioned. The allocation I showed you as our target, we’re not there yet, but it has reduced the volatility of our asset base. But Kathleen will be delighted to answer all your questions, and she is our director of asset management, and she is just a magic guardian of our—I mean this is a huge responsibility, because we’re acting as guardian for other people’s benefits, and we’re very pleased to have her. So she’ll talk about that this afternoon.