On Friday, we saw something of a miracle happen: Ford Motor reported a full-year pretax operating profit of $8.8 billion and full-year net income of $20.2 billion (all figures in U.S. dollars).
Ford's profits were the highest since 1998 thanks to a non-cash special item of $12.4 billion (I'll skip the accounting details on that).
Yes, we're talking about a miracle. Ford has engineered a phenomenal turnaround over the last half-dozen years. Remember, from 2006 to 2008 Ford lost $30.1 billion and borrowed $23 billion in late 2006 to fund a turnaround. Today, Ford's total automotive debt is at $13.1 billion, a drop of $6 billion in the last year.
Ford has money in the bank, too, and lots of it. As Automotive News reports, gross cash on hand is at $22.9 billion, with net cash at $9.8 billion, up from $1.4 billion a year earlier. Ford's financial position is strong and growing stronger.
That's why last month Ford's chief financial officer, Lewis Booth, told me he expects Ford to regain investment grade status this year. Ford has already reinstated its dividend after suspending it in 2006. "That will be a great day at Ford Motor Co.," said the taciturn Booth of regaining investment grade status.
Ford should be lauded for fixing itself without a full-blown government bailout. But let's not kid ourselves. Ford has had government help. For instance, Ford has taken advantage of $5.91 billion in cheap U.S. Department of Energy loans from the Advanced Technology Vehicle Manufacturing loan program. No. 2 on the loan list: Nissan North America at $1.45 billion, according to Automotive News.
It also seems clear that while Ford did not take a government bailout during the recent financial crisis that drove both General Motors and Chrysler into bankruptcy, Ford has benefited from direct government intervention in the automotive industry.
Paul Krugman, a Nobel Prize winner in economics who writes for The New York Times, explains why in his column today. He points out that successful companies like Ford Motor do not exist in isolation. "Prosperity depends on the synergy between companies, on the cluster, not the individual entrepreneur," he notes. This is pretty basic economic theory, by the way.
Now Krugman is an ardent progressive and his views are on the "left" of the political spectrum. But he does know economics; that Nobel Prize is evidence of that. In any case, he supports the bailouts of GM and Chrysler for sound economic reasons.
That is, while some have called the bailouts "crony capitalism," they're wrong. As Krugman points out, the bailouts of GM and Chrysler "rested crucially on the notion that the survival of any one firm in the industry depended on the survival of the broader industry 'ecology' created by the cluster of producers and suppliers in America's industrial heartland. If GM and Chrysler had been allowed to go under, they would probably have taken much of the supply chain with them - and Ford would have gone the same way."
Ford, as Krugman points out, would have failed if GM and Chrysler had been allowed to fail. The companies would all have been liquidated, and the supply chain around those companies would have been wiped out. The bailout worked and not just for GM and Chrysler, but also Ford.
We should all applaud the heroic efforts at Ford to reinvent itself and become phenomenally profitable, to pay off its debts and to rebuild its product lineup. But Ford's turnaround was not solely the product of management genius and worker commitment to excellence. It was not the product of a "heroic entrepreneur," although CEO Alan Mulally certainly has been a fantastic leader since he arrived in 2006 from Boeing.
As Krugman notes, "entrepreneurs need a supportive environment, and that sometimes government has to help create or sustain that supportive environment." Mulally and his leadership team are certainly business heroes, but the facts show that "it takes more than business heroes" to create a successful business and profitable industries as we're not seeing return to Detroit and its auto makers.
Let's cheer Ford's results, but I am sure that up on the 13th Floor of Ford World Headquarters in Dearborn, Mich., they are quietly acknowledging that without government bailouts of GM and Chrysler, Ford's turnaround would not have happened.
