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Ford Pays $3.8 billion in Cash To Health Care Fund

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On: Thu, Jul 1, 2010 at 1:00PM | By: Sherry Christiansen


 Ford Pays $3.8 billion in Cash To Health Care Fund

Although the auto industry is no longer the giant of the U.S. market it once was, Ford Motor Company is confident enough about the future of its brand that the company is planning to pay $3.8 billion to its union health care fund this quarter.

The requirement was for Ford to pay $859 million to the United Auto Workers Medical Benefits Trust for Ford retirees by June 30th. Not only did the Detroit auto maker pay its obligation on time, the company paid in cash, even though there was an option to pay $600 million from its stock under last year’s union contract. Ford also opted to prepay $2.9 billion toward the company’s commitment for health care expenses.  

“There was speculation that they would pay with equity; that would have been a bit alarming,” said Colin Langan, an analyst with UBS Securities. “With all of the risk out there, it’s a good sign that they feel they can pay with cash.”

Considering other payments that Ford has made in the second quarter, it is reported that the company has now reduced its overall debt by $7 billion, therefore reducing total interest payments by $470 million.

According to a Ford spokesperson, “Our One Ford plan to profitably grow our business is working, and we are increasingly confident about our future. We expect to continue to improve our balance sheet as we deliver on our plan.”

Kristin Dziczek, at the Center for Automotive Research in Ann Arbor, Michigan, said that analysts had expected Ford to pay the union’s trust in stock, in order to conserve the company’s cash reserves. “It was a big surprise,” she said. “This is a move to try to get on equal footing with other auto companies. Ford still has a dirty balance sheet.”

According to Bloomberg News, Ford reports having $31.3 billion in automotive debt, higher than General Motors Co., in part, as a result of borrowing $23 billion in 2006. The cushion of cash did help Ford to avoid bankruptcy last year; it also funded programs for designing new models during the same time period that the automotive industry was at its lowest profit level in over two decades. The new line-up of products has certainly put Ford in a strong position in the marketplace this year.

Overall Ford’s domestic sales are up 30% this year which is twice the increase of the overall industry sales gain for the first half of 2010. Alan Mulally, CEO for Ford, forecasts that the company will be “solidly profitable” this year, and by observing the company’s precedent of debt re-payment in the first quarter this year, it looks like Ford is really putting their money where their mouth is.




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imwithcoco | 1:05PM (Thu, Jul 1, 2010)

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