In late 2006, Ford Motor Company went to its lenders and offered up everything it owned. Not the usual corporate gesture of a revolving facility backed by receivables, but the whole estate: factories, equipment, stock in its subsidiaries, and, most strikingly, the Blue Oval trademark itself. The badge on the front of every car the company had ever sold became collateral. Two years later, when the American car industry walked to Washington with its hands out, Ford walked in beside the others and asked for nothing it needed. It had already pawned the family silver while the silver was still worth something.
The decision belongs to a specific moment. Alan Mulally arrived from Boeing in September 2006 into a company losing money on an industrial scale, and the plan he inherited and sharpened, the one called the Way Forward, required cash to execute. Plants had to close. Brands had to go, and over the following years Aston Martin, Jaguar, Land Rover and Volvo did. A product line built around large trucks and sport utilities had to be rebuilt around smaller cars nobody at Ford had made money on for a generation. All of that costs money before it saves any, and Ford’s credit rating had already fallen below investment grade, which meant unsecured borrowing on a scale that mattered was no longer available at any sane price.
So the company borrowed secured, and secured borrowing has one honest rule. You can raise an enormous amount of money against assets, provided you are willing to lose them. Ford raised roughly eighteen billion dollars in that financing, and the terms were plain: default and the lenders take the plants, the shares and the name. Executives have been known to resign over far less symbolic indignities. Ford signed.
Anyone who has run a cafe through a quiet winter understands the trade with uncomfortable clarity. The person who borrows against the espresso machine in October while trade is merely slow has money in February. The person who waits until February, when the machine is cold and the lease is in arrears, discovers that nobody lends against a cold machine. The asset is identical. The hour at which it was offered is everything, and the hour is the only part of the decision that cannot be recovered later.
That is the whole of Ford’s 2008. The crisis did not find a cleverer company than General Motors or Chrysler. It found a company that had completed its borrowing eighteen months earlier, when banks were still lending and the collateral still carried a defensible valuation. By the time credit markets closed, Ford’s war chest was already sitting in the bank, drawn down and spent on exactly the restructuring it had been raised for. Mulally could tell Congress that Ford supported help for its rivals, because their suppliers were his suppliers and a collapsing supply base would have killed him too, while declining the money for himself. It was a position of genuine strength and it had been bought with a pledge document.
The lenders released the collateral in May 2012, when Ford returned to investment grade and the Blue Oval came home. The company treated it as the moment worth celebrating, and it was, though the celebration marked the end of the story rather than its substance. The substance was the signature six years earlier, taken by people who could not know whether they were saving the company or handing it over.
Which is the uncomfortable merit of the thing. Ford survived the worst industrial collapse in American living memory because it had the nerve to put its own name in the pawnshop window while the shop was still open. The badge went back on the wall. It was never the point. The point was that the money arrived in time.
Source: NeTT Business News, “Ford mortgaged the Blue Oval: the 2008 survival bet”
