The Detroit News 03/30/09 Dearborn

When Alan Mulally flew into town a little more than two years ago to take the top job at Ford Motor Co., many wondered what an aerospace executive from Seattle knew that Detroits best and brightest did not.
Plenty, apparently. Days before word that General Motors Corp. CEO Rick Wagoner was ousted by the Obama administration as part of a plan to provide GM with more federal aid, Mulally sat in his corner office on the 12th floor of Ford headquarters with a grin on his face.
Asked why he was smiling, he did not hesitate Ford has won all of the concessions it needs from labor and investors to weather the industry's crisis even if car and truck sales continue to decline.
Just three months ago, Ford said it might have to join GM and Chrysler LLC in asking Washington for help if auto sales did not bottom out by May or June.
But Ford has since reached an agreement with the United Auto Workers to reduce labor costs, and Ford bondholders snapped up an offer to swap debt for equity in the company, money-saving moves that put Ford on a more level playing field with Asian rivals.
We are competitive now, Mulally told The Detroit News in an interview Friday. The downturn is a temporary thing. We just have to make it through it.
Analysts are predicting that March auto sales, to be released on Wednesday, will come in well below February's dismal numbers -- demand fell 41.4 percent last month compared to a year ago -- suggesting that there is no end in sight to the sales slump that has automakers reeling from Detroit to Tokyo. But Mulally said Ford has taken all the steps necessary to respond to the crisis.
Over the past month, the automaker has convinced UAW members to accept major modifications to the union's labor contract. Sources say those concessions will cut Ford's labor costs to less than $50 an hour, putting it on par with Japanese manufacturing operations in the United States. Ford also offered bondholders a debt restructuring that was oversubscribed within a couple of weeks.
Investors jumped on the offer like it had slapped their mothers, said analyst Shelly Lombard of Gimme Credit. Ford will shed $2.2 billion of bank debt, $4 (billion) to $4.4 billion of bonds, and $4.9 billion of convertible notes. That's $11.1 (billion) to $11.5 billion or almost a third of its $36 billion of debt. And we estimate Ford will save as much as $600 million of interest expense (annually).
Now, Mulally says, it is just a matter of continuing to match production to the actual demand for Ford's cars and trucks.
Judging by inventory levels, Ford has been doing that. Despite the sales drop, the company ended February with 32 percent fewer vehicles on dealer lots than a year ago.
Ford could still benefit from more consolidation among its dealers and suppliers, but that is likely to occur organically given the weak economy.
They've done what they have in their control to do, and they've done a terrific job doing it, said David Cole, chairman of the Center for Automotive Research in Ann Arbor. There's nothing obvious left to do.
Consumers appreciate Ford's effort to save itself without government loans, Mulally said, and that is having an impact on the showroom floor. Still, some have suggested that Ford is playing a dangerous game by touting its self-reliance when the industry's recovery is far from certain.
Mulally is adamant that the only scenario that would force Ford to ask for government aid now is if the country's economic decline dramatically worsens. He is confident that the Obama administration will not let that happen.
We have the economy on the top of the agenda, and we're moving decisively to deal with it, Mulally said. We're not taking taxpayer money.
Cole said that message has resonated with American consumers, who mainly oppose anything resembling a bailout. But he stressed that Ford cannot begin to rebound until there is a broader recovery in the U.S. auto market.

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