Ford CFO: The Turnaround Completed

DETROIT ( TheStreet) -- Once a turnaround story, Ford ( F) today is something more, a company that fixed itself during a near-depression and now believes it is uniquely positioned to grow.

In retrospect, everything changed in late 2009, when the automaker began to produce operating cash flow and its executives came to realize they no were no longer swimming against the tide.
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Ford CFO Lewis Booth

"When we got into positive operating cash flow in the third quarter, we began to think that we were on our way to profitability and that we needed to make sure we were not just paying down debt and investing in new products, but also investing in growth opportunities," said CFO Lewis Booth, in an interview with TheStreet.

"We were beginning to get our thoughts together," said Booth. "We had plans for Brazil ... Now, we're investing heavily in growth."

Ford's share price reflects the transition. In 2009, shares rose 335%, the kind of appreciation that often occurs when investors abandon the perception that a company is a bankruptcy candidate -- Ford traded as low as $1.01 in November 2008 -- and realize it is going to survive.
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This year, Ford shares are up about 25%, while the Standard & Poor's 500 is up about 1% -- a sign that Ford's growth prospects are being recognized.

So where will Ford's growth come from? Perhaps the most compelling potential resides in Asia. Ford holds only a 2% market share in China and a 1.4% share in India. China is already the world's largest auto market; India is going to be third. In both countries, Ford faces exactly the same competitors it faces everywhere else in the world, making it believable that at some point, Ford's share there would be in double digits, the same as it is elsewhere.

A Tough 'Road' to Hoe

But there's more to success in China than simply showing up. The Ford story does not necessarily translate easily into Chinese, said Gerald McDermott, an associate professor at the University of South Carolina Moore School of Business. "It's amazing how quickly a company can go into a place like China and set up production," McDermott said. "But over time, there are always questions about quality especially for U.S. automakers whose philosophy has been to seek efficiencies rather than qualities from suppliers."

Additionally, even though Ford landed there at the same time as competitors did, it committed fewer resources. Today, Booth said, Ford's biggest constraint is limited production capacity; Ford is planning two assembly plants in China by 2012 and has doubled capacity at a plant in India.

"I'm not saying that Ford can't do this," said McDermott. "But like other auto companies, they have a mixed record on international operations, and we all know that big organizations take a long time to change."

Booth noted, "I don't think we would ever say that market-share gains are easy. But both India and China are benefitting from increased focus. We survived a downturn, and now we are improving the business and we are seeing growth opportunities globally and we are focusing on them."

>>Also: Must-See Charts: Ford, GE, Microsoft

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Booth recently traveled to Chongqing, in southwestern China, for a ceremony celebrating an agreement with partner Changan Motors and the municipal government to build a new $500 million engine plant. He was impressed by Chongqing Mayor Huang Qifan, "a very business-minded executive who is working hard to make his city a good place to do business."

He saw a lot of Fords on the streets, not surprising given Ford's existing plant in the city. During the past year, Booth has traveled to China twice and to India once. "The only surprise you ever get is just how fast the development is," he said.

Of course, Latin America and Brazil are also big Ford growth markets. But one that's not so obvious: "As the economy comes back, we will definitely see growth in the U.S. market," said Booth. Ford, by the way, is chasing margin gains -- not market share gains.

Cruising Toward a Better Credit Rating

Booth's focus, meanwhile, is to improve Ford's credit position. Booth, 61, was named CFO in November 2008 after 30 years at Ford -- around the same time that the company's credit rating plummeted to a CC, down from A in 2001. Booth's toughest decisions came in the winter of 2009, when he was trying to figure out whether to draw down all of Ford's $11 revolving bank loan. "It was a big amount of money, but we were worried about losing borrowing capacity of other banks went down," he said.

Then in the spring, Ford moved to retire $10.1 billion in debt. "It was one of the biggest debt repurchases that anybody has ever done," Booth said. Additionally, the team agreed to continue to invest in new products "even in the depth of the financial gloom, because we knew you need to have fresh products. The easy way out is to cut back on product development."

A favorite presentation chart, of course, shows when S&P's Ford rating stood at A (2001), dipped to CC early in 2009 (just after when Booth arrived), then rebounded to B+ today. CEO Alan Mulally has said that by the end of 2011, Ford expects to move from an automotive net debt position to a net cash position -- in other words, it will have more cash than debt.

In his most recent report in late August, S&P analyst Robert Schulz said "there is at least a one-in-three chance that we could raise Ford's corporate credit rating in the next 12 months." A good sign would be for Ford to generate $4 billion from global automotive operations in 2011, Schulz said, noting, "This would likely require a continued gradual economic recovery."

Other S&P worries: Ford still relies on pickup truck sales to be profitable in North America. The success of Ford's ongoing expansion around the world is not assured. Nor is the economic recovery. Still, Schulz said, "we view Ford's ongoing focus on debt reduction as a positive credit factor."

Moody's most recent rating for Ford is a B-. Analyst Bruce Clark, writing in June, said that Ford's "credit metrics are constrained due to high debt levels, but should show steady improvement as automotive demand improves. The prospect of growing free cash generation could enable Ford to undertake meaningful de-leveraging during 2011 and beyond."

Booth, who was born in Liverpool, England and who joined Ford on Jan. 1, 1978 as a financial analyst in product development for Ford of Europe, has said that despite Ford's recent upswing, the company is not relaxing.

"The temptation is to let your guard down," he said. "But collectively, we're keeping pressure on ourselves to continue to improve the business and to take advantage of all the tough things we've done. It's not glamorous -- it's relentless implementation."

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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