Disproving Ford Motor Company (F) Bear Arguments

Rarely do I read a piece about Ford Motor Company (NYSE:F) and get completely caught off guard, and feel the need to voice my respectful disagreement – but the time is here. I’ll summarize what surprised me to show you the basic bear argument, and then debunk it point by point with explanations.

Fundamental basis
If I can sum up the bear argument, it basically says that Ford isn’t what it used to be and its dwindling cash pile combined with enormous $105.06 billion in debt – while still increasing – make for a terrible combination.

My response
Oh boy, I’m not sure where to start with this one. Firstly, part of that statement is correct – Ford Motor Company (NYSE:F) is indeed not the same company it used to be. That is a large reason why we have recently witnessed the stock increase from its 52-week low of $8.82 to briefly topping $16 recently. This is certainly not the company that refused to acknowledge changing consumer tastes and burned through massive amounts of cash incentives to move its low-quality vehicles. That’s of course not how the author of the bear argument meant it – but I’m quite positive Ford is in better shape than it has been in over a decade and has brighter days ahead.

Secondly, the part about debt worries me as an analyst, as it’s often misunderstood. The bear argument is shallow and flawed – it didn’t take the time to dig in and explain that the majority of Ford’s $105 billion in debt falls under its Ford Motor Company (NYSE:F) Credit finance division. Ford’s debt is often glanced at and labeled as $105 billion of bad debt. In reality Ford Motor Credit takes massive amounts of loans and dishes them back out at higher interest rates, making a healthy profit – $1.7 billion in pre-tax profit last year to be exact. Ford Motor Company (NYSE:F) Credit accounts for roughly $88 billion in Ford’s total debt, but its actual automotive operating debt is about $16 billion – a night and day difference from the $105 billion lump sum. For a representation of how Ford has handled its long-term debt over the years, which the bear argument avoided, look below.

Numbers from Morningstar.com