Slashing Debt Is The Key To Ford's Recovery

If the Ford Motor Company is to escape government control, they'll have to work diligently to reduce debt while hoping that car sales will recover before the year ends. Unlike Chrysler and General Motors who are effectively at the Obama administration's beck and call, Ford continues to soldier on, introducing new products and cutting costs.

Like its American competitors, Ford is saddled with plenty of debt to the tune of just under $26 billion at the end of 2008. Chrysler's debt obligations are much lower than that while GM's are much higher.

This week, Ford managed to erase $9.9 billion in debt from its balance sheets as it used a combination of new stock and cash to reduce its obligations. At the same time, Ford worked out an agreement with its main union, the United Auto Workers, to pare health care costs for retirees. That move will likely save the automaker $500 million annually.

Ford wasn't forced to make this move, but the company is following the mandate the federal government has outlined for Chrysler and General Motors as they whack at their own debt levels. Ford's move will put additional pressure on GM and Chrysler to secure similar restructuring, something that could be more difficult to do if debtors aren't willing to strike a deal with the beleaguered automakers.

Ford is pinning its future on new product offerings including a handful of European designed vehicles that will start going on sale this summer. The Ford Transit Connect, a small commercial vehicle imported from Europe, will be the first of as many six European Fords for the North American market. Ford will follow up with the Fiesta and an all new Focus, both of which will be built at plants in North America. Several other vehicles are expected to hit the market in 2010 through 2012, revolutionizing the Ford fleet.

As far as its remaining debt obligations, Ford expects to tackle that over the coming years as the economy improves and the auto industry recovers.