May 12, 2005, Bill Ford, Jr. informed shareholders that he
will accept no cash compensation until Ford Motor Companyís
automotive business is profitable on a sustainable basis.
At first blush, this appears to be a noble gesture and certainly
is wise from a public-relations standpoint. After all, Bill
Ford has taken great pride in transforming Ford Motor Company
into a good "corporate citizen" especially on environmental
issues which, of course, is pure bunk. With Standard
& Poorís recently downgrading Ford Motor Companyís credit
rating to "junk," it is appropriate for Bill Ford
to play the part of the "good" corporate executive
and do his part to help preserve Ford Motor Companyís precious
cash reserves while also linking compensation to corporate
performance. Ultimately, an excellent way to measure Bill
Fordís character will be directly linked to whether or not
he has the courage to cut Ford Motor Companyís annual dividend
from 40-cents per share to zero. I have no doubt that Ford
Motorís creditors are watching this closely.
of the largest bankruptcies, in U.S. history, pertained to
the June 2001 Chapter 11 filing by Reliance Group Holdings
(NYSE symbol REL). The crown jewel of Reliance Group was Reliance
Insurance Company which had been in business since
1817. Saul Steinberg was the man at the helm of the Reliance
empire (which was a publicly held company that was controlled
by the Steinberg family). He was the corporate raider
that "greenmailed" The Walt Disney Co. and received
a $60 million premium for his Disney shares
in order for him to simply walk away. Saul Steinberg had an
extravagant lifestyle which was funded by his lavish salary
and Reliance Groupís annual dividend of 32-cents per share.
In the end, it was clear that Mr. Steinberg was an incompetent
manager who had no business running a major insurer such as
Reliance Insurance Company.
he was driving this company into the ground, Reliance paid
its 32-cent dividend virtually until the bitter end. Even
as Reliance was bleeding red ink, the pockets of the Steinberg
family members were being lined with cash dividends from this
dying company. In total, Saul Steinberg himself received over
$100 million in cash dividends related to his 31% ownership
stake in Reliance Group Holdings. To recklessly pay such dividends
exposed Saul Steinbergís unseemly selfishness and total disregard
for creditors and policyholders. Mr. Steinbergís actions
revealed a complete lack of moral fiber.
2004, Ford Motor Company paid out $733 million in shareholder
dividends. One must wonder how wise it was to pay out such
a large sum of cash considering Ford Motor Companyís fragile
financial condition. The following points illuminate several
disturbing financial weaknesses as of fiscal year-end December
an "as-given" basis, Ford Motorís automotive
operations had a deficit working capital position
of $10.3 billion.
had 35 cents of cash and marketable securities for every
dollar of current liabilities.
total liabilities amounted to a staggering $175.8 billion.
a tangible equity position of about $8.8 billion, Ford
Motor Companyís total liabilities to equity ratio stood
at 20 to 1 keep in mind that 3 to 1 is considered
there is a little bit of Saul Steinberg in Bill Ford. To be
sure, foregoing oneís own salary makes for good press coverage.
However, keep in mind that Bill Ford, Jr. owns 8,687,315 shares
of Ford Motor Companyís common and Class B stock. With Ford
Motor paying a 40-cent-per-share dividend (on both common
and Class B stock), Bill Fordís annual dividend income amounts
to nearly $3.5 million. Hence, Mr. Ford certainly is not hurting
for cash. Moreover, just like Reliance, Ford Motor Company
is a family controlled company such control emanates
from the special voting rights of the Class B stock. With
71 million shares of Class B stock outstanding, the Ford family
received $28.4 million in dividend income (in 2004) related
to the Class B stock alone. Once again, in light of Ford Motorís
terrible financial condition, paying such dividends is irresponsible
and reckless apparently, Bill Ford (like Saul Steinberg)
saw no ethical issues in enriching the family while the company
hurtled toward "junk" status.
holders, other creditors, and pensioners should take note
of this. Members of the Ford family are lining their pockets
while the company is facing stiff competition from Japanese
automakers and while sales of its top-selling pickups and
SUVs are withering in the face of high gasoline prices. There
comes a point in time where Fordís management must show the
intestinal fortitude necessary to make tough decisions such
as suspending the dividend in order to preserve $733
million in cash annually. If Bill Fordís character is anything
like his managerial
competence, then I foresee Ford Motor Company paying a
dividend right up to the day it declares Chapter 11 bankruptcy.
So to answer the question posed in the title: yes, Bill Ford
will pull a "Saul Steinberg" and enrich the family,
at the expense of creditors and pensioners, as the company
slides into oblivion thereby providing some financial
cushion, for the family, as the stock heads to $0.