DETROIT — The prescient moves Ford Motor Co. made to get ahead of the Great Recession by securing a critical line of credit and suspending its shareholder dividend spared the automaker from bankruptcy after U.S. auto sales plunged.
Now, as the coronavirus pandemic threatens untold financial damage, Ford is again being proactive to fortify its cash reserves. It has suspended its quarterly payout to shareholders, a savings of $2.4 billion a year and said it planned to draw down $15.4 billion by maxing out two credit lines. The company also withdrew its previous financial guidance.
"Like we did in the Great Recession, Ford is managing through the coronavirus crisis in a way that safeguards our business, our work force, our customers and our dealers during this vital period," Ford CEO Jim Hackett said in a statement.
"As America's largest producer of vehicles and largest employer of autoworkers, we plan to emerge from this crisis as a stronger company that can be an engine for the recovery of the economy moving forward."
Ford said the extra cash will be used to preserve financial flexibility and offset temporary working-capital impacts tied to virus-related production shutdowns. The automaker has idled all of its North American plants until March 30 and suspended production at sites in continental Europe.
Ford reinstated its dividend in 2012, after going more than five years without one, and has been paying its current rate of 15 cents a share every quarter since 2016.
Ford shares had a roughly 6.5 percent annual dividend yield this year before the coronavirus pandemic sent global equity markets tumbling.
Hackett and Executive Chairman Bill Ford had been adamant that continuing the dividend was a top priority. The move to suspend it underscores the seriousness with which the industry is taking the coronavirus crisis.
CFRA Research last week lowered its full-year price target on Ford to $4 from $10, suggesting the fallout from COVID-19 could have a "devastating impact" on the automaker's near-term finances.
"We expect automakers to resort to draconian measures in order to preserve liquidity such as steep cost cuts, asset sales and drawing down existing credit lines, as Ford announced today in tapping its remaining $15.4B of borrowing availability," Garrett Nelson, senior equity analyst at CFRA Research, wrote in an investor note.
"The virus comes at an inopportune time, as Ford is in the midst of a restructuring and has a handful of promising forthcoming models including the Mustang Mach-E and Bronco."
Ford previously aimed to hold $20 billion in cash and $30 billion in liquidity heading into a potential economic downturn. It had $22 billion in cash and $35 billion in liquidity at the end of 2019.