Ford Motor is in a race against the clock with Wall Street measuring its progress over the next two years by the cash remaining on its balance sheet.
Ford on Thursday posted a record $12.7 billion loss for 2006 and provided the first indication of its cash burn since mortgaging assets to fund job cuts and plant closings at a time when sales of its key high-margin trucks are under pressure.
Ford said it burned through $20 million a day in the last three months of 2006 and expects to spend $17 billion before returning to profitability in 2009.
Analysts said Ford's recently raised $23.5 billion gives it two years to turn itself around, barring a steep decline in the U.S. economy.
Compounding the risk for Ford, analysts say the automaker must still hit the mark with new products such as the Edge crossover SUV and avoid a costly confrontation with its unionized factory workforce.
"You can limp along for a long time on $46 billion in cash," said Andrew Harding, director of taxable fixed income at Allegiant Asset Management in Cleveland. "They've got the liquidity to survive."
Ford is in the early stages of a turnaround plan dubbed "Way Forward" that includes closing 16 plants and cutting up to 45,000 jobs in North America. Ford's last profitable year was 2005.
By the company's own estimate, it expects to see further losses in the coming quarters and has forecast profitability only in 2009.
But some analysts say Ford may have underestimated its cash requirements for the next three years.
"We are skeptical with regard to whether they are able to achieve their (cash burn) forecast, as they have tended to err on the side of optimism," said Pete Hastings, a corporate bond analyst at Morgan Keegan.
Ford obtained $23.5 billion of new liquidity in December, including a convertible debt offering, secured loan and credit facility. This resulted in total automotive liquidity of $46 billion at the end of 2006.
But the cash burn has already started. The company spent $1.8 billion last quarter.
"Although management secured its liquidity position with the recent refinancing, the company continued to burn through cash at an alarming rate," said Calyon Securities analyst Joseph Amaturo, who expects Ford will spend more cash that the $17 billion it has forecast because of a marked slowdown in its automotive unit.
Morgan Keegan's Hastings said the longer-term question is what options Ford has remaining if its turnaround hits hurdles.
Although many analysts say Ford's new Chief Executive Alan Mulally has the right vision for a leaner Ford, some also remain cautious about whether he can carry out the transformation.
"Ford is more likely to surprise us on the downside rather than on the upside," said Shelly Lombard, senior high yield analyst at Gimme Credit.
Tough Times for U.S. Automakers
Ford is not the only automaker hurting. For the first time since 1991, all three Detroit automakers are set to book losses in the same year, underscoring the changing tastes of U.S. consumers and the intense competition from the likes of Toyota Motor, now the No. 3 player in the U.S. market.
All three were hit hard as U.S. consumers moved away from the trucks and sport utility vehicles that had accounted for most of its sales and profits.
Ford is hoping that once it cuts its manufacturing capacity, its new products that are expected to be more fuel-efficient will help return the company to profitability.
Mulally told analysts that the plan is to continue "cost reduction forever."
A big opportunity to do that would be at the upcoming labor contract negotiations with the United Auto Workers union this summer.
Mulally said on Thursday that all issues -- including health-care costs, wages and benefits -- were on the table with the union.
While Mulally said he was not seeking a confrontation with the UAW, analysts say any work stoppage could also put pressure on Ford's cash position.
"An extended shutdown of the company's operation could force the company into a liquidity crisis despite its strong liquidity position," said Kam Hon, analyst for ratings agency DBRS. "Any signs of stalling in executing the Way Forward plan and disruptive labor actions during contract negotiation may lead to negative rating actions."