Want a Piece of Ford's $28 Billion Hoard? Don't Hold Your Breath

Ford Motor Co. may be both flush with cash and struggling with its stock price, but new CEO Jim Hackett is in no rush to buy Wall Street’s love.

The carmaker’s $28 billion cash pile isn’t “burning a hole in our pocket,” Hackett said during an hours-long investor day early this month. Since then, Ford’s shares have slipped and two analysts have cut their ratings, citing the time it’ll take the CEO to turn around the company with self-driving technology and electric vehicles.

Hackett answers to Ford’s founding family, which controls the company through a special class of stock and has a different agenda than other investors. They prefer a steady dividend over the share buybacks that rival General Motors Co. has been coaxed into by activist investors. While Ford’s challenges with its stock price linger, GM is repurchasing $14 billion over three years and winning plaudits for its burgeoning mobility business.

“They have too much cash on their balance sheet and they’re not doing much with it,” David Whiston, an analyst with Morningstar in Chicago, said of Ford management. “They’re super protected against a downturn and that’s great, but you don’t need that much.”

Ford’s cash pile is more than 40% above the $20 billion level executives have set as a minimum to weather a recession. Although Hackett, 62, told Wall Street on Oct. 3 that the automaker would be active with M&A, he didn’t announce any splashy deals during his much-anticipated address.

Investors may grow even more restless after Ford reports quarterly earnings next week that are expected to rise on the strength of truck and sport utility vehicle sales. Shares of GM, which has $5 billion in repurchases planned for 2017, are up 30% this year, while Ford’s have risen less than 1%.

While Ford has made clear a buyback isn’t in the cards, calling the company tight-fisted would be stretch. It restored a dividend in 2012 and will have paid out more than $15 billion to shareholders since then by the end of this year.

“We don’t feel uncomfortable having a bit more cash,” Bob Shanks, Ford’s chief financial officer, said in an interview. “It gives us a bit more flexibility when a downturn does occur and more flexibility to continue to invest in the business and transform the business.”

Bad Timing

Executive chairman Bill Ford, the great-grandson of Henry Ford, has been clear about his disinterest in stock buybacks. He told investors during the company’s annual meeting in May that Ford has a poor track record of timing them.

“We tend to do them when the market is close to its peak,” he told an investor who asked if the family’s aversion to buybacks was a detriment. “Then we go into a downturn and the stock goes down and we end up destroying value. The Ford family wants the stock to go up.”

Shanks said he has “never been pressured by the family” on how to distribute cash to shareholders.

Ford’s automotive cash, which excludes its financing unit, swelled after the company borrowed $2.8 billion in December. At the time, Ford said it was looking to make investments toward mobility.

In February, Ford announced a $1 billion investment in Argo AI, a startup working on a virtual driver system for autonomous vehicles. That spending will be spread over five years and didn’t put a dent in Ford’s cash, which is now about $8 billion more than GM is carrying.

“We really haven’t spent it yet,” Shanks said of the money borrowed late last year. “I don’t want you to think that I feel like we have to do it by a certain time. We’re going to be very thoughtful, very deliberate.”

Falling Ratings

Several analysts found Hackett’s plan for accelerating into the autonomous age short on details. Five now recommend buying Ford shares, while 19 rate them a hold and two a sell, according to data compiled by Bloomberg.

When Hackett became CEO in May, nine had buy recommendations. Since Hackett’s presentation, six analysts have raised their ratings or price targets for GM.

“While it’s possible that CEO Jim Hackett’s plan for Ford will ultimately bear fruit, we believe it will take several years,” Brian Johnson, an analyst at Barclays, wrote in a report last week. He dropped his rating on Ford to a hold days after raising GM to a buy.

Having extra cash gives Ford more cushion to withstand the losses that will come initially with new ventures in electric and self-driving cars, Shanks said.

Cash Cushion

“There is pressure on the business in the near term from the investments that are being made today to transition toward greater electrification and the work that’s underway for autonomy,” he said. “You’re in a place where they are not yet economical, so there is margin pressure.”

Ford also remains scarred by its near-death experience during the global recession. The company avoided the government-backed bankruptcies that its peers in Detroit needed by borrowing about $23 billion in 2006, before credit markets froze. That fortuitous move pushed Ford’s automotive cash pile to more than $37 billion within the next year.

While Ford doesn’t expect the economy “to go over the edge of the earth” again, Shanks said management does feel more comfortable with extra breathing room.

“We have not forgotten what happened 10 years ago,” he said. “We feel we are OK with where we’re at in terms of the cash balance we have.”

By Keith Naughton, with assistance from David Welch