By then, US Auto Industry had already been on the decline for several decades, outpaced by global competitions. The giant region of the “Factory Belt” in the northeast and central states of the US had long become the “Rusty Belt”. Ford was in bad shape financially with $12.6B loss for the year 2006 on a revenue of $160.1B with its corporate bond status in Junk category. Well, during the 2008 Great Recession, Ford sustained itself by not taking the government bail-out money and subsequently emerged out of the crisis as the financially leanest, healthiest and strongest auto industry player in the US and in the global. The prescient and critical financial decisions and steps that Ford took before and during the recession demonstrated the exceptional financial acumen of the Ford leadership, including Bill Ford, Alan Mulally and its Finance Team.

This is a hard subject to explain succinctly, but TriStrategist will try to highlight a few key lessons learnt on the importance of finance play during the business transformation and crisis.

1. Know your numbers.
Balance sheet, cash and benchmark comparison numbers. For example, “Daily Cash Burn Rate” is an important measure for manufacture business – it indicates the standing urgency of the business; “Cost per Vehicle” number indicates the productivity measure against global competitions.

2. Improve cash flow and balance sheet as soon as you can.
Shedding non-essential assets into cash and reducing operation cost are usually the first steps for immediate improvement. Ford’s cost-cutting was already on its way when Mulally got on board, but he took some immediate steps to consolidate the overly complicated global brands(including production lines, supplier & dealer networks, regional dependencies, fuel-economy line-ups) and sold some of the non-core ones for cash. This allowed Ford to focus company’s limited resources on winning or strategic brands. Ford timely and successfully sold a few brands before the recession – they might get nothing if too late.

3. To prepare for the transformation, borrow (not spend) as much as possible while still can.
Ford’s timing to borrow money in 2006 to prepare the coming reconstruction couldn’t be better. Yes, they may have gone all the way (even used Ford logo as collaterals) to appeal to the bankers for the money, but they already sensed that the situation could be worse if they didn’t get it sooner. They also kept an additional revolving line of $10B open which proved to be a very smart move in the hindsight. It eventually provided them the backyard money to skip the drama of the government bail-out (still a very risky decision then; needed hunch and gut more than data!) and Ford thrived hugely from the public image campaign out of it – boldly different.

4. Keep your own finance arm.
Unlike the other two automakers of the Big Three, Ford tried all it can during the toughest time to keep the ownership of Ford Credit Union, its own internal finance arm. When the credit was frozen and tight everywhere during the worldwide economic crisis, Ford could still use this arm to finance the customer purchases, its suppliers and dealers to maintain its sales and operations, more efficiently than the competitors.

5. Adjust the largest long-term cost items – Union contract and pension re-negotiation.
Ford has the tradition of fostering trust and good relationship with the Union – which made their negotiations with the Union easier. They worked out some of the key union worker contract terms right before the recession and also renegotiated the pension plan around the time. Both proved well-timed and critical to allow Ford to make necessary cuts when it needed desperately, move much lighter and faster to react to the market conditions compared to their US competitors.

6. Deep cuts to stay lean and towards profitability.
Mulally was determined to break the vicious cycles of over-production and deep discounts which had prevailed at the Big Three for years. He lead the leadership teams to seriously match production with demands during his tenure. Ford did deep cut while preserving the lean core, key innovations and global best leverage of the business, reduced the overall production in order to move to a healthy profitability state sooner. Different business philosophy and beliefs, different results.

7. Improve long-term debt status whenever opportunities allow.
Ford spared some needed cash through Union contract and pension renegotiations and immediately used it to buy back long-term debt at about 30 cents on a dollar (when the whole industry was on the brink of collapse). Benefiting from the pessimistic market views, they continued other de-risk, de-leverage debt-to-equity maneuvers to convert much of the unsecured debt into stocks. Such moves allowed them to quickly retire large amount of debt which saved them billions down the road and removed the risk of concession hankering by investors. Ford also paid off the renegotiated cash requirements for Union pension trust ahead of the schedule as its own cash status improved out of the recession. These moves relieved Ford some of the most onerous long-term financial burdens. It put itself on a healthy financial path to be able to fully focus on the future.

8. Keep a constant pulse of the market, the competitions and Government directions.
Be prescient and stay ahead of the game as a large corporation. In the time of crisis, it could mean influencing the policy directions and the sentiment of the market to your long-term advantage instead of merely reacting to the panics.

Reflecting on these stories and lessons learnt from the business transformations during the time of huge crisis, we should all remember Warren Buffett’s famous quote: