Ford cuts debt by 38%

http://money.cnn.com/2009/04/06/news/companies/ford_debt.reut/index.htm?postversion=2009040612

With the automotive industry in major debt, Ford has recently cut its debt by 38%. In a financial figure, $9.9 billion dollars in debt has been eliminated from Ford's balance sheet. Having the 38% cut of debt, Ford will pay $500 million dollars less in interest expenses per year. The saved money could be invested in trying to produce more fuel efficient cars because of President Obama's new auto fuel emission standards. In the article I read about President Obama's plan, was to have passenger cars reach 6 litres/100km by 2016. Ford being able to cut its debt in a slump of the recession shows that the Ford will not shut down anytime soon. It is also a positive for other manufactures like GM and Chrysler to show that they are also able to cut their debt.

In this article, there are a few topics that stand out and have connections to our textbook. First of all, Ford has stated that it has cut its debt by 38%. In order for them to calculate that figure, the accountants of Ford must use comparative balance sheets between months and years. When they compared the balance sheets,they would most likely see a change in their accounts payable and bank loan. By the reduction of their loans to companies and banks, they would also see a decrease in their expenses, especially their interest expense. As a result, Ford's income statement might of had an increase in net income from previous months. Another connection is what Ford did in order to cut back its debt. The most obvious thing that Ford did was shut down many of its assembly plants which put a lot of employees out of work. This cut in wages and other benefits paid for their workers is now saved to pay off debt for its company. In order to keep laid off employees from going bankrupt, many are eligible for EI in which the government will give money to employees on a 2 week basis for a period of time. The money would help in paying for bills and groceries.

I think that Ford is going towards the right path to lowering their debt quicker than GM and Chrysler. Being able to cut their debt in the recession is a very good positive which I think that they should build on it. This should give Ford a very big boost in confidence and a reason to build better cars. Also that they should keep in mind when designing new cars is about President Obama's new auto fuel emissions standards. The new fuel emissions standards will save billions of barrels of oil which will significantly reduce the effect of global climate change. I hope to see that Ford will be looking to build more affordable and fuel efficient vehicles to sell to the North American market.