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5 min readThe Corporate Dash for Cash: How Ford and GM Prepared for the Coronavirus Shutdown
In March 2020, as coronavirus spread across the globe, Ford drew down the entirety of its $15.4 billion credit line. General Motors followed with a $16 billion drawdown, leaving itself just $1.5 billion in reserve. These were not small moves. They were the two largest corporate credit line draws in the market, and they signaled something deeper: the auto industry, which had already been nervous going into 2020, was now bracing for an economic shutdown of unknown duration.
The Industry Was Already Under Pressure
Before anyone had heard of coronavirus, car makers were facing trouble from three directions. The US market, which had been sustained by SUV and pickup sales, was starting to show signs of softness. The Chinese market had been falling for two years and was expected to fall again. And in Europe, all manufacturers faced stringent CO2 targets that required them to sell electric vehicles on which they made very little money. As FT Motor Industry Correspondent Peter Campbell put it, "From three sides, really, the industry was facing a potential squeeze this year, and that's before anyone had even heard of coronavirus."
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What you'll learn
- 1 (01:44) **The Auto Industry's Pre-Existing Troubles** - Peter Campbell outlines the three major headwinds car makers faced even before coronavirus: a softening US market, a falling Chinese market, and strict European CO2 targets that made electric vehicles unprofitable.
- 2 (03:08) **Supply Chain Shock from China** - The narrative shifts from general industry woes to the specific impact of the virus, starting with China's lockdown and the closure of the "Detroit of China" in Hubei province.
- 3 (05:20) **From Supply Chain to Demand Collapse** - The virus spreads beyond China, and the problem for automakers shifts from getting parts to keeping plants open as the disease becomes a global pandemic.
- 4 (07:19) **The High Cost of Idle Factories** - Peter explains why car makers are desperate to keep workers on payroll even while shut down, and why this is unsustainable for more than a few weeks.
- 5 (09:03) **Quantifying the Damage** - The episode provides concrete numbers on the immense fixed costs of shutdowns and the expected collapse in global auto demand.
- 6 (10:32) **The Corporate Dash for Cash** - This is the core of the episode: how Ford and GM are scrambling to stockpile cash by drawing down their emergency credit lines to survive the shutdown.
- 7 (11:47) **Ford's Symbolic Dividend Cut** - The significance of Ford cutting its dividend is explained as a major signal to investors about the severity of the crisis.
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Show Notes
Behind the Money is a podcast from the Financial Times that takes listeners inside the business and financial stories of the moment, with reporting from FT journalists around the world. You can find Behind the Money wherever you get your podcasts, including FT.com/behindthemoney.
When credit markets seized up earlier in March, more than 130 companies rushed to their lenders to draw down at least $124bn of emergency credit lines to shore up cash, with Ford and General Motors drawing among the largest amounts. We look at how the auto industry is preparing for the economic uncertainty that lies ahead. With the FT's Peter Campbell and Gillian Tett.
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