Ford plays private equity on its own business

Reuters
Reuters

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

NEW YORK (Reuters Breakingviews) – Ford Motor can be its own private equity owner. The Detroit automaker said on Wednesday https://s23.q4cdn.com/799033206/files/doc_news/2022/03/Ford-Accelerating-Transformation-Forming-Distinct-Auto-Units_3.1.22.pdf that it won’t separate the ownership of its electric-car business from its internal combustion operations. However, it is reorganizing internally to split its electric and gas-guzzler units – and plans to run the latter for efficiency and cash.

The business which has lots of current earnings but an uncertain future is an obvious target for a debt-heavy financial buyer. But Ford would prefer to use the cash to fund its now-$50 billion plan to turn the company electric. To help things along, the combustion engine business will strip out $3 billion of costs within three years and be cautious on capital spending.

The plan should help Ford hit a 10% overall profit margin before interest and taxes by 2026, up from 7.3% last year. That’s still short of rival General Motors, which earned an 11.3% margin in 2021. Ford’s stock was up 5% on Wednesday nonetheless, as investors welcomed its expanded ambitions in electric vehicles and the hope of getting a clearer look at that business in future. For now buyout firms can only look on. (By Jonathan Guilford)

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