Ford Motor Company said Tuesday it was selling more than half of its stake in Japan's Mazda Motor Corp. in a bid to raise much-needed cash for the beleaguered American car maker.
Ford expects to receive $540 million US from the sale of 20 percentage points of its Mazda holdings back to the Japanese automaker and a group of Mazda's strategic business partners.
As a result of the transaction, Ford will see its Mazda stake cut to 13 per cent, down from 33 per cent.
"This agreement allows Ford to raise capital that will help fund our product-led transformation, and at the same time, allows Ford and Mazda to continue our successful strategic relationship in the best interest of both companies," said Ford's president and chief executive officer Alan Mulally.
Ford's sale will only net the company 25 per cent of what it would have if the same transaction was concluded a year earlier. Mazda shares have slid more than 70 per cent when comparing the current stock price to the company's 52-week high.
Two for two
The Ford deal marked the second time in two days in which an American carmakers sold shares in a Japanese rival in an effort to raise cash.
On Monday, General Motors Corp. dumped its remaining three per cent stake of Suzuki Motor Corp. for approximately $230 million US.
GM had owned a piece of Suzuki since 1981 and has held as much as 20 per cent in the Asian automaker.
Similar to Mazda, Suzuki said it would buy back its own shares from GM.
"We fully understand the necessity for GM to raise cash," Suzuki chairman and chief executive Osamu Suzuki said in a statement.
Tough times for carmakers
The Big Three American automakers are going through their worst year in memory as auto sales have fallen in the range of 40 per cent for the first nine months of the year.
Now, as the U.S. Congress debates an aid package for these domestic manufacturers, American auto producers are warning that they risk running out of cash in order to keep their operations going.
General Motors, for example, burned through $6.9 billion during the third quarter, leaving it with only $16 billion on hand as of Sept. 30. The company said it needs to have between $11 billion to $14 billion to continue normal operations.
If the huge carmaker faces a similar drain on available cash in the final quarter of the year, GM would be left with financial reserves in the range of $4 billion to $6 billion, less than the company's minimum requirements.
Equally worrisome, lending organizations might be starting to view any loans to these corporations as high-risk ventures.
Export Development Canada, for instance, has stopped extending insurance to parts markers if those manufacturers try to use potential business with Chrysler LLC as collateral.
The Crown corporation often uses the promise of cash from future sales to companies, such as Chrysler and GM, as the rationale for giving smaller firms insurance and other types of financing.