Getting out of debt feels good, especially if you’re shouldering several billion dollars of it, like Ford. Ford announced today that it will pay off some $4 billion of its debt ahead of schedule, most of it to the UAW Retiree Medical Benefits Trust.
Though Ford had previously deferred several payments, it’s making good on those payments today. Ford is paying off the total debt due on Notes A and B, which comes to $1.85 billion. Ford is also writing the UAW a check for an additional $2.9 billion to pay off the remaining balance of Note A altogether. Although Ford has paid off Note A entirely, the company still owes a total of $3.6 billion on Note B.
“We are pleased to make these payments ahead of schedule for the benefit of Ford and our UAW-Ford retirees who count on the Trust for their health care benefits,” said Alan Mulally, Ford president and CEO.
In addition to pleasing the Ford-UAW retirees, the payments should please Ford’s finance division as well. Combined with a debt repayment of $3 billion earlier this year, this $4 billion payment will help Ford to reduce its debt by more than $7 billion this year. According to the company, this will save it in excess of $470 million per year in interest expenses.
“Our One Ford plan to profitability to grow our business is working, and we are increasingly confident about the future,” Mulally said. “We expect to continue to improve our balance sheet as we deliver on our plan. Importantly, our business results make it possible to take these actions while still accelerating the investments we are making in our business to serve our customers with the very best cars and trucks.”
We think it’s a good move for Ford to begin to pay off its debt early. Although Ford didn’t take bailout money last year — unlike the remaining two of the Detroit Three, General Motors and Chrysler — its financial plan and current product lineup are impressively building strength.
This latest debt reduction brings Ford’s total debt down to somewhere around $28 billion. Will Ford be able to pay it off in time?