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You know it’s been a bad season for auto sales when the Chief Executive of Ford personally calls you up when you buy a car. Michael Snapper, a lawyer from Grand Rapids Michigan, received such a call from Ford Chief Exec Alan Mulally to thank him for choosing a 2010 Ford Fusion hybrid over rival Toyota Motor Corp.’s wildly popular Prius. Snapper was quoted as saying that Mulally’s actions “reflect a new attitude and a real commitment” to improving the company. Given that US auto sales plunged 38 % in January and Ford’s sales fell 39 %, Mulally is going to have to make a lot more calls if he hopes to save the company.

One of the first calls could be to the Senate Banking Committee to inform them that Ford actually would like the 9 billion dollar credit as soon as possible, because few outside the company think Ford can survive the year without it.In December, the troubled automaker surprised the nation by announcing that it had sufficient liquidity to make it through the economic downturn and did not require federal support. “As we told Congress, Ford is in a different position. We do not face a near-term liquidity issue, and we are not seeking short-term financial assistance from the government,” Ford President and CEO Alan Mulally said in a statement released by the company. But how different is Ford’s position really? And what about that 9 billion dollar credit line?

In many ways Ford really has engineered a public relations coup by simply convincing the press that they weren’t “really” asking for money; they just wanted to know it would be there should they need it. Mulally never said they didn’t need the money – he simply said they didn’t need it right now. To quote from Ford’s submission to the Senate Banking Committee, “we believe our Company has the necessary liquidity to weather this current economic downturn – assuming that it is of limited duration.”(emphasis added) So what if it isn’t of limited duration? “While we hope we do not have to access the loans, we believe it is critically important that loans are available to us and the domestic auto industry.” Ford also went ahead and described precisely what they were hoping for, “Our recommended terms of the loan would be: (i) at government borrowing rates; (ii) a revolving credit line with a ten year duration; and (iii) with additional conditions consistent with the TARP legislation.”

Reading further into the appendices, the genius of Ford’s PR machinery becomes ever more apparent. In response to a question asking the company to provide estimates on loan amounts required based on assumptions on the performance of auto-market, Ford suggests that under “slightly improved market conditions” of US total vehicle sales of 12.5 million units, Ford “would only need a government credit line of 6 billion … to be accessed if and to the extent needed.” A scenario where automotive sales stayed at current rates of about 11.0 million in 2009, would increase their funding needs to up to $9 billion; and in a worsening case of 10.5 million US vehicle sales in 2009, would increase “funding needs to up to $ 13 billion.” So clearly, the only scenario where the government won’t be forced to extend a credit line would be in the case of a vastly improved auto-market; and that too only till the end of 2010. By 2011, of course, Ford – by its own admission in the senate hearing – is banking on a $5 billion hand out from the Department of Energy.Thus, if the economy continues to slide, the Senate Banking Committee and the Department of Energy shall collectively commit between $14 billion and $18 billion over the next three years; not a small sum for a company that allegedly isn’t facing liquidity problems.

So barring a sudden and sprightly revival of the global economy – buoyed no doubt by a telecom sector revival fuelled by Alan Mulally’s incessant phone calls – when is Ford likely to ask for money by?

Ford has been eager to highlight its efforts at integrating the company under the “One Ford” plan, its hiving off “non-core” assets and its subsequent emergence as a leaner, more flexible company. However, it is precisely for such reasons that Ford’s current situation is even more tenuous. The sales appear driven by the liquidity crisis rather than a desire to streamline the brand. Jaguar Land Rover for example, was sold at a $30 million dollar loss. In 2008, operations contributed just $3.2 billion of cash, compared to $6.3 billion generated by the sale of the Jaguar, Aston Martin and Rover brands, along with a sale of some of its stake in Mazda, not to mention a host of financing companies like Triad Financial Corporation, Primus Japan, Primus Philippines, Volvofinans and a 50% share in their Nordic finance operations. The latest reports suggest Ford is holding talks to hive off its Volvo car division as well. This may bring in the liquidity, but this is clearly not a sustainable way of doing business.

Current liquidity, in terms of Gross cash, stands at about $13.4 billion they still have approximately $ 10.6 billion in secured and unsecured credit lines – which boosts their total liquidity for the year to $24 billion. In 2008, when the company actually made a small profit in the first quarter, Ford managed to burn through $ 21.1 billion of liquidity for the year – or about $ 2 billion a month. At this rate of spending, it could eat through its liquidity cushion of $24 billion in about another year – still twelve months short of the DoE grant of $ 5 billion due in early 2011.

Publicly, the company may boast of its credit lines, but as these credit lines are secured against practically every asset the company owns. As their 2007 10-K report points out, in 2006 Ford worked out a complex series of transactions that provided a $7 billion seven year facility and the $ 11.5 billion credit revolver that they are banking on However, the revolver comes with punishing covenants, requiring them to maintain a minimum liquidity of $4 billion at all times and takes as collateral receivables, inventories, marketable securities, a holding company for Volvo Car Corporation, Ford Canada, Grupo Ford – the Mexican subsidiary, and in a Faustian touch, even their distinctive oval blue “Ford” logo – valued at $8 billion (in conjunction with other trademarks and intellectual property.)

Factoring in the liquidity covenants, Ford’s cushion is probably closer to $ 20 billion dollars, and with nothing else left to mortgage, the only people willing to give them more money will probably be the folks at the Treasury Department. Alan Mulally might be thanking his loyal customers now, but if February’s sales are anything like January; he will probably dialling out a whole other set of numbers.