Neil Schloss is Vice President and Treasurer for Ford Motor Company. He was promoted to this role in 2007, having been Assistant Treasurer for the Detroit-based global automotive manufacturer since 2003. Schloss joined the company back in 1982 as a Senior Financial Analyst in the controller’s office of what was Ford Aerospace in California. He has worked in a number of treasury office positions for Ford and Ford Motor Credit since 1991, including Director of Risk Management, Director of Financial Strategy, Manager of North American and European Financing, Manager of European Financing and Manager of Corporate and Domestic Financing.

There are over one billion vehicles on the road today and it’s probably true that almost everyone who can drive has owned or at least driven a Ford at some time in their life. As one of the world’s largest automotive manufacturers, looking to a future that could see vehicle numbers double by 2020 and double again by 2050, it needs to position itself with precision to meet that need with the kind of vehicles – and a business model – appropriate for a crowded planet concerned with environmental issues. The technical, scientific and artistic input required to achieve this are a given, but it is essential too for the company to have strong financial leadership.

As other players in this sector have struggled, Ford brought in a pre-tax income of $8 billion in 2012, having maintained 14 straight quarters of operating profit. The company’s automotive division ended the year with gross cash of $24.3 billion, exceeding its debt by $10 billion, and a healthy liquidity position of $34.5 billion, an increase of some $2.1 billion over 2011. This balance sheet rigour is in no small way due to Ford’s Vice President and Treasurer, Neil Schloss, and his team.

The progress Schloss has made in the 31 years he has been with the company has seen him move from California to Detroit, from aerospace to automotive, and from general finance to treasury. The shift between roles is a key part of Ford’s approach to staff development, exposing people to different aspects of the business and offering greater responsibilities as they progress. Upon arriving in treasury, he says he had found something he “very much enjoyed”.

Initially it was the “adrenalin of the capital markets” that got him up every morning, but for the past 20 or so years he has had a number of different roles within treasury, moving between Ford and Ford Credit, which prior to 2000 had operated as separate treasury organisations reporting into the group treasurer. Having moved into his current position as Vice President and Treasurer in March 2007, Schloss muses that “timing is everything” arriving just as the industry and the markets were on the verge of “some very difficult times”. But armed with a wealth of experience at the sharp end of treasury, he has actively engaged with many of Ford’s strategic initiatives that have served to strengthen the business in the face of adversity.

Major initiative

Indeed, one of the most important initiatives was the restructuring of Ford’s liquidity position, enhanced materially at the end of 2006 with a reworking of its bank facility to raise some $23 billion. Described at the time by the company’s CEO, Alan Mulally, as “the largest home-improvement loan ever”, this mix of secured and unsecured borrowing has without doubt helped Ford through the worst of economic times. When the economic environment did start to improve Ford had “the best product line-up that we’ve ever had” because so much of its “home-improvement loan” was devoted to product development and engineering better future vehicles for customers.

Integration is key

In the early years of his treasury work, Schloss was a major participant in the shaping of Ford’s treasury, giving him a solid technical grounding and awareness. Having taken ownership of the function in 2007, he has presided over some major structural changes. Growth of the company globally has seen the main treasury centre in Detroit and its European satellite complemented by regional treasury operations covering South America and Asia (the latter with headquarters in Shanghai). In addition, and consistent with the company’s overall low-cost sourcing plan, Ford now has a 25-strong treasury back office function located in the Indian city of Chennai. In total, Ford Treasury now employs about 280 globally, some of the treasury functions in the smaller markets sharing personnel with accounting and finance.

The sharing of some roles at a local level is a reflection of Ford’s bigger picture view (known internally as the ‘One Ford Plan’) that integration is vital for success. Schloss’ own responsibility is to the CFO. “On many things we are independent from finance, but there also are many aspects of Ford’s treasury organisation that are integrated and dependent on Ford Finance.”

The nature of integration extends beyond day-to-day finance work within the framework of the business to include also the career path and development of general finance personnel. Around 60% of the professional treasury team have treasury roots, while the remaining 40% coming from a broader finance background. The path that can be taken by individuals is a perfect route for those seeking broad finance experience: there are people such as Schloss who arrive in treasury from a general finance field, or who arrive directly into treasury, “who love it and never want to leave” just as there are people who pass through treasury en route to other finance-based destinations. By fitting everyone into the personal development process of the company, the depth and breadth of experience generated can be shared across the entire function, bringing to bear a level of knowledge and understanding that many businesses would do well to replicate; clearly it works for Ford.

The march of regulation

Of course, garnering broad levels of experience does not exempt a business from uncertainty. In the current environment, where regulatory change is rampant, any change must be understood and, importantly, acted upon, both in terms of its direct impact on the business and its far reaching impact, whether Dodd-Frank in the US, its transatlantic equivalent, the European Market Infrastructure Regulation (EMIR), or any other proposal mooted by the authorities.

From Schloss’ perspective, this means that even if a company believes that it can secure the exemptions it needs, it still has to spend a lot of time and money putting the infrastructure in place in order to comply, simply because “no action required” letters tend not to arrive until the eleventh hour if at all. “There is uncertainty that we just have to be prepared for.”

There are direct market challenges – foreign exchange (FX) or commodity price volatility, for example – which obviously impact on the cost structure of a company such as Ford. The treasury team naturally watches the markets closely and, like most professional treasuries, has views on what happens. But in Ford’s case it does not trade on those views, says Schloss. It will not, he explains, put its balance sheet or business operations at risk by, for example, speculating on whether the dollar is going to strengthen or weaken, or the euro is going to go in a certain direction. “We have a routine process in terms of guidelines on hedging exposures on currency and commodities for the auto business and interest rates on the credit side. We’re not in the business of taking those bets; we’re in the business of making cars and trucks.”

On the debt side of the equation, Ford is a big user of capital market capacity, both public and private, and the impact of regulation on the availability and cost of capital is a concern. Whilst he does not feel that regulation will disrupt the markets per se, he does accept that the cost of capital will go up over time as a result of bank having to put in place bigger liquidity buffers. “We haven’t seen a lot of that yet – Basel III has not been implemented broadly – but we are anticipating that it will have an impact.”

Banking

Ford’s banking structure is global in reach and it has almost 50 different providers of credit, spread across all regions. Together they provide a corporate facility of $10.7 billion. “We spend a lot of time and energy managing those relationships,” states Schloss, acknowledging the important part that the banking community plays in Ford’s life. He recognises that banks are businesses too and that inherently there is some tension in the relationship between keeping the client happy and running a commercial operation.

“Balancing that is important. Is everybody satisfied? Yes. Is everybody thrilled? Probably not, but I think we do a really good job at Ford. If you were to ask the banks who is good at managing their relationships, I think we would be high on their list.” Indeed, he adds, one of the advantages of being Ford and of adopting the hands-on relationship approach is that “we get the best people and ideas that Wall Street has to offer”.

Adopting IT

Getting the best out of people in a complex finance environment sometimes calls for the adoption of technology to bring it all together in the most efficient way. In fact, Schloss sees IT as a “critical” part of treasury. “As treasury becomes more efficient, technology becomes the enabler. But what it means is that we can almost do our jobs from anywhere – it facilitates low-cost sourcing and consolidation of functions right across the regions, for example.”

As a key part of Ford’s operations, over the years treasury has taken to running a multitude of supporting systems. But its IT infrastructure is currently being revamped as part of a three-year project that will see the company fully automate processes around areas such as cash management, debt derivatives, FX and commodities pricing – and this is taking place on a global level. So, where some of its affiliates might not have been as streamlined as the Dearborn (Mick) headquarters would have liked, all now will be brought into the fold, allowing better controls to be put in place right across the board. “We’re about half-way through that project.”

Clearly Schloss and his team are ready, willing and able to tackle the issues that confront Ford.

With so much of what treasury does being integrated into the overall set of business processes that Ford has adopted there is a uniquely co-operative flavour to treasury’s domain. This translates into a special position for Schloss. “We are as broad an organisation from a treasury responsibility as I’ve seen in industry,” he states. This goes a long way to keeping the role interesting.

While a lot of the treasury work within Ford is generic, the function itself has “that much more responsibility”, taking on tasks that many of its peers do not handle. The pension fund on the asset side, for example, is often an HR function, but Ford handles that within treasury. “And a lot of corporate treasurers don’t have as much international influence as we do, from a standpoint of what our affiliates are doing,” comments Schloss.

Having a treasury that includes both an automotive business and a finance company is rare too. “There are very few like us in the world that have the scale and scope that we have,” he notes, adding that the sheer size of Ford means most treasurers “can just add a few zeros to everything they do”. This is not idle boasting but a statement of fact. “The reality here is that treasury has a seat at the table with senior management and an influence on how the business is run.”

On debt and cash

“At the auto company, we’re not a frequent borrower,” says Schloss, noting that on the automotive side, a 30-year bond was placed in January of this year, the first it had offered in almost ten years. “At Ford Credit, we are active participants in the global capital markets, issuing $8 billion to $10 billion annually in the public unsecured markets. In addition, Ford Credit also issues over $10 billion in the public asset-backed security (ABS) markets, using multiple asset types and global markets.”

Ford’s investor relations (IR) group reports to treasury (another rarity) and, because of the scale and influence of Ford Credit, he explains that the company has a separate fixed income IR group which even runs an earnings call for bond investors.

On the investment side, most cash is managed internally within Ford’s own investment group. At the end of the last quarter it had around $25 billion in cash within the auto company and another $11 billion on the credit side. Short duration is the order of the day, with the focus predominantly on treasuries and agencies (securities), globally. Ford also has up to $60 billion in assets in its pension fund, the company hiring external managers (but managed internally). The fund takes a range of long-duration fixed income, equities and alternatives.

Preparing for the future

Clearly Schloss and his team are ready, willing and able to tackle the issues that confront Ford, but like most treasurers, he keeps a watching brief over the economic uncertainty that surrounds us all. “The global capital markets have improved measurably in the past six months, especially fixed income,” he says. “But I’m hard-pressed to think that the underlying economic environment has improved that much. Lots of uncertainty remains and as a global treasury organisation, we must stay abreast and be prepared to react. Funding early is never a bad strategy.”

Of course, he continues, there are many more global financial issues out there that do or could affect not only what Ford does as a company but what treasury does. “I spend a lot of time on people development, making sure the team has the right balance of skills. Making sure we keep the level of talent and the consistent recruiting process throughout the organisation is of key importance.”

Ford’s treasury operation has its work cut out over the next few years to stay ahead of the game in an ultra-competitive industry. But for a company that is still going strong 100 years after the first Model-T rolled off the line, it has clearly adhered to the words of its founder: “Coming together is a beginning; keeping together is progress; working together is success.” It is, in essence, a modern model treasury.