Tyres have been screeching, horns have been beeping and all round general happiness was in the car manufacturing world this week, as Ford Motor Co said it has decreased car debt by 38%.

This is good news for the motor company as it has boosted its finances by 19% despite the harsh economic downturn which has hit the car industry hard.

Ford said that the debt restructuring scheme would trim its cash interest expenses by $500 million per annum, providing that it stays ahead of competitors like General Motors Corp and Chrysler in reforming to wait out the recession.

Shelly Lombard, a bond analyst said: “Although Ford's future still depends on a recovery in auto sales, the debt restructuring and union contract changes have decreased the chances of a Ford bankruptcy.”

Ford was the first firm to reach an agreement with the United Auto Workers to cut cash payments for a union retiree healthcare trust. It is also the only American car manufacturer not functioning with U.S government emergency loans, whereas Chrysler and GM have been operating on $17.4 billion of government loans since the beginning of 2009.

Instead, Ford is using 468 million shares of common stock and $2.4 billion in cash to decrease its car debt from the $25.8 billion it had at the end of last year.

Alan Mulally, Ford’s Chief Executive said that Ford is current leader of the car game: “As with our recent agreements with the UAW, Ford continues to lead the industry in taking the decisive actions necessary to weather the current downturn and deliver long-term profitable growth.”

A broken down car world

American car sales dropped by nearly 40% in the first three months of 2009 and UK sales witnessed a 31% fall. These were the lowest levels seen by the car sector in 27 years.

The ongoing struggle nearly drove Chrysler and GM to the brink of bankruptcy and other major carmakers suffered huge losses.

Both Chrysler and GM now face an uphill struggle. If GM does not meet its concessions with bondholders by June 1st, the only other option is to go into the Obama administration plan, which would be government-controlled bankruptcy.

Chrysler also faces worries, as it is currently in talks with the U.S government to reduce its debt by switching some of it for equity, new debt or a lesser amount in cash.

Ford chugging along

Many analysts believe that Ford will be able to survive without government help if the car industry picks up 12-13 million units by 2010. Cutting worker’s pay has also helped the company keep its head just above the bankruptcy water.

Mark Oline from a financial analyst company said that Ford is on the right track to gain back financial control: “Clearly it is a strong positive for the company, the ability to reduce liabilities and the interest burden,” he said.

Ford, which borrowed $23 billion in late 2006 secured with most of its remaining assets, including the familiar blue oval logo, has tried to restructure its debt to cut financing expenses at a time of plummeting sales and tight credit.

The good news continues for Ford as its shares were up 61 cents on the New York Stock Exchange.