Skeptical investors still aren't sure about Ford cost cuts
By Bill Koenig / Bloomberg News
DEARBORN -- Ford Motor Co. Chief Executive Officer William Clay Ford Jr. says he's more confident about his cost-cutting plan than when he introduced it a year ago.
Some investors aren't convinced. Ford's goal to save $9 billion by shutting five plants and eliminating 35,000 jobs won't be completed until next year, and it's too early to tell whether working with suppliers to slash other expenses is bearing fruit.
"We will only be reassured when we see the savings," said Brian Bruce, director of global investments at PanAgora Asset Management Investors, which held 1.06 million Ford shares as of September.
Ford Motor narrowed its fourth-quarter net loss to $130 million, or 7 cents a share, from a net loss of $5.07 billion, or $2.81, the year before. The company had a 2002 net loss of $980 million, its second consecutive annual loss. In 2001, Ford had a $5.45 billion loss.
Cutting costs isn't the only area where the second-biggest automaker has to improve. Ford Motor this year will introduce one- fourth the number of new models planned by General Motors Corp., according to some analysts. Models such as the Freestyle "crossover" blending car and truck features and a redesigned Mustang won't be available for another year.
The 45-year-old is struggling to restore the family- controlled company to the kind of profitability it enjoyed in the 1990s, when Ford Motor made money for eight consecutive years and was more profitable than General Motors.
The challenges confronting Bill Ford festered over the almost three years he oversaw his CEO predecessor, Jacques Nasser. Ford Motor's board replaced Nasser with Bill Ford, the great-grandson of founder Henry Ford, in part because of losses totaling $1.4 billion in the second and third quarters of 2001.
Bill Ford is targeting for closure five plants, including three factories that assemble Explorers, and ones that make Ranger and F-150 pickup trucks. So far, the company has cut about half the 35,000 jobs pledged when he took over, including 12,000 in 2001.
Ford Motor officials have said they can't move faster because of labor contracts that ban them from shutting four of the five plants earlier than September 2003. In the meantime, the Dearborn, Michigan, company has dropped some factory jobs by eliminating shifts at two plants and reducing production at others.
Bill Ford needs the savings: his company spends about $600 more to make a car than General Motors, Lehman Brothers analyst Darren Kimball said in October.
Bill Ford, who received stock options but no cash compensation last year, is under pressure to improve the company's financial position. Ford Motor has at least $20 billion in bonds maturing in each of the next three years, and some investors said the company will have difficulty affording additional interest costs if credit-rating companies cut the company's debt any further.
Standard & Poor's Corp. in October lowered its rating on Ford bonds one level to BBB, or two levels above non-investment grade. The bonds traded as low as 85 cents on the dollar in October before recovering to 95 cents by December.
Shares of Ford fell 41 percent last year, compared with declines of 24 percent for General Motors and 26 percent for DaimlerChrysler, in part because of concern that it sold 8.7 percent fewer cars and light trucks last year, worse than the industry's 2 percent drop.
Ford has lost U.S. market share the past two years, while General Motors is gaining. Ford's market share in 2002 was 21.5 percent, compared with 28.7 percent for General Motors, according to researcher Autodata Corp.
The company's hope is that cost-cutting will tide it over until it introduces next year's models including the Five Hundred sedan, which analysts say will replace the Taurus as the main Ford- brand sedan, and the most extensive redesign of the Mustang sports car since 1993.
General Motors will introduce 16 new or redesigned models this year, including the Chevrolet Malibu midsize sedan and Colorado midsize pickup truck, compared with Ford's four, said Jeff Schuster, an analyst with J.D. Power & Associates.
Ford Motor said it expects to have a "slight" fourth- quarter profit before costs it considers one-time expenses. On that basis, the automaker will earn 7 cents a share, based on the average estimate of analysts surveyed by Thomson First Call.
Bill Ford, who declined to be interviewed for this story, has said he may need to cut costs faster than the current timetable.
"We know we have to get our cost structure under control and get it under control fast," he told analysts on Jan. 10. "I hope you have a sense that the management team is not only focused on the plan but is committed to accelerating the plan to hit targets as fast as we can."
In November, Bill Ford elevated David Thursfield to executive vice president in charge of international operations, purchasing and luxury brands. Last year, he appointed Allan Gilmour as chief financial officer, replacing Martin Inglis.
Inglis, who had said, "I would not like anyone to be my CEO other than Jacques Nasser," will leave the company in March.
"Now that he's got the right team on the field, you can see much better traction this year than last," said Morgan Stanley analyst Stephen Girsky, who has an "equal weight/in-line" rating on Ford and doesn't own shares.
Some investors say it may be too late for Bill Ford to reverse Ford's slide. Lynn Yturri, a fund manager at Banc One Investment Advisors, said his firm sold all its 135,000 Ford shares last year and bought 100,000 General Motors preferred shares.
"These turnarounds to go from fumbling to executing well are difficult to do," Yturri said. "We wanted to concentrate where we had a more positive feeling about the industry."
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....