Ford: We'll slash another $1 billion
CEO says no more jobs to be cut; stock price soars
October 22, 2002
BY JAMIE BUTTERS
DETROIT FREE PRESS BUSINESS WRITER
Ford Motor Co. Chairman and Chief Executive Officer William Clay Ford Jr. told Wall Street what it wanted to hear Monday -- he will cut another $1 billion in costs -- and his company's stock scored its biggest one-day percentage gain in at least 10 years.
As part of a campaign to promote the automaker's "revitalization plan," Ford told investment experts in Boston that he plans to cut $1 billion from annual spending -- beyond the $2 billion promised for this year -- without making the cars and trucks cheaper.
Exactly what he meant isn't clear: He didn't say the cuts would come this year, and the 5-year plan already called for another $4 billion to $7 billion in cuts.
Confident that the $2 billion in cost cuts for the year would be found, Ford said last week that he had ordered his staff to look for the next round of savings. He added -- and repeated Monday -- that it would not include new job cuts.
"I've gone back to our folks and said I need more, we need more," Ford said.
Ford described the cuts as coming from "general overhead," but the $2 billion in cuts this year came from three categories: traditional overhead, plant actions and material cost savings.
But Ford categorizes them as non-product costs, saying they will not reduce vehicle quality or customer satisfaction.
Ford didn't want to wait until next year to start looking for more savings, said spokesman David Reuter.
Michael Bruynesteyn, who studies the industry for Prudential Securities, said the $1-billion goal was discussed last week and said the jump in the stock price seemed to be the result of taking the message to Wall Street.
"Being visible helps," he said. "I didn't hear any substantial new information."
Investors snapped up the billion-dollar goal and pumped up Ford's share price by 15.6 percent -- the best day in percentage terms since at least 1991.
Ford shares rose $1.29 Monday to close at $9.55, their highest point since Oct. 1.
Shares had traded above $30 a year and a half ago.
With shares lingering near a 10-year low, it was time to break the "deafening silence," said Ford. "We're now three-quarters into this, and we're at or ahead of all of our targets," he said.
Last Wednesday, Ford reported a net loss of $326 million for the third quarter of the year. Aside from onetime charges, mostly related to a loss on the sale of a British quick-lube chain, Ford posted a profit from day-to-day operations of $220 million, topping analysts' expectations.
Ford, Vice Chairman and Chief Financial Officer Allan Gilmour and Treasurer Malcolm Macdonald flew to the East Coast last Thursday for a series of meetings with financial analysts.
One of the first meetings was with Scott Sprinzen, the senior auto industry analyst for the influential credit-rating agency Standard & Poor's Corp., spokesman Reuter said.
S&P said it is reviewing Ford's financial position and could downgrade the long-term credit rating of the automaker and its affiliates in the coming weeks.
It downgraded General Motors Corp.'s credit rating outright last week. The two automakers' ratings had been the same.
A key driver for both ratings actions was the swelling deficits in their pension accounts. GM's pensions worldwide are now underfunded by almost $30 billion, Sprinzen said, and Ford's by $10 billion.
Gilmour said that Ford would put $1 billion in the pension fund during the next 15 months, even though no contributions would be required until 2006.
The automaker has not put any funds into its pension account this year, but it plans to contribute $500 million in the fourth quarter and $500 million next year.
GM paid $2.2 billion into its pension fund in April, but has not said when it will contribute again. It will not be required to pay into the fund until 2004, spokesman Jerry Dubrowski said.
Meanwhile, Ford expects to report about 40 cents per share in operating profit this year, according to a document filed with the Securities and Exchange Commission on Monday.
The Dearborn-based automaker had previously predicted it would turn a modest profit for the year.
The company also reported on its plans to deliver about $7 billion in pretax profits by the middle of the decade, in line with its previous estimates.
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.....