After losing $6 billion in previous two years, $495 million profit gives automaker optimism
By Eric Mayne / The Detroit News
Ford Motor Co.’s 2003 profits — though skimpy at $495 million — represent the strongest evidence yet that Chairman and CEO Bill Ford Jr.’s 2-year-old turnaround plan is producing results.
Improved vehicle quality, smooth production launches, aggressive cost reductions and continued strong performance by Ford Credit contributed to a $1.5 billion earnings swing from a loss of $980 million in 2002.
Total sales and revenue for 2003 were $164.2 billion, up from $162.3 billion a year earlier. And more than 95,000 workers and recent retirees covered by Ford’s labor agreement with the United Auto Workers union will see profit-sharing checks worth about $195 — up from $160 last year, but well below 2000’s average payout of $8,000.
Ford on Thursday issued a fairly optimistic first-quarter earnings guidance of 40 cents to 45 cents a share.
“I really think that ’03 will go down as the turnaround year,” Steve Lyons, Ford Division president, said.
And it may be known as the year when Bill Ford, great-grandson of company founder Henry Ford, began to prove his mettle as a chief executive.
Doubters were not in short supply when he unveiled a revitalization plan in early 2002 following a $5.5 billion loss in 2001.
The aggressive plan called for job cuts, a dividend cut, accelerated product rollouts, plant closures and the elimination of four unprofitable models. Ford goal: $7 billion in annual pretax profits by mid-decade.
“A year ago, if we had written down (2003’s) results and handed them to you and said, ‘This is what we’ll deliver ...’ most people would have been skeptical,” Lyons said.
“In fact, I really believe that the turnaround point was the actual launch of the F-150.”
The F-150 pickup, the company’s most profitable and top-selling model, has been a strong seller since it hit showrooms in September. Ford spent $1.8 billion to redesign the truck from top to bottom.
Still, by industry standards, 2003 featured some low points for Ford:
Net income of $495 million was dwarfed by General Motors Corp.’s $3.8 billion, a figure considered disappointing.
Ford posted a fourth-quarter net loss of $793 million on revenues of $46 billion because of a $2.2 billion charge stemming from a bailout of Visteon Corp., its former parts subsidiary, to relieve pension and health care liabilities and upgrade information technology. In return, the automaker received one-time pricing concessions from its largest supplier.
Ford’s $3.2 billion in cost reductions were virtually offset by $3.2 billion in health care and pension expenses, up $1.2 billion from 2002.
Ford’s global vehicle sales dropped to 6.72 million units from 6.97 million in 2002, putting its venerable position as the world’s No. 2 automaker at risk. Japan’s Toyota Motor Co.p., which releases final 2003 figures next month, estimates its 2003 global unit sales will come in at 6.78 million units.
Ford workers are looking beyond the latest profit-sharing payouts, Jerry Sullivan, president of UAW Local 600, said.
“It’s absolutely going to get better down the road,” Sullivan said. “We all know that. The recalls have gone way down. Our quality has been the No. 1 issue. There has definitely been a turnaround.”
Ford cut warranty costs last year by $1.6 billion, said Chief Financial Officer Don Leclair, who added he is “very pleased” with the company’s direction.
The fourth-quarter results exceeded estimates of Wall Street analysts, but investors still bid Ford shares down 1 cent to close at $16.43 Thursday in New York Stock Exchange trading.
The company still faces numerous challenges, such as a negative pricing environment, market share losses in the United States, weak performance in Europe and bloated product, pension, health care and other operating costs in North America.
“We continue to believe that Ford is in a tough spot,” John Casesa, an automotive industry analyst with Merrill Lynch, said. “But it is undeniable that the company’s execution is improving.”
Ford executives are quick to credit Bill Ford.
“(He) has a lot to do with it because the CEO sets the tone in the company,” said Mark Fields, chairman and CEO of Ford Motor Co.’s Premier Automotive Group. The group, which includes Volvo, Land Rover, Jaguar and Aston Martin, marked its first profitable year in 2003.
“Bill’s said very clearly, ‘Here’s the plan. We’ve got to go execute the plan and I expect you to meet it. Because if not, people will be held accountable,’ ” Fields said.
Bill Ford’s influence was palpable in 2002 when he starred in a series of television ads touting the automaker’s heritage, Jim Jurcak, general manager of Southgate Ford in Southgate, said.
“Everybody that saw the commercials was enamored with him,” Jurcak said.
Ford is now counting on consumers becoming enamored with a slew of new products coming this year, such as the Ford Freestyle, a cross between a minivan and SUV.
“I see a lot of sales in that because moms are, for some reason, getting out of minivans,” Jurcak said. “They’ve been buying SUVs, and the Freestyle is just a nice alternative.”