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UK:Ford to contribute $1.5bn to healthcare fund

Ford to contribute $1.5bn to healthcare fund

By James Mackintosh in London
Financial Times

Ford will shortly contribute $1.5bn to its healthcare fund as the US carmaker begins setting aside part of its cash pile to cover long-term liabilities including its pension deficit and debt.

The move demonstrates renewed confidence at the company, which beat its own profit forecasts again in the second quarter and raised its full year target for the third time.

However, the core business of building and selling cars continues to struggle, with a fall back into loss in the three months to the end of June thanks to a $120m charge against its investment in Ballard, a Canadian hydrogen power specialist.

Ford, like local rival General Motors, has been fighting to attain reasonable profits in the face of tens of billions of dollars of liabilities for pensions and healthcare, not faced by Japanese and European rivals.

Bill Ford, chairman and chief executive, said: "I am pleased that we continue to make solid progress in this extremely competitive environment. Although the remainder of the year includes many challenges, we'll generate lots of excitement with the introduction of new products."

The near-tripled net income of $1.2bn in the second quarter came mainly from Ford Credit, the finance arm, which benefited from low bad debts and rising used car prices.

In slides released ahead of a conference call the company said it will put $1.5bn into its long-term healthcare fund this month.

It said: "A portion of existing cash reserves [will] be deployed to address longer-term liabilities - pension and heathcare funding, and debt retirement."

Ford's healthcare liabilities rose $2bn last year to $32.4bn, and it expects medical costs to rise 9 per cent this year.

The contributions come as the company has secured a new bank facility to cover expenses when factories are closed for summer and Christmas holidays, reducing the need for a cash pile to be maintained in the automotive operations.

At the end of June the automotive operations had $26.8bn of cash and short-term investments, a rise of $300m in the quarter.

The company's strategy of sacrificing North American sales in order to avoid further heavy discounting appeared to have worked, with pre-tax profits in the region rising $10m to $455m before special items.

Net prices rose 1.2 per cent, while customer willingness to buy more expensive - and profitable - cars and trucks led the average revenue per vehicle to rise $756 to $21,833. This was achieved in part by cutting out less profitable fleet and rental sales, where the company lost more market share than the 1.2 percentage points it lost overall.

In Europe, an aggressive programme of job losses, combined with rising sales, boosted pre-tax profits to $211m before the $20m cost of layoffs and early retirement.

But the UK-based Premier Automotive Group, which includes Jaguar, Volvo, Aston Martin and Land Rover, lost $362m as its exports to the US were hammered by the weak dollar, buyers bought cheaper vehicles and strong competition pushed down prices. The division has already begun to shift sales away from the US to Europe in an attempt to cope with the low value of the dollar. Ford said exchange rates cost it $200m compared with last year, but did not divide this up by region.

The company predicted full-year earnings of $1.80-$1.90 per share from continuing operations before one-off costs, which it estimated at 8 cents per share.

In January the company forecast earnings at just $1.20-$1.30 per share, but in the first half of the year Ford Credit has already come close to meeting its expected full year pre-tax profits of $2.6bn-$2.7bn.

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.....
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