US:Auto unit could lose billions in 2006 but Ford buyouts speed up
AUTO UNIT COULD LOSE BILLIONS in 2006 BUT
Ford buyouts speed up
JOB CUTS: Up to 24,000 hourly workers will be gone by end of 2007 WALL STREET SKEPTICAL: Credit rating is downgraded, stock slumps
Bryce G. Hoffman / The Detroit News
Ford's restructuring plan
Idle 14 factories in North America
Eliminate up to 30,000 hourly jobs in North America
Refocus the Ford, Mercury and Lincoln brands
Use best practices from Ford's global brands to improve product development
Ford Motor Co. expects to shed between 22,000 and 24,000 hourly jobs in North America by the end of next year and likely will exceed its goal of cutting some 30,000 factory jobs by 2012, according to company sources.
They say the company's downsizing effort is proceeding more rapidly than analysts had projected. The apparent success of Ford's buyout program is one sign of progress amid an otherwise deteriorating financial situation, and could go a long way toward helping the company rein in its legacy costs. Ford has 87,000 factory workers. However, it is unlikely to make much of a difference to Wall Street, which has lost patience with Ford's turnaround effort and is bracing for more bad news when the automaker reveals its second quarter earnings next Thursday.
The financial community took a dim view of last Thursday's board decision to cut stock dividends in half, fearing the move signals more serious liquidity problems at the beleaguered automaker. Ford's North American automobile business lost $1.6 billion last year, and some analysts fear the company could lose as much as $2.5 billion in the region this year. Bloomberg News, citing unnamed sources, said Friday that figure could go as high as $3 billion.
Deutsche Bank analyst Rod Lache, who estimates Ford will use up $4 billion in cash reserves in 2006, said the company's continuing loss of market share and weak product mix have put its North American restructuring plan in jeopardy.
Others on Wall Street echoed those concerns.
"We do not think a dividend cut would be as necessary if Ford was making good progress on its 'way forward' restructuring plan, which targets returning the (North American) auto business to profitability by 2008," said Robert Barry, who follows Ford for Goldman Sachs in New York. "It has been our view that this goal is ambitious and unlikely."
Shares slip on debt rating
On Friday, Moody's Investors Service lowered its Ford debt rating further into junk status, citing "considerable additional stress" on the automaker in the region.
Ford's shares were buffeted by the growing concern over the company's future Friday, with shares losing 18 cents to close at $6.38.
Some analysts said Ford's shares are likely to fall even lower.
Bear Stearns' Peter Nesvold expects Ford's stock to fall to $4 a share, citing the company's decision to renege on its pledge to produce 250,000 hybrids a year by 2010, the departure of key executives and a shift to lower-margin passenger cars and crossovers from more-profitable sport utility vehicles.
"We think the dividend cut is prudent," Nesvold said. "However, the more investors digest the news, the more likely they are to view as reactionary, rather than part of a well-planned turnaround."
Buyout strategies vary
The pace of Ford's work force reduction program is a big source of Wall Street's frustration.
GM has offered buyouts to all of its 113,000 hourly employees in the United States. More than 35,000 workers took advantage of the offer by the June 23 deadline, and are expected to leave the company by the end of the year.
In contrast, Ford is only offering buyouts at some of its factories. Fewer than 6,000 Ford workers had accepted buyout offers as of July 1. That figure includes 3,450 workers at Ford factories and another 2,300 Ford employees at facilities operated by Automotive Components Holdings LLC, a holding company set up to liquidate the unprofitable properties of Ford's former parts subsidiary, Visteon Corp.
Though Ford has vowed to eliminate between 25,000 and 30,000 factory jobs over the next six years as part of its North American restructuring plan, analysts worry that those cuts are proceeding too slowly -- particularly given the rapid pace of GM's downsizing.
But Ford insiders say it is unfair to compare the two companies' buyout strategies. After all, Ford has far fewer employees in its jobs bank program, where idled workers continue to collect most of their pay and benefits.
Ford began working more than four years ago with the United Auto Workers to control hiring at its U.S. plants and use overtime to handle peaks in production. It also began moving idled workers out of its jobs bank program and into open positions on the assembly line. As a result of these actions, Ford only has about 1,300 workers in its jobs bank program, compared to about 9,000 in GM's pool.
As a result, Ford sources say the company can afford to take a more careful and focused approach to downsizing its factory work force, only offering buyouts at those factories with excess capacity and matching the downsizing with its production needs.
"The situation at GM was a little more severe," said Mike Jackson, an analyst with CSM Worldwide in Farmington Hills. "They needed to move more quickly."
Workers: Follow GM plan
Some Ford workers at plants that have not been offered buyouts also wish the company would follow GM's example and make the offers systemwide. But Ford sources say it does not make sense to pay workers to leave factories where they are needed.
Ford is on track to complete between 10,000 and 11,000 buyouts by the end of this year and expects to shed another 2,000 hourly employees through the normal process of attrition. Sources said the company will eliminate at least that many positions next year.
Ford would not confirm the exact numbers. However, Ford spokeswoman Marcey Evans said the company is pleased with the pace of its downsizing effort.
"Our use of voluntary hourly employee separation programs has been instrumental in assisting with the implementation of 'way forward' capacity actions," Evans said. "In fact, our acceptance rate of these packages is ahead of schedule."
But Wall Street analysts like Bradley Rubin with BNP Paribas say Ford still needs to do more, noting that Ford will still be two years behind GM if it meets those projections.
"They've always been conservative," he said. "Sometimes you've got to fix it in a dramatic fashion."
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.....