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US:Ford: Ax to cut deeper

Ford: Ax to cut deeper

UAW givebacks, plus lower design and purchasing costs will be required.

Bryce G. Hoffman / The Detroit News

DEARBORN -- Ford Motor Co. will have to cut more costs and wrest concessions from the United Auto Workers to meet its goal of restoring a slim profit to its North American automotive operations by 2009, Chief Financial Officer Don Leclair said Tuesday.

The comments, which come seven weeks into new CEO Alan Mulally's tenure, mark the first time Ford has acknowledged it needs cutbacks that go beyond its massive Way Forward restructuring plan announced in September to meet the 2009 profit goal. "Reducing costs is our life's work," Leclair said in an interview with The Detroit News.

Also Tuesday, Ford restated its earnings for the past five years, posting an $850 million improvement to the company's net income. The restatement was necessary because Ford incorrectly accounted for the company's derivative hedges in previous periods, a fairly common mistake by companies. The automaker finalized its earnings for the third quarter of 2006. The new results show Ford lost $5.2 billion last quarter -- an improvement of $550 million over the figure reported Oct. 23.

Leclair outlined the financial adjustments and detailed Ford's plan to return to profit during a conference call Tuesday with analysts and the media. He showed a chart that indicated Ford is projecting a slim profit for 2009. Based on the chart, analyst Peter Nesvold of Bear Sterns pegged the profit goal at $250 million, but Leclair would not confirm the figure.

By contrast, Ford's domestic automobile business are expected to post an operational loss of between $5 billion and $6 billion this year.

$5B in cuts were planned

Ford announced 44,000 job cuts and other measures in September, which should allow Ford to cut $1 billion in operational costs by the end of the year and another $4 billion over the next two years. But those moves alone will not be enough to stem the red ink at Ford's U.S. vehicle business.

Leclair said Ford can reach its profit goal through additional cost reductions and by aligning production to meet more modest market share projections.

Ford also expects to reap savings by streamlining vehicle design, reducing purchasing costs and having more stable raw material costs.

Ford is working to simplify its product lineup so that it can build more vehicles off fewer platforms. Leclair said this should translate into fewer unique parts and less complexity.

On Friday, Mulally told The News that he wants to weld Ford's disparate divisions into a single global structure. Working toward that target will go a long way toward reducing costs and realizing new efficiencies, Leclair said Tuesday.

But Leclair said the goal of restoring profitability to Ford's North American operations by 2009 is dependent on the automaker getting some concessions from the UAW. Detroit's automakers and the union will renegotiate a labor agreement next fall.

He would not say what Ford is looking for or how much it expects to save. "We have made some assumptions, but they're not something we can talk about," he told The News. He said any relief from a new contract will provide part of the profitability equation. "It's by no means all of it."

The UAW did not respond to requests for comment.

Ford announced sharply reduced benefits for white-collar workers in 2007, a move that was widely seen as a signal to the UAW that all sides are sharing in the pain of Ford's restructuring.

Visteon timetable changes

Ford had vowed to close or sell all of the factories it inherited from its former parts subsidiary Visteon Corp. by the end of 2008. Ford took those plants back as part of a bailout deal it inked with Visteon in 2005 and had hoped to turn them for at least a modest gain. Now, that is unlikely, Leclair says.

"We expect to be able to sell some of them, but I wouldn't go too far with positive gains," he said, adding that the real benefit will simply come from getting rid of them. "That's where we'll see the gain over time."

Ford has already announced plans to idle nine of its own factories by 2008 and shutter a total of 16 plants by 2012. Leclair said it is unlikely that Ford will close any other factories before 2009.

Analysts have been skeptical that Ford can return to profitability in North America in 2009. Ford has missed a number of well-publicized profit goals in recent years.

Leclair said this time would be different. "This is more than just a number we put out there," he said. "We know we have to fix our business. It can't go on. We know that well."

Some analysts skeptical

But some analysts remained unconvinced.

"How they get to profitability in 2009 remains murky at best," said Brad Rubin, who follows Ford for BNP Paribas.

He said UAW givebacks will be critical to achieving that goal. "It's going to be a game of chicken."

Like many analysts, Rubin is concerned about Ford's cash burn and how much the company plans to borrow against its assets.

Rod Lache of Deutsche Bank was also unmoved by what he heard from Leclair on Tuesday.

"I just didn't find the prospect of a sliver of profitability in 2009 to be that encouraging, given the headwinds in the industry," Lache said, ticking off a long list of potential problems, including more supplier bankruptcies and continuing commodity cost uncertainty. "There are so many unknowns."

But Lache questioned how significant such a modest milestone will be to the company's fortunes.

"If your objective is to break even, you've got a big problem," he said. "This incrementalism is not enough to turn this company around in a sustainable way."

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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