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US:Ford braces for deeper cost cuts

Ford braces for deeper cost cuts

Firm earns $1.2 billion in 1st quarter, down 38% from a year ago, and warns of bleak '05.

By Eric Mayne / The Detroit News

Hammered by a consumer backlash against gas-guzzling SUVs, Ford Motor Co. reported a 38 percent decline in first-quarter profits and promised to launch an intensified cost-cutting campaign.

The automaker said Wednesday that its profit fell to $1.21 billion compared to $1.95 billion in the first quarter last year despite slightly higher revenues.

Chairman and CEO Bill Ford Jr. said the rest of 2005 looks bleak due to falling market share and a "perfect storm" of external factors such as higher raw material costs, high gas prices, spiraling health expenses and unfavorable currency rates.

"Over time, some of this will start to break in our favor," Bill Ford said in a conference call. "But it's important to know that we're driving the operation in a way where we're expecting no good news."

The automaker now expects to break even in the second quarter or lose money. In addition, Ford has reduced its 2005 earnings forecast $900 billion and abandoned an earnings goal of $7 billion in annual pretax profits by 2006.

The goal was established by Bill Ford in 2002 shortly after he took over as CEO.

"Conditions have changed, and we are reacting to them," Bill Ford said, adding, "I don't accept the notion that we're in a structurally unprofitable business."

Ford's situation does not appear to be as dire as that of General Motors Corp., which on Tuesday reported a $1.1 billion loss, its largest quarterly loss since 1992, and refused to give earnings guidance for the rest of the year.

But like GM, Ford is struggling mightily in its home market of North America. Ford expects its North American automotive operations to lose up to $200 million pretax this year after originally forecasting profits of up to $1.7 million.

Credit agencies have warned that both Ford's and GM's credit ratings could be downgraded to junk bond status, which could raise borrowing costs.

Ford said Wednesday it will reduce second-quarter North American production by 35,000 vehicles to 905,000.

Chief Financial Officer Don Leclair said "everything was on the table" as the automaker considers cost reductions and other moves. The automaker signaled that it may sell its Hertz rental car unit, which made $500 million pretax last year.

In addition, Ford is preparing to cut its U.S. salaried work force by 1,000 jobs.

The automaker said Wednesday it's accelerating the turnaround plan it implemented in 2002 after losing $6.4 billion in 2000 and 2001. "We'll be rolling out our plan to you as is necessary over the next several months," Leclair said.

Like GM did on Tuesday, Ford promised strategic moves to come without providing much detail. Leclair made a point to say Ford has excess manufacturing capacity but wouldn't comment on the prospect of plant closings.

"We have more (manufacturing) capacity in North America than we need," Leclair said.

Ford's used just 77.3 percent of its North American manufacturing capacity in 2004, down from 78.5 percent in 2003 and 85.1 percent in 2002.

Ford also signaled that it's prepared to look outside the United States for low-cost manufacturing opportunities.

"We're aggressively planning to invest in growth areas and to allocate our resources where it makes the most sense in the long term," Bill Ford said. "And that includes accelerating our investment in fast-growing markets."

One example: On Wednesday, Ford and partners Mazda Motor Corp. and China's Changan Automotive Group signed a deal to jointly build engines in Nanjing, China, by early 2007.

Through the first quarter, Ford captured 17.8 percent of the market, down from 18.7 a year ago. Despite efforts to reduce low-profit fleet sales, deliveries to commercial customers and rental companies accounted for 33 percent of Ford's first-quarter volume, up from 28 percent in first quarter 2004.

To winnow excess inventories, Ford has scheduled several weeks of down time plants such as Ford's Twin Cities plant, which builds the Ranger and Mazda B-Series small pickups, and Ford's minivan plant in Oakville, Ontario.

"We think further cuts are merited to get inventories in line," Merrill Lynch analyst John Casesa wrote in a research note Wednesday.

In contrast to GM's downbeat earnings announcement Tuesday, Ford struck some notes of optimism. In a town hall meeting Wednesday with employees, Bill Ford promised the company would go on the offensive against its competition.

"We're not going to sit around and let the Japanese continue to take our market share," he said.

Ford is counting on a trio of midsize sedans -- Ford Fusion, Mercury Milan and Lincoln Zephyr -- to gain ground with consumers looking for fuel-efficient vehicles.

Sales of Ford's largest SUVs -- the Excursion, Expedition and Explorer -- fell by more than 24 percent in the first three months of the year, according to Autodata Corp.

Asian and European carmakers control 58 percent of the rapidly growing crossover utility segment that is drawing buyers from the midsize car and SUV segments long dominated by GM, Ford and Chrysler.

Ford also said that its health care costs for 550,000 active employees, retirees and their dependents would total $3.5 billion this year, up $400 million from last year.

Like GM, Ford is talking to the United Auto Workers about ways to reduce health care spending. "It's an issue for us ... and we are working very hard on it, as are our competitors," Bill Ford said.

Despite its bleak outlook, Ford's latest results marked the 13th consecutive quarter that the automaker beat Wall Street's expectations.

"We expect a positive reaction on the stock," said a research note by Michael Bruynesteyn of Prudential Equity Group LLC.

Ford stock closed Wednesday at $9.34, up 6 cents.

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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