Ford to cut more
After $123M loss, Bill Ford says he'll speed up cutbacks
Bryce G. Hoffman / The Detroit News
2007 Edge is due this fall.
Sales of trucks have slipped, but those of some new cars, such as the Fusion, are growing.
DEARBORN -- Ford Motor Co. Chairman and CEO Bill Ford Jr. said Thursday that the "way forward" restructuring plan unveiled in January does not go far enough and that quick action and deeper cuts will be needed to save the company's struggling North American car and truck business.
"Clearly, there will have to be additional cost cuts," Bill Ford told The Detroit News in an interview. "I want to get back to North American profitability as fast as possible."
He said the downsizing moves already outlined will be accelerated following a $123 million second quarter loss that surprised an already skeptical Wall Street.
He would not detail the additional cuts, but said they will be made public in the next 60 days. The moves are part of a broader strategy discussed inside Ford prior to January's announcement.
"There are elements of the plan that were not made public," Bill Ford said.
Wall Street wants Ford to speed-up it's restructuring, which calls for idling 14 plants and slashing up to 30,000 North American factory jobs by 2012. Analysts say the cuts are exactly what are needed, but right away.
"They need to be a lot smaller, so why wait?" asked Bradley Rubin, who follows Ford for BNP Paribas. "They are finally waking up and smelling the coffee."
Analysts also want Ford to accelerate new product rollouts. Newer vehicles like the Ford Fusion and Lincoln Zephyr cars are selling well, but older models such as the Ford Ranger pickup and Ford Freestar minivan are wilting in the face of fresher competition and a shift in consumer sentiment from trucks to more fuel-efficient cars and crossovers.
Ford will launch two new crossovers this fall, the Ford Edge and Lincoln MKX, but observers say the company needs to do more. Ford executives signaled Thursday that they are looking at ways to accelerate some programs to get new models to market faster.
In the meantime, Ford has identified seven plants for closure, with some shutting down by the end of the year. The company is on track to cut between 11,000 and 12,000 hourly jobs in North America by the end of the year and at least that many next year. But rival General Motors Corp. has managed to move much more quickly.
Buyouts not open to all
While Ford has taken a methodical approach to downsizing, offering buyouts at select plants, GM has made offers to all 113,000 of its hourly workers in North America. More than 35,000 signed up by the June 23 deadline, and are expected to leave the company by the end of the year.
"I'd like to see Ford open it up to everyone like GM did," Rubin said. "The market would like that a lot."
But Bill Ford is not keen to let Wall Street run his business. He said the decision to accelerate the "way forward" plan and pursue more cost-cutting moves was spurred by significant changes in the North American market.
"We saw a tremendous mix shift take place in the second quarter," Ford said, explaining that already high gas prices and rising interest rates combined to undermine consumer confidence and deliver a big wallop to truck and truck-based sport utility vehicle sales -- two segments that have been Ford's big profit centers.
The firm will cut another 40,000 vehicles from its third-quarter production schedule, largely pickups and SUVs.
Ford also plans to reduce North American production capacity by 700,000 vehicles, or 15 percent, by the end of 2006. Manufacturing expert Ron Harbour of Harbour Consulting in Troy said Ford used only 79 percent of its capacity last year.
Making capacity match demand is key to meeting Ford's stated goal of returning its North American automotive business to profitability by 2008 -- a goal Mark Fields, president of Ford's Americas group and the chief architect of the company's restructuring plan, reiterated Thursday.
"If we have to move faster and cut deeper, we will," Fields said in a call with reporters and analysts.
Though Wall Street has taken a dim view of Ford's turnaround efforts so far, the second quarter loss was much worse than most analysts had expected. Excluding one-time charges and special items, Ford's loss from continuing operations was still $48 million, or 3 cents per share, compared to profits of $936 million, or 47 cents per share, for the same period last year. The consensus among analysts was that the company would post a profit of 12 cents a share for the quarter, according to Thomson Financial.
Overall pretax loss is up
Worldwide, Ford's automotive business reported a pretax loss of $808 million for the second quarter, compared to a pretax loss of $245 million last year. In North America, Ford's automotive operations posted a pretax loss of $797 million, an improvement over last year's $907 million in red ink. Ford credited the improvement to cost reductions.
Ford's Premier Automotive Group, which includes its upscale European brands, swung to a $162 million loss after posting a $17 million first quarter profit.
Ford's financing arm, Ford Motor Credit Co., suffered from rising lending costs and weaker volume, posting a pretax profit of $646 million, down $500 million from the same period in 2005.
Ford posted a first quarter loss of nearly $1.2 billion, attributed to costs of its turnaround. While it made $2 billion overall last year, it lost $1.6 billion in North America, where it has been unprofitable for six of the last seven quarters.
"The problems at Ford are getting worse," said Jonathan Steinmetz, a Morgan Stanley analyst. "Without a path to improved automotive profitability, it will be hard to maintain liquidity."
But Don Leclair, Ford's chief financial officer, said Ford will end the year with more than $20 billion in the bank.
"We know how much cash we are going to need to restructure the company," Leclair told The News. "We have enough. I feel very sure that we have a good plan to fund our restructuring."
Ford moved to shore up its liquidity last week by slashing its dividend and cutting board compensation, moves that will save about $375 million annually.
Moody's Investors Service still cut Ford's credit rating deeper into junk-bond territory, but most analysts think Ford's balance sheet is relatively solid.
"Liquidity is still a backstop" for Ford, said Merrill Lynch's John Murphy. Ford had $23.6 billion in gross cash on its automotive balance sheet, $1.8 billion more than at the same time last year, though Ford's sale of Hertz for $5.6 billion at the end of 2005 more than accounts for that gain.
Leclair characterized the changes Bill Ford discussed as "a midcourse correction" to the 'way forward' plan.
"There are certain things that can be done sooner -- in this case, a lot sooner," Leclair said.
Investors need convincing. Ford's shares fell 14 cents, or 2.21 percent after Thursday's earnings news to close at $6.19 a share.
"Our sense is the market anticipated a miss following the 50 percent dividend cut," said analyst Peter Nesvold of Bear Stearns.
Ford's shares have lost about 18 percent of their value in 2006, leaving many investors wondering where the bottom lies.
Many of those investors are Ford employees, and Bill Ford urged them to keep the faith as the company goes through what he called a "transition year."
"This is a tough company," he said. "We've been through ups and downs before."