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US:Ford will slash production in '07
Looking for Stability
Ford will slash production in '07
By AMY WILSON | AUTOMOTIVE NEWS
DETROIT -- Ford Motor Co. expects to slash North American production by as much as 12 percent for the first six months of 2007, then rebound after midyear.
The forecast suggests the company expects its automotive business to bottom out next summer. Although production is expected to rise later that year, Ford's vehicle output in 2007 could be as much as 5 percent lower than this year's total.
In an interview last week with Automotive News, Ford CFO Don Leclair disclosed the plan to cut vehicle production 8 to 12 percent in the first half of 2007.
By the second half of next year, North American production should rise as inventory levels fall in line with consumer demand, he said.
Leclair predicted second-half production will increase 5 to 10 percent over this year's low levels.
"The comparisons are easier," Leclair said. "But importantly, we have a lot of new products coming, products that will be hitting their stride in the third and fourth quarter of next year."
But first Ford has to get through the painful eight months ahead.
"With the inventories coming down, it takes a little bit of time for our cost-reduction efforts to kick in," CEO Alan Mulally said in an interview last week with Automotive News.
Mulally and Leclair are taking pains to prepare investors for the tough times to come. Last week they announced that Ford's third-quarter net losses totaled $5.80 billion.
Ford's pretax automotive losses totaled $1.83 billion, and fourth-quarter results are expected to be even worse. Mulally said Ford's year-over-year financial results will worsen over the next three quarters.
In part, that's because Ford will build fewer pickups and SUVs during the first half of 2007. But Leclair notes that a little more than half of the total first-half production decline will result from the demise of the Ford Taurus.
The Taurus went out of production last week. In the first half of 2006, Ford built 109,746 Tauruses.
The new Ford Edge and Lincoln MKX crossovers are expected to compensate for some of that loss. Ford started building those two vehicles this month in Oakville, Ontario.
The loss of Taurus production will be less of a factor in the second half of 2007 because Ford won't build the car for the last two months of this year.
The automaker expects an upturn late next year, in part because it will be relatively easy to top this year's weak production. In August, Ford slashed fourth-quarter production 21 percent, its sharpest cut in more than 20 years.
As of Sept. 30, Ford reported an inventory of 652,000 vehicles.
Company insiders expect Ford to end this year with a low vehicle inventory -- lower even than the 631,800 units Ford reported at the end of 2001, when a post-Sept. 11 sale depleted vehicle stocks.
Third-quarter production cuts to pickups and SUVs added $1.1 billion to Ford's North American automotive losses, says Citigroup analyst Jon Rogers. Trucks accounted for just 61 percent of Ford's production, down from 68 percent for the prior 2½ years, he said.
Looking for stability
Truck production eventually will stabilize at 65 percent of Ford's total production, Rogers predicts.
In the first six months of 2007, Ford's financial results will suffer because the company's Way Forward cost-cutting plan won't compensate for the loss of revenue caused by production cuts.
Next fall, Ford's automotive earnings are expected to start rebounding as cost-cutting begins to generate savings. "The cost reductions in the second half of next year will start to mount up, and we will see some improved performance on a year-over-year basis," Leclair said.
But Ford's North American automotive business will continue to lose money through 2008, he warns.
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.....