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After losing $6 billion in previous two years, $495 million profit gives automaker optimism

By Eric Mayne / The Detroit News

Ford Motor Co.’s 2003 profits — though skimpy at $495 million — represent the strongest evidence yet that Chairman and CEO Bill Ford Jr.’s 2-year-old turnaround plan is producing results.

Improved vehicle quality, smooth production launches, aggressive cost reductions and continued strong performance by Ford Credit contributed to a $1.5 billion earnings swing from a loss of $980 million in 2002.

Total sales and revenue for 2003 were $164.2 billion, up from $162.3 billion a year earlier. And more than 95,000 workers and recent retirees covered by Ford’s labor agreement with the United Auto Workers union will see profit-sharing checks worth about $195 — up from $160 last year, but well below 2000’s average payout of $8,000.

Ford on Thursday issued a fairly optimistic first-quarter earnings guidance of 40 cents to 45 cents a share.

“I really think that ’03 will go down as the turnaround year,” Steve Lyons, Ford Division president, said.

And it may be known as the year when Bill Ford, great-grandson of company founder Henry Ford, began to prove his mettle as a chief executive.

Doubters were not in short supply when he unveiled a revitalization plan in early 2002 following a $5.5 billion loss in 2001.

The aggressive plan called for job cuts, a dividend cut, accelerated product rollouts, plant closures and the elimination of four unprofitable models. Ford goal: $7 billion in annual pretax profits by mid-decade.

“A year ago, if we had written down (2003’s) results and handed them to you and said, ‘This is what we’ll deliver ...’ most people would have been skeptical,” Lyons said.

“In fact, I really believe that the turnaround point was the actual launch of the F-150.”

The F-150 pickup, the company’s most profitable and top-selling model, has been a strong seller since it hit showrooms in September. Ford spent $1.8 billion to redesign the truck from top to bottom.

Still, by industry standards, 2003 featured some low points for Ford:

Net income of $495 million was dwarfed by General Motors Corp.’s $3.8 billion, a figure considered disappointing.

Ford posted a fourth-quarter net loss of $793 million on revenues of $46 billion because of a $2.2 billion charge stemming from a bailout of Visteon Corp., its former parts subsidiary, to relieve pension and health care liabilities and upgrade information technology. In return, the automaker received one-time pricing concessions from its largest supplier.

Ford’s $3.2 billion in cost reductions were virtually offset by $3.2 billion in health care and pension expenses, up $1.2 billion from 2002.

Ford’s global vehicle sales dropped to 6.72 million units from 6.97 million in 2002, putting its venerable position as the world’s No. 2 automaker at risk. Japan’s Toyota Motor Co.p., which releases final 2003 figures next month, estimates its 2003 global unit sales will come in at 6.78 million units.

Ford workers are looking beyond the latest profit-sharing payouts, Jerry Sullivan, president of UAW Local 600, said.

“It’s absolutely going to get better down the road,” Sullivan said. “We all know that. The recalls have gone way down. Our quality has been the No. 1 issue. There has definitely been a turnaround.”

Ford cut warranty costs last year by $1.6 billion, said Chief Financial Officer Don Leclair, who added he is “very pleased” with the company’s direction.

The fourth-quarter results exceeded estimates of Wall Street analysts, but investors still bid Ford shares down 1 cent to close at $16.43 Thursday in New York Stock Exchange trading.

The company still faces numerous challenges, such as a negative pricing environment, market share losses in the United States, weak performance in Europe and bloated product, pension, health care and other operating costs in North America.

“We continue to believe that Ford is in a tough spot,” John Casesa, an automotive industry analyst with Merrill Lynch, said. “But it is undeniable that the company’s execution is improving.”

Ford executives are quick to credit Bill Ford.

“(He) has a lot to do with it because the CEO sets the tone in the company,” said Mark Fields, chairman and CEO of Ford Motor Co.’s Premier Automotive Group. The group, which includes Volvo, Land Rover, Jaguar and Aston Martin, marked its first profitable year in 2003.

“Bill’s said very clearly, ‘Here’s the plan. We’ve got to go execute the plan and I expect you to meet it. Because if not, people will be held accountable,’ ” Fields said.

Bill Ford’s influence was palpable in 2002 when he starred in a series of television ads touting the automaker’s heritage, Jim Jurcak, general manager of Southgate Ford in Southgate, said.

“Everybody that saw the commercials was enamored with him,” Jurcak said.

Ford is now counting on consumers becoming enamored with a slew of new products coming this year, such as the Ford Freestyle, a cross between a minivan and SUV.

“I see a lot of sales in that because moms are, for some reason, getting out of minivans,” Jurcak said. “They’ve been buying SUVs, and the Freestyle is just a nice alternative.”


7,859 Posts
Discussion Starter #2
Ford posts 1st annual profit in 3 years

UAW members will get a share in $195 checks

January 23, 2004

Ford Motor Co. reported its first annual profit in three years -- nearly half a billion dollars -- despite losing almost $800 million in the final three months of the year.

Thanks largely to record profits at its banking business, Ford announced Thursday that it had boosted profit-sharing payments to UAW members to an average of $195, up from $160 a year ago.

Ford said it also expects to grant merit increases and "modest" performance bonuses to eligible salaried employees in the United States and Canada.

The year 2003 may go down in history as the year when Ford finally made money again, after losing a total of $6.4 billion during the previous two years. But it may also be known as the year when Ford was surpassed by Japan's Toyota Motor Corp. as the world's No. 2 automaker, behind only General Motors Corp. The answer will come Monday, when Toyota is expected to release its sales totals.

But Ford is continuing to claw its way toward its goal of making a pretax profit of $7 billion in 2006, and at least that much in subsequent years.

It lost money in the fourth quarter only because of one-time expenses totaling more than $2 billion. Most of those costs came from renegotiating the spinoff of former parts division Visteon Corp. and from job cuts in Europe.

Ignoring those types of costs -- as many investors do -- the company earned about $900 million, or 31 cents per share, in the last three months of 2003.

That just barely beat the expectations of Wall Street experts who help investors decide what stocks to buy and sell.

The Dearborn automaker said it has topped the experts' predictions in each of the eight quarters since Chairman Bill Ford replaced Jacques Nasser as chief executive officer and launched a 5-year plan to cut 35,000 jobs, close plants and introduce new and profitable cars and trucks.

Accordingly, Ford shares have rebounded from a 10-year low of $6.58 last March to the mid-teens -- heights it hadn't seen in a year.

On Thursday, Ford shares fell by a penny, or 0.1 percent, to $16.43.

"We're proud of what we've accomplished this past year at Ford, but we know there's still a lot more to do," said Don Leclair, Ford's chief financial officer.

The nitty gritty
For the year, Ford earned $495 million, or 27 cents per share, on total revenues of $164 billion. The Dearborn automaker lost almost $1 billion in 2002 and $5.5 billion in 2001.

For the last three months of 2003, Ford reported a net loss of $793 million, or 43 cents per share, six times the loss of $130 million, or 7 cents per share, for the same three months of 2002.

When most investors look at an automaker's quarterly results, they don't count profits or losses that aren't going to be part of the business in the future, such as closing a plant or selling a business. Measured that way, Ford said it earned 31 cents a share, up from 11 cents a share in the fourth quarter of 2002.

Ford expects to earn 40 cents to 45 cents a share in the first quarter of 2004, on its way to earning $1.20 to $1.30 a share for the year.

It also expects to face one-time bills of about $300 million from early retirements of some European workers and to close some small, nonautomotive businesses.

Given the number of shares Ford has outstanding, that means the automaker would earn about $2 billion this year, or about four times what it earned in 2003.

It won't be easy, said John Casesa, who studies the industry for investor clients of Merrill Lynch.

"We continue to believe that Ford is in a tough spot between GM and the Japanese . . . but it is undeniable that the company's execution is improving," he said in a note.

Lending pays bills
Ford's profits, however, continue to come almost exclusively from its financial services businesses, specifically Ford Credit.

Ford Credit posted a record annual net profit of $1.8 billion, up from $1.2 billion in 2002. GM's banking business also earned record profits in 2003, generating $2.8 billion. Unlike Ford Credit, GMAC includes a substantial mortgage business.

It might seem strange, but automakers' generous financing deals actually boost the bottom-line results of the lending businesses. That is because the automotive divisions pay the credit companies the difference between normal interest rates and the cheaper loans that help spur sales.

But if you don't count the one-time expenses, Ford said it beat its goal of breaking even on its automotive operations.

As Ford calculates it, automotive operations generated a pretax profit of $104 million in 2003, up from a pretax loss of $253 million in 2002.

North American automotive operations posted a pretax profit of almost $1.8 billion, and the European luxury brands contributed a modest $164 million pretax profit -- up $904 million from 2002.

But Ford of Europe lost more than $1.1 billion before taxes. Asia-Pacific, South America and some other operations also lost money.

Sharing the wealth
Ford said it will send the profit-sharing checks out on March 10.

About 20,000 Ford employees who are "leased" to Visteon will also get the checks. Visteon will then reimburse Ford for the amounts.

Profit-sharing payouts are derived through a complicated, union-negotiated formula.

Earlier this week, GM said its UAW members would receive $170 on average, down from $940 a year earlier.

DaimlerChrysler AG's Chrysler Group paid $460 checks on average last year. Its payouts are expected to be announced Feb. 19.

Toyota looms
Taking the bloom off Ford's rose somewhat is the possibility that Toyota sold more cars and trucks than Ford did last year.

Ford's worldwide sales in 2003 totaled 6.72 million vehicles, including its European luxury brands, but not those of Mazda Motor Corp., which it controls with a 33.4 percent stake.

Last month, Toyota said it expected to finish the year with sales of 6.78 million cars and trucks, including its Hino and Daihatsu subsidiaries. Toyota's final results are expected Monday.

Leclair said he is not worried.

"What we're concerned about is being the best, not being bigger than someone or smaller than someone," he said.
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