Ford Forums banner

1 - 1 of 1 Posts

7,859 Posts
Discussion Starter #1
Ford acts to rev up stalled turnaround

Bryce G. Hoffman / The Detroit News

Ford Motor Co., struggling to gain traction with its North American turnaround effort, announced a series of moves Thursday aimed at cutting costs and boosting sales.

Ford's Board of Directors voted to cut the company's quarterly dividend in half, from 10 cents to 5 cents a share, beginning in the third quarter. The dividend is now at its lowest point since Ford eliminated payments altogether in 1982 and mirrors a 50 percent dividend reduction at General Motors Corp. in February.

Ford's directors also cut their own $200,000-a-year compensation by half. Chairman and CEO Bill Ford Jr. said the moves were necessary to maintain strong liquidity.

Also Thursday, Ford announced that it is extending the standard powertrain warranty on all Ford and Mercury vehicles from three years or 36,000 miles to five years or 60,000 miles. Lincoln's four-year or 50,000-mile standard powertrain warranty is being extended to six years or 70,000 miles. In addition, Ford said it will offer free roadside assistance for the entire warranty period and allow customers to transfer their warranties if they sell their car or truck before the warranty expires.

That makes Ford's warranty package the most generous of any full-line automaker -- a fact it hopes will bring more customers into Ford dealerships, which have seen retail sales drop 9 percent so far this year.

"The headwinds we faced at the beginning of 2006 have only become stronger, as consistently higher gasoline prices in the U.S. have caused consumer purchase preferences to shift away from SUVs and large trucks to smaller cars and crossover vehicles," Bill Ford said in a statement issued after Thursday's board meeting. "While this shift plays positively to our new vehicle offerings, we must still get our costs in line in response to segment adjustments and higher commodity prices that are affecting the company."

But Wall Street said the decision to cut dividends signals bad news ahead as Ford prepares to release its second-quarter financial results next week.

"This certainly suggests that second-quarter earnings are going to be uglier than expected," said Bradley Rubin, vice president of credit research at BNP Paribas in New York. "People are finally realizing at Ford that this turnaround is a little more difficult than they anticipated."

Ford shares closed down 32 cents Thursday to $6.56, a 4.6 percent decline.

"The dividend cut telegraphs the board's mounting concern about the company's performance," said John Casesa of New York's Casesa Shapiro Group LLC. "It's a very pessimistic signal."

The dividend cut is expected to save Ford about $375 million annually.

"Strong liquidity is an important enabler of our ongoing turnaround efforts and this action will make an important contribution," Bill Ford said.

But credit analysts said the move will not change the company's balance sheet enough to boost Ford's weak credit ratings, which have already fallen into junk-bond territory.

"The cash savings are relatively marginal," said Robert Schulz, who follows the company for Standard & Poor's in New York.

Craig Hutson, an analyst with Gimme Credit, said he expects Ford's ratings to sink even deeper.

"It is a sign that the company is acting to shore up its liquidity amid greater headwinds in the industry than it originally anticipated," he said. "A dividend cut is never good news."

But Ford's decision to extend warranties may be good news, at least for consumers.

The five-year or 60,000-mile powertrain warranty being offered on Ford and Mercury cars and trucks is substantially better than the three-year or 36,000-mile warranty offered on all of DaimlerChrysler AG's domestic nameplates and most of General Motors Corp.'s brands. More importantly, it matches the warranties offered by Ford's leading Japanese rivals: Toyota Motor Corp. and Honda Motor Co., neither of which includes roadside assistance as part of their standard packages.

"Ford is setting its own path," said Cisco Codina, head of North American marketing, sales and service for Ford. "All of this is part of our strategy to become America's car company."

The new warranties, which are effective today, will be applied retroactively to customers who have already purchased 2007 cars and trucks. Moreover, the company said it will offer extended warranties to customers who buy 2006 models. The new warranties apply to all Ford, Mercury and Lincoln vehicles, except for those like Ford's diesel pickups and hybrid SUVs that already featured more attractive terms.

"It definitely gives consumers another reason to look at Ford," said Mike Jackson, an analyst with CSM Worldwide in Farmington Hills.

Boosting warranties addresses one of Ford's biggest product problems -- the resale value of its vehicles. However, the move could increase the company's warranty costs substantially.

Ford's second quarter warranty data shows that 2006 model year per-unit warranty costs are 24 percent less than those for 2005 model vehicles.

"I'm glad that we're leading instead of following," said Kenny Shreve, owner of Kenny Shreve Ford Mercury in McLeansboro, Ill.

Warranties at a glance

While some warranties may vary within a company, here's a quick look at what warranties automakers are offering.
DaimlerChrysler AG
Drivetrain: 3 years/36,000 miles
Basic: 3 years/36,000 miles
Roadside service: 3 years/36,000 miles
Ford Motor Co.
Drivetrain: From 5 years/60,000 miles to 6 years/70,000 miles
Basic: 3 years/36,000 miles to 4 years/50,000 miles
Roadside service: Up to 6 years/70,000 miles
General Motors Corp.
Drivetrain: From 3 years/36,000 miles to 5 years/60,000 miles
Basic: 3 years/36,000 miles to 4 years/50,000 miles
Roadside service: Up to 4 years/50,000 miles
Honda Motor Co.
Drivetrain: 5 years/60,000 miles
Basic: 3 years/36,000 miles
Roadside service: Not offered
Nissan Motor Co.
Drivetrain: 5 years/60,000 miles
Basic: 3 years/36,000 miles
Roadside service: 3 years/36,000 miles
Toyota Motor Corp.
Drivetrain: 5 years/60,000 miles
Basic: 3 years/36,000 miles
Roadside service: Not offered
1 - 1 of 1 Posts