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Ford swipes at GM's troubles

Automaker warns investors that if rival goes bankrupt, it will hurt Ford's outlook.

Bryce G. Hoffman / The Detroit News

Restructuring costs
$250 million to cut U.S. hourly workers
$250 million to write down assets in North America
About $500 million to cover job cuts in Europe and at former Visteon plants that were taken back by Ford last year

General Motors Corp. can't seem to shake the bankruptcy bug.

Rival Ford Motor Co. now is warning investors that a decision by a competitor to seek bankruptcy protection could undermine its own financial position.

In filings with the U.S. Securities and Exchange Commission this week, Ford listed "adverse effects from the bankruptcy or insolvency of a major competitor" as a significant risk to its future financial performance.

Ford would not disclose the name of the "major U.S. manufacturer," but Wall Street analysts have suggested GM could be forced into bankruptcy because of declining U.S. sales, mounting pension and health care costs and additional liabilities stemming from the bankruptcy of its principal supplier, Delphi Corp.

Ford said that a rival's bankruptcy could put it at a competitive disadvantage because the legal action could allow a big competitor to restructure and obtain relief from existing union contracts and other high costs that Ford would still carry. And, Ford warned that the bankruptcy of "a major U.S. auto manufacturer" could disrupt its own supply base.

"We felt it was significant, so it's listed in our risk factors," Ford spokeswoman Becky Sanch said.

In light of recent corporate accounting scandals, U.S. companies are encouraged to cast their nets wide when identifying potential risks for investors.

"It's an absolutely legitimate thing to put in," said David Cole, chairman of the Center for Automotive Research, an industry think-tank in Ann Arbor. "They would be remiss if they did not include such a statement."

Both automakers say the costs of meeting pension and health care obligations under existing labor contracts with the United Auto Workers union represent a significant competitive disadvantage. Cole said a bankruptcy filing could allow a company like GM to get out of those contracts, leaving Ford at an even more serious disadvantage.

While some Wall Street analysts have been providing the odds of a GM bankruptcy filing since last fall, GM repeatedly rejects the suggestion.

"As we have said in the past, we do not view bankruptcy as a winning strategy," GM spokesman Jerry Dubrowski said. "We are focused on turning around our North American business and implementing the actions that we've announced to date. That's where our energy is."

GM lost $8.6 billion last year, is burning through billions of dollars in cash, and has declined to predict when it will become profitable again.

The automaker is cutting 30,000 jobs by 2008 and closing a number of factories to return its North American automotive operations to profitability. It is also in discussions with the UAW to help restructure and bail out Delphi.

"Right now, they're on a track that makes sense, but until it is resolved, it's not a done deal," Cole said. "It is a possibility."

Cole said a GM bankruptcy filing could push Ford over the brink, too.

Ford is struggling with many of the same operating challenges facing GM, such as a slump in SUV sales, weak car profits and excess factory capacity.

In its latest SEC filing, Ford also reiterated that it expects its North American automotive operations to post a pre-tax loss in 2006.

The automaker plans to take about $500 million in charges related to efforts to revamp its European operations and last year's restructuring agreement with Visteon Corp.

It also plans to take about $500 million in pre-tax charges this year as part of its North American restructuring effort because of expenses related to cutting its hourly workforce and fixed-asset write-offs. In January, Ford announced plans to cut 30,000 factory jobs and shutter 14 plants over the next six years.

In the SEC filing, the automaker reiterated that it is considering taking a charge in the first quarter to cover additional costs related to its jobs banks program, which provides idled UAW members full pay and benefits.

Ford currently has about 1,100 workers in its jobs bank program, but that number is likely to grow when the automaker stops production at factories in Missouri, Ohio and Michigan.

Credit ratings for both Ford and GM have dropped deep into junk-bond territory.
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