Weak auto market puts a dent in recovery plan
Tom Krisher | The Associated Press
DEARBORN, Mich. - Ford's ignition timing is off these days.
Just when its restructuring is starting to take hold - the automaker actually made money for the first nine months of the year - the auto sales market is going into the tank.
Its $380 million third-quarter loss, reported Thursday, was a fraction of the $5.2 billion lost at the same time last year. And its executives said they are happy with the progress on Ford's turnaround plan.
But Ford Motor Co. and other automakers are heading into a tough sales environment. Higher gas prices, rising home heating costs, tighter credit and the housing slump are gnawing away at American consumers' confidence.
More Americans pinching pennies to make ends meet means fewer people buying new cars and a big rumble strip on the road to Ford's recovery.
"If you're losing market share in a downward market, it's a double whammy," said Efraim Levy, senior industry analyst for Standard & Poor's.
The quarterly loss amounted to 19 cents per share for July-September, a huge improvement over a staggering $2.79 loss per share in the year-ago period.
Without $350 million in special items, mainly an offer to exchange preferred securities for common stock and personnel reduction costs overseas, Ford would have come close to breaking even.
The second-biggest U.S.-based automaker lost an adjusted $24 million, or 1 cent per share, for the quarter, surprising Wall Street analysts polled by Thomson Financial who expected the company to lose 46 cents per share excluding special items.
"We are on track to achieve our goal of profitability in 2009," President and Chief Executive Alan Mulally said in a conference call with reporters and industry analysts.
Wall Street reacted positively to the news. Ford shares rose 24 cents, or 2.91 percent, to close at $8.48.
Ford also said it is near a deal to sell its Jaguar and Land Rover units, but Mulally said there are no plans for now to sell Volvo.
Chief Financial Officer Don Leclair predicted U.S. light vehicle sales this year would be below Ford's forecast of 16.5 million, running at an annual rate of 15.8 million to 16.2 million through 2008 and into the first half of 2009.
Ford's market share has steadily declined in recent years, dropping from 15.5 percent in the third quarter of last year to 13.4 percent for the same period this year. The company, though, has been reducing low-profit sales to fleet buyers, and its retail share has stabilized around 10.5 percent.
Leclair said Ford's situation has improved so much that it now estimates it will burn $12 billion to $14 billion in cash from 2007 through 2009, instead of the previously announced $17 billion.
Ford's automotive operations lost $362 million excluding special items, a $1.49 billion improvement over the third quarter of 2006. Leclair said its vehicles sold for $1.3 billion more than the same period last year, and costs were about $600 million lower.
The net selling prices were higher because Ford spent about $500 million less on incentives and customers worldwide bought more expensive vehicles with more features than in the same period last year, he said.
But Lehman Brothers analyst Brian Johnson wondered in a note to investors if Ford can keep from raising incentive spending in a highly competitive U.S. market.
"The bulls will see the beginning of turnaround traction for Ford, with particularly strong North American net pricing performance. Our concerns about truck production and incentives discipline in 4Q and in early 2008 makes us wary of extrapolating all the improvement, but we are certainly expecting better earnings in 2008 than 2007," he wrote.
Ford also reported a $1 billion pretax loss on its home turf, North America, but that was an improvement over the $2.1 billion it lost in the year-ago period.
Revenue rose to $41.1 billion from $37.1 billion a year earlier.
The company reported a net profit of $88 million for the first nine months of the year, more than a $7 billion improvement from the same period last year.
In 2006, Ford mortgaged its assets to borrow up to $23.4 billion to fund its turnaround plan. The company lost $12.6 billion last year and continued downsizing to match reduced demand for its products.
Ford said Thursday that 33,600 hourly workers and 10,600 salaried workers have left the company since the end of 2005. The reductions include factories in a holding company awaiting sale or closure and came mainly from buyouts and early retirement offers.
The company now has 59,700 hourly workers in North America and another 6,200 employed by the holding company. Mulally said Ford will continue to reduce its employment, but he would not say if further buyouts or layoffs are planned.
Ford's financial services arm and operations in South America and Europe reported strong performances, helping to offset losses in North America and in the Premier Automotive Group composed of Jaguar, Land Rover and Volvo.
In South America, Ford made a pretax profit of $386 million, while it made $293 million in Europe.
Ford Motor Credit Co. earned $546 million pretax in the quarter. It focuses on auto and dealer loans and was unaffected by troubles in the mortgage industry.
The Premier group's performance improved over the third quarter of last year, but it still posted a $97 million pretax loss for the quarter.
Ford predicted it would have a small loss or break even for the full year excluding special items, with substantial year-over-year improvement in its fourth quarter results. But it still expects to lose money in the final quarter of the year on a pretax basis, mainly in North America.
The report from Ford came a day after General Motors Corp. posted a $39 billion loss for the third quarter, one of the biggest quarterly losses ever in the U.S., as a charge involving unused tax credits ended a string of three profitable quarters for the nation's largest automaker.