Ouch.
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October 23, 2006
Ford Reports Loss of $5.8 Billionhttp://www.nytimes.com/2006/10/23/business/23cnd-ford.html?hp&ex=1161662400&en=3ea05c9093ad1059&ei=5094&partner=homepageBy NICK BUNKLEY
DEARBORN, Mich., Oct. 23 — The Ford Motor Company, mired in one of the worst financial crises in its 103-year history, reported today that it lost $5.8 billion in the third quarter because of sluggish sales and the cost of its restructuring plans.
The automaker also warned that its fourth-quarter performance will be worse and said it would restate earnings for the past five years to correct an accounting error.
Ford’s third-quarter loss, equivalent to $3.08 a share, is 20 times greater than the company’s deficit a year earlier and the largest in 14 years. Automotive operations in North America lost $2 billion, and the company incurred $5.3 billion in one-time pretax charges related to job cuts and a revaluation of assets.
“Let me make it clear — these results are unacceptable,” said Ford’s chief executive, Alan R. Mulally, on a conference call with auto industry analysts and reporters. He added, “We are committed to moving from here to create a viable business going forward.”
Mr. Mulally had no influence over Ford’s performance through September, having been in his job for only three weeks. He was hired away from Boeing, the jet manufacturer, to replace William Clay Ford Jr., the great grandson of the automaker’s founder, who remains as executive chairman.
Today’s earnings report emphasizes the magnitude of the challenges facing Mr. Mulally, who labeled this a “critical time” for the company.
Among the first orders of business in his tenure is the restatement of financial results because of incorrect accounting of interest rate swaps by its finance arm, Ford Motor Credit. The company said that it was still studying most of the affected period, from 2001 through the third quarter of 2006, but that earnings from 2002 “will improve materially.”
Through the first nine months of the year, Ford has lost $7.24 billion, with more than 80 percent of that coming between June and September. A comment by Ford’s chief financial officer, Don R. Leclair, during today’s conference call suggested that the company’s losses would surpass the $9 billion forecast in internal company documents obtained last month by The Detroit News.
“Without giving any specific guidance, the profits will be worse in the fourth quarter than in the third,” Mr. Leclair said, later clarifying that he was referring to operating income. Several minutes after he made that remark, Ford’s stock, which had been trading a few cents above last week’s close, fell sharply. Early this afternoon, Ford’s shares were trading down 14 cents, or 1.8 percent, to $7.87 on the New York Stock Exchange.
In the third quarter, Ford’s continuing operations lost $1.2 billion, or 62 cents a share, roughly what analysts had expected.
The losses in Ford’s North American operations were $800 million more than a year earlier. The company’s Premier Automotive Group, which includes the European brands Jaguar and Land Rover, lost $593 million, five and a half times more than last year.
Those numbers, while dismal, did not surprise analysts, who expected the company’s performance to be far worse than a year earlier, when it lost $284 million.
“We would expect the shares to trade down modestly on this news, but there were no unexpected negative bombshells,” wrote Jonathan Steinmetz, an automotive analyst with Morgan Stanley in New York, in a note to clients before Mr. Leclair spoke.
Ford is one month into an accelerated version of its turnaround plan, called the Way Forward, which calls for cutting 44,000 jobs and closing numerous factories in North America. In unveiling that plan, Ford conceded that its sales would probably be surpassed soon by surging Japanese rival Toyota and that it does not anticipate a profit in North America until at least 2009.
To shrink its work force, Ford is offering buyouts and other incentives valued at as much as $140,000 each to all 75,000 of its hourly workers in the United States to persuade them to leave their jobs. Workers have until Nov. 27 to decide whether to take one of eight severance packages.
“We don’t expect to see any improvement until the second half of next year, when most of the employees who take the buyout will have exited,” said Shelly Lombard, a senior high-yield bond analyst with the research firm Gimme Credit in New York.
Ford is counting on new vehicles, particularly the Edge crossover that is scheduled to arrive at dealerships next month, to make up for lower sales of profitable trucks and be an important part of its turnaround.
Mr. Mulally, Ford’s chief executive, speaking on the business news cable network CNBC this morning shortly after Ford announced its results, said he was “pleasantly surprised” by the products he has seen in the company’s pipeline since arriving at the company.
Mr. Mulally also told CNBC that he was focused on fixing Ford’s business, not on pursuing an alliance with another automaker. Ford had been seen as a potential partner for Nissan and Renault, which spent the summer exploring an alliance with General Motors. After those talks ended abruptly earlier this month, Carlos Ghosn, the chief executive of both Nissan and Renault, said he was still interested in collaborating with a company in North America.
