DEARBORN, Mich. - Ford Motor Co. today reported a third-quarter loss of $129 million and said it must eliminate more salaried positions and cut other operations to keep its restructuring plan on track as automobile sales continue to decline in the United States and abroad.
The Dearborn automaker also revealed that it is not only asking Washington for help coping with the current economic crisis, but is also in talks with foreign governments about additional financial support.
Ford said it would cut 10% of its North American salaried payroll by the end of January, primarily through involuntary layoffs. About 2,000 workers will be affected by this latest downsizing, which comes on the heels of a 15% reduction in white-collar payroll earlier this year.
"While these actions are difficult, they are absolutely necessary to ensure that we have the liquidity necessary to execute our plan to transform Ford into a profitably growing enterprise," CEO Alan Mulally told analysts and reporters during a conference call this morning. "The global auto industry is facing unprecedented challenges. The turbulence in the worldwide economy continues undermine consumer confidence and impact our business."
Ford, which burned through $7.7 billion in cash, lost 6 cents per share in the third quarter, compared with a loss of 19 cents per share a year ago. That was largely due to a one-time favorable gain of $2 billion stemming from writing off the costs of retiree health care being shifted to a trust to be run by the United Auto Workers. Excluding special items, Ford lost $1.31 a share, worse than Wall Street expected. Analysts surveyed by Thomson Reuters predicted a loss of 94 cents per share.
Ford's pre-tax loss from continuing operations was $2.7 billion, down from a $194 million profit a year ago.
In addition to the job cuts, Ford will eliminate 2009 merit pay increases for salaried workers in North America, as well as performance bonuses for employees worldwide. It also is curtailing matching contributions for U.S. salaried employees participating in the company's savings and stock investment program.
Ford already has eliminated 13,000 salaried jobs in North America since the end of 2005, along with 55,500 hourly jobs. Some 2,600 blue-collar workers took buyouts over the past three months, but that still left the automaker with about 1,600 more factory workers than it needs to meet the current demand for its cars and trucks.
Mulally said additional buyouts could be offered in the coming months.
In addition to further salaried job cuts, Ford will cut capital spending by streamlining its global engineering and product development; reducing manufacturing, information technology, and advertising costs and trimming inventories globally. Ford also said it would explore divestitures of non-core assets and utilize equity-for-debt swaps and other incremental sources of financing.
These and other actions should improve its cash position by between $14 billion and $17 billion over the next couple of years, the company said.
That is critical, because Wall Street is becoming increasingly concerned about Ford's cash-burn rate, which increased to nearly $8 billion last quarter.
"That was much higher than we were expecting," said analyst John Murphy of Merrill Lynch.
But Ford said it still has sufficient liquidity. It ended the quarter with available credit lines totaling $10.7 billion and overall liquidity totals $29.6 billion.
The cuts announced today are aimed at ensuring that Ford maintains enough cash going forward, Mulally said.
Ford, along with the other Detroit automakers, is also talking to the federal government about additional financial support in the wake of one of the worst sales months in decades.
U.S. auto sales plunged 32 percent in October to the lowest level in nearly 20 years. Ford's North American sales dropped from 649,000 units in the third quarter of 2007 to just 462,000 during the same three-month period this year, as fearful consumers steered clear of showrooms, deepening the industry slump and prompting carmakers to renew their pleas for government aid.
Mulally said he is encouraged by the progress that has been made toward freeing up the $25 billion in direct loans already approved by Congress and the White House to help America's automakers produce more fuel-efficient vehicles. Ford received the final terms yesterday, he said, and has been studying them closely.
Ford Credit has already taken advantage of Washington's aid to Wall Street by selling off $4 billion in asset-backed securities through the Federal Reserve's Commercial Paper Funding Facility, which was approved last month.
Mulally said Ford, along with General Motors Corp. and Chrysler LLC, is also asking the federal government to set up a bridge loan program to help Detroit's Big Three if the economy continues to decline.
But he stressed that Ford is not counting on any of this money.
"We are not assuming that kind of help from the U.S. government," Mulally said.
Moreover, he said Ford is talking to other governments about financial support, too. Specifically, he said Ford is part of the ongoing negotiations between European carmakers and the European Union over a direct loan program similar to the one already approved in the United States.
A key element of Ford's plan is matching production to demand, which hasn't always happened in the industry known for building vehicles just to keep its factories working.
Ford announced that it would cut North American factory output by another 40,000 units in the fourth quarter.
This will be done primarily though additional downtime and overtime reduction, mostly at plants that produce sport utility vehicles.
The automaker drastically cut truck production in the third quarter after rising gasoline prices inflated demand for cars and crossovers. Ford actually produced 100,000 fewer vehicles in the third quarter than it sold and nearly 500,000 fewer units than it made in the second quarter. The company said this decline in production translated into a $3 billion reduction in payables during the quarter.
Now, it is ramping truck production back up. In fact, Ford announced last week that it will add a third shift at its Dearborn Truck Plant, which produces the just-launched 2009 F-150 pickup. That will allow about 1,000 idled workers to return to the line.
North American operations hit hard
Ford lost more than $2.7 billion last year and has lost more than $15 billion since 2005. In May, the company abandoned its long-stated goal of returning to profitability in 2009 and has since said it sees no bottom to the current crisis gripping the U.S. auto industry.
After taxes, Ford's third quarter operating loss from continuing operations was about $3 billion, or $1.31 per share, compared with a loss of $24 million, or 1 cent per share, for the same period last year. Revenue was $32.1 billion, down from $41.1 billion a year ago, due to the sale of Jaguar and Land Rover, as well as lower volumes overall. This was partly offset by favorable changes in currency exchange rates.
Ford's North American automotive operations posted a pre-tax loss of $2.6 billion, compared with a loss of $1 billion a year ago. The company blamed that decline on unfavorable volume and mix, and lower net pricing, partly offset by cost reductions realized through its restructuring efforts.
Third quarter revenue in North America was $10.8 billion, down from $16.7 billion a year ago.
Ford of Europe reported a pre-tax profit of $69 million, compared with $293 million a year ago. It said the drop in earnings was primarily due to higher commodity costs and currency exchange, partly offset by stronger net pricing. Third quarter revenue was $9.7 billion, up from $8.3 billion a year ago.
In South America, Ford's profits actually increased. It reported a pre- tax profit of $480 million, compared with $386 million in the third quarter of 2008. The increase reflected higher net pricing, favorable volume and mix, and favorable changes in currency exchange rates, partly offset by higher net product costs. Third quarter revenue was $2.7 billion, up from $2.1 billion a year ago.
In Asia, the Pacific and Africa, Ford posted a pre-tax profit of $4 million. That compares with $30 million a year ago. Ford blamed the decline on unfavorable volume and mix, partly offset by favorable net pricing. Third quarter revenue was $1.7 billion, down from $1.8 billion for the same period last year.
The situation at Volvo continued to deteriorate. The Swedish brand reported a pre-tax loss of $458 million for the quarter, compared with a loss of $167 million a year ago. Third quarter revenue dropped to $2.9 billion from $3.8 billion a year ago.
Ford has begun an aggressive restructuring of Volvo that includes the elimination of 6,000 employees and 1,200 contractors worldwide.
While it wants to sell Volvo to raise additional cash for the Blue Oval, Ford first wants to restore profitability in order to get a reasonable return.
It is more likely to sell part of its stake in Japan's Mazda Motor Corp. In the third quarter, Ford lost $1 million from its investment in Mazda and associated operations, compared with a profit of $14 million a year ago.
Ford would not provide specific financial guidance for the coming year, but said it expects overall industry volumes to be down even more than in 2008.
"We believe the downturn in industry volume will be now broader, deeper and longer than previously expected," Mulally said. "While Ford has been dramatically affected by the difficult business environment, we remain absolutely convinced that we have the right plan and are taking the right actions to weather this difficult period and emerge as a lean, globally integrated company poised for long-term profitable growth."
Source: Detroit News