Ford Charge Will Result in a Record Loss : Cars: The $7.7-billion write-off for retiree health benefits and European cutbacks leaves company with a $7-billion loss for ’92.
Ford Motor Co. said Wednesday it will take a $7.7-billion charge against its 1992 earnings to account for retiree health benefits and the cost of laying off nearly 10,000 European workers over the coming year.
The one-time charges are expected to leave Ford with a $7-billion loss for 1992, dwarfing the company’s previous record loss of $2.3 billion in 1991. But this year’s deficit will be due to accounting changes and does not reflect weakness in Ford’s U.S. business or the company’s overall financial strength.
The bulk of the write-off--$7.5 billion, or $15.51 a share--is related to an accounting change required of all public companies to account for future retiree health expenses now, rather than as they are paid. That is a particularly costly proposition for older U.S. industrial corporations such as the Big Three auto makers, which have nearly as many retirees as active workers.
Ford said the charge, which is the largest announced by any American company under the new accounting rules, will not have an effect on cash flow but will reduce shareholder equity to $15.4 billion from $24.4 billion.
“The magnitude of the charge to earnings highlights the high level and inordinate rise in health care costs--one of the largest components of the compensation package,” Ford Chairman Harold Poling said in a prepared statement. “As we saw in the recent presidential campaign, the quality and rapidly rising costs of health care are a concern not only to Ford but to the entire nation.”
Ford will also take a charge of $440 million, or 91 cents a share, to pay for retiree health benefits this year. The company made the announcement after the stock market closed, but analysts said the company’s stock value already reflected the $7.5-billion charge, which had been expected.
More surprising was the magnitude of the auto maker’s cutbacks in Europe, where Ford said it will lay off more than 10% of its work force of 93,000 by the end of 1993. An additional $419-million charge, or about 87 cents a share, will pay for the cost of laying off the European workers.
Once a profit stronghold for the nation’s second-largest auto maker, Europe has been a weak spot for Ford in recent years. A combination of a weak economy, currency instability and poorly received new cars and trucks forced the auto maker to discount its vehicles, cutting deeply into profit margins.
“Europe to Ford is almost as bad as North America is to General Motors,” said Ronald Glantz, an auto industry analyst with Dean Witter Reynolds Inc. in San Francisco. “Sales are heading down, and the Japanese are invading the market.”
Ford will reduce 1993 output in Britain to 240,000 to 250,000 cars from about 391,000 in 1992. But the company will not close any plants, and new product offerings in 1993 are expected to help the company regain share. And Poling said the charge to cover layoffs in Britain and Germany will lead to better profit for the auto maker’s Europe operations in 1993 and beyond.
Ford said it also will adopt an accounting change for income taxes that will add $685 million, or $1.41 a share, to the 1992 bottom line.
Analysts had projected Ford’s fourth-quarter loss to be $161 million. For the first nine months of the year, the company’s earnings were $681 million.
Ford decided to take the full $7.5-billion charge for the retiree health costs retroactive to the first quarter of this year. It could have spread the payments over 20 years, opting to write off $375 million a year after taxes.
Neither General Motors Corp., which has a projected after-tax retiree health care liability of $18 billion to $24 billion, nor Chrysler Corp., which has a projected after-tax liability of $3 billion to $4 billion, has announced how it will take the charge. The companies must declare their intention by the first quarter of 1993.
The Associated Press contributed to this story.
