Ford Lowers Outlook for Year’s Profit
Ford Motor Co.’s credit rating came under assault and its stock fell sharply Friday as the world’s No. 2 auto maker cut its profit outlook for the year and confirmed it is cutting 10% of its salaried work force in North America.
Standard & Poor’s warned that it might cut the long- and short-term credit and debt ratings of Ford and General Motors Corp. as well as the finance arms of the world’s two largest auto makers. S&P; said the move reflects its “heightened concern about the long-range profit potential” of the companies in a slowing U.S. economy as their market shares decline and price competition intensifies.
Ford said Friday that it will take after-tax charges of $900 million in the second half of the year, including $700 million in the fourth quarter resulting from the elimination of 4,000 to 5,000 jobs. The auto maker expects full-year earnings to be about 70 cents a share, before the one-time charges, as opposed to the current analyst consensus of $1.20.
The company blamed lower sales volume and higher marketing expenses for its recent poor performance and lowered outlook for the rest of the year.
“The voluntary-separation program is a difficult but necessary action,” Chief Executive Jacques Nasser said of the employee reduction in a statement.
“The North American market has become fiercely competitive. Although we have reduced total costs nearly $7 billion over the last four years, we need to continue to accelerate our efforts to improve our efficiencies, while protecting important new product plans,” he said.
The job cuts, to be achieved through early retirements and buyout packages, are the first moves in an expected overhaul of Ford’s North American operations, which have suffered from quality setbacks resulting in recalls and delayed product launches, a harshly competitive pricing market and rival auto makers’ new truck offerings and rising productivity.
Ford recently named its in-house turnaround specialist Nick Scheele, a Briton who headed Ford Europe, to take over as North American chief. He replaced Martin Inglis, who was recently named chief financial officer.
Friday’s moves are part of “a broader, more comprehensive restructuring of our North American operations” that may be announced by year’s end, Inglis said during a conference call.
“The whole industry is struggling. We said, ‘Enough is enough,’ ” Inglis said. “Nothing is off-limits. We will make ourselves much more competitive.”
One auto industry analyst saw Ford’s announcement as only the beginning.
“Five thousand white-collar jobs? That’s nothing. These guys are going to have to cut a lot more before they’re done,” said Michael Bruynesteyn of Prudential Securities, who rates Ford stock as “hold.” “There’s been no pain yet--the pain is still going to come,” he told Bloomberg News.
Ford has been beset by shrinking market share; a costly replacement program for Bridgestone/Firestone Inc. tires on top of last year’s massive recall linked to scores of fatal accidents; questions over the safety of the Explorer, its best-selling sport-utility vehicle; and multiple recalls of its recent high-profile vehicles.
The company’s next major launch, the 2002 Thunderbird, has been delayed several months, reportedly because of engine problems.
Ford this week offered to settle a class-action lawsuit alleging that the company installed faulty ignition switches on millions of vehicles that could cause them to stall or catch fire.
Last month, Ford posted a loss of $752 million in the second quarter, largely resulting from the cost of replacing 13 million Firestone tires and restructuring charges involving Mazda Motor Corp., of which Ford owns 34%.
Ford noted in its statement that it already has taken other actions this year to improve operations: reducing capacity by eliminating a shift at a truck factory in Michigan; eliminating overtime at several other North American assembly plants; implementing a hiring freeze; and reducing travel and other expenses.
S&P;’s credit reviews cover the “A” long-term and “A-1” short-term ratings for Ford and GM and their finance arms--Ford Motor Credit Co. and General Motors Acceptance Corp. Ford’s finance arm had $154 billion in debt and GM’s had $131 billion at midyear, according to filings with the Securities and Exchange Commission, making them among the largest U.S. corporate borrowers.
S&P;, which put the companies on “negative credit watch,” said it expects to decide whether to cut the ratings, which probably would raise the auto makers’ borrowing costs, by late October.
Rating agency Fitch Inc. also warned Friday that it might cut the ratings of Ford and Ford Motor Credit.
Ford shares fell $1.77, or 7.5%, to close at $21.70 while GM, similarly stung by the S&P; report, lost $3.10, or 4.95%, to $59.47, both on the New York Stock Exchange. Other auto stocks falling on the day’s news included Lear Corp., a maker of automotive interiors and seats, which declined $5.09 to $37.05, and Visteon Corp., the auto parts maker spun off last year from Ford, which fell $2.57 to $17.94, both on the NYSE.
*
Reuters news service was used in compiling this report.
