Ford’s Loss Will Triple Its Previous Estimates
Ford Motor Co. set the stage Wednesday for its first annual loss in nine years, warning industry analysts that its fourth-quarter loss will hit 50 cents a share--nearly three times previous estimates.
Ford is hiking reserves to handle an increased volume of bad loans to consumers as the economy weakens. The world’s No. 2 auto maker is further emptying the till to pay for the $3-billion recall of Firestone tires it ordered earlier this year, and for the no-interest financing program it has launched to remain competitive with market leader General Motors Corp.
Total losses for the year could top $1.6 billion, said analyst David Healy of Burnham Securities Inc.
An ascending Ford was considered early last year a candidate to surpass GM to become the world’s largest auto maker. But a series of missteps including botched launches of key models such as the redesigned 2002 Explorer and the new Thunderbird--both delayed because of quality problems--has combined with stiff new product challenges from GM and Japanese giants Toyota Motor Corp. and Honda Motor Co. to send sales tumbling.
Some analysts say Ford’s problems are in fundamental areas--such as product quality--and cannot be blamed solely on external forces. “They’re getting beaten by foreign manufacturers in every single product category,” Sean Egan, president of Egan-Jones Ratings Co., told Bloomberg News. The agency lowered its rating of Ford credit Wednesday to BBB-minus from BBB.
Ford shares fell 95 cents to close at $16.79 on the New York Stock Exchange. The stock has plunged 47% since hitting a 52-week high of $31.42 in mid-April.
Chairman William Clay Ford Jr. has responded to the problems with a massive overhaul that cost Chief Executive Jacques Nasser his job at the end of October.
The auto maker also instituted a cost-cutting drive that has included layoffs of 5,000 salaried workers and about 600 blue-collar employees and the trimming of pension and health benefits for most of its 45,000 salaried staff.
That hasn’t been enough, though, to cope with external problems that include a faltering economy and an anticipated hike in consumer defaults on auto loans.
“We have a very serious situation,” Ford Chief Financial Officer Martin Inglis said in a conference call with analysts. “We are seeing some increase in repossessions.”
Inglis declined to specify how much would be added to the Ford Motor Credit Co. unit’s reserves but said it would be several hundred million dollars. Part of that, he said, probably would come from the fourth-quarter dividend of $100million to $150million the credit unit typically pays its parent but will cancel this year.
“We will see some additional announcements, the major one involving the potential reopening of contract negotiations with the United Auto Workers,” said auto industry analyst Brett Hoselton, senior vice president of Cleveland-based McDonald Investments.
“So far, we haven’t heard anything about significant downsizing” that could be forthcoming under UAW contract provisions that permit reopening of negotiations in difficult financial times, he said.
Healy, the Burnham analyst, said that although Ford seems to be doing all the right things--reducing payroll, cutting production, revamping its management structure and promising to refocus attention on product--there still seem to be unexplained problems “that make me uneasy.”
Ford appears to be having a much harder time than GM in affording its zero-interest sales program; GM started the incentives race to boost consumer demand after the Sept. 11 terrorist attacks. Ford sales surged 35% in October from the year-earlier month but gained only 4.4% in November, trailing GM and most of the Asian importers. Unlike Ford, GM’s consumer lending arm said Wednesday that it is experiencing only a modest rise in repossessions and loan defaults and plans no special or unusual charges.
