Factory Shutdown Costs Hit Ford Hard
Ford Motor Co., posting an even larger loss than rival General Motors Corp.’s, said Friday that it lost $1.2 billion during the first quarter as it recorded $2.5 billion in charges for its latest restructuring plan.
It was Ford’s biggest quarterly deficit since the fourth quarter of 2001, when it reported a $5.07-billion loss after taking $4.1 billion in charges for a previous restructuring plan.
“These special charges are becoming fairly un-special because they are occurring so frequently,” quipped analyst Sean Egan of Egan-Jones Ratings Co., a Philadelphia corporate credit research firm.
Ford’s first-quarter loss was nearly four times the $323-million loss posted by GM a day earlier, putting a major dent in Chief Executive William Clay Ford Jr.’s argument that his company shouldn’t be placed in the same boat as its ailing rival because Ford was profitable.
Ford Chief Financial Officer Don Leclaire said during a Friday conference call with analysts that the automaker still had about $1 billion in restructuring-related charges to book this year.
The first-quarter loss of 64 cents a share contrasted with a year-earlier profit of $1.2 billion, or 60 cents a share.
Ford, the nation’s No. 2 carmaker, said revenue for the first quarter dropped 9% to $41.1 billion from $45.1 billion.
Ford, like GM, is suffering from swollen payrolls, underutilized factories, soaring healthcare costs and a decline in U.S. sales in the face of fierce competition from Asian automakers.
The company said in January that it would close 14 North American plants, including seven auto assembly factories, and would cut 34,000 jobs from its North American payroll by 2012.
Costs affiliated with that plan reduced Ford’s first-quarter earnings by 88 cents a share. Without those charges, Ford would have posted a profit of $454 million, or 24 cents a share.
That, however, was slightly below analysts’ expectations and led to a broad sell-off that drove Ford’s stock price down 7.9% to $7.32, near the stock’s 52-week low of $7.13.
In a statement Friday, William Ford renewed his vow to return the company’s North American automotive operations to profitability by 2008.
But Ford’s Americas unit president, Mark Fields, cautioned that the path “is not going to be linear and smooth.”
The restructuring, said Burnham Securities auto industry analyst David Healy, “is still in Day 1.”
He said he believed Ford would break even for the full year but would see a continued earnings decline in its major income engine, Ford Motor Credit Co., as margins shrink because of its weak credit rating. In the first quarter, the credit unit’s profit fell 33% to $479 million from $710 million a year earlier.
Operating losses at Ford’s North American automotive unit grew substantially during the quarter as it sold fewer Ranger pickups, compact Focus sedans and Explorer and Expedition sport utility vehicles in the United States. Excluding special charges, the unit posted a pretax loss of $457 million, contrasted with a year-earlier pretax profit of $664 million.
Ford’s automotive operations in Asia, Europe and South America were profitable for the quarter.
But its U.S. market share for the first quarter fell to 18.7% from 19.5% a year earlier. The Ford, Mercury and Volvo units accounted for most of the sales loss.
Globally, sales of Ford vehicles were flat at 1.72 million cars and trucks, but revenue fell almost 6% to $37 billion because of unfavorable foreign exchange rates.
Analysts said Ford had been dependent on large pickups and full- and mid-size SUVs.
Although it has a number of new vehicles recently launched or in the pipeline, analysts say, Ford had not changed its product mix quickly enough to match shifting consumer tastes for smaller, car-based “crossover” sport utility vehicles and fuel-efficient passenger cars.
The restructuring dragged heavily on the company’s liquidity, with Ford’s cash and liquid assets dropping to $21.2 billion from $28.4 billion on Dec. 31.
