Ford Posts Loss as It Struggles to Boost Sales
Ford Motor Co., struggling to regain its footing in the U.S. market, reported an unexpected second-quarter loss Thursday and said it might accelerate a cost-cutting plan aimed at reviving the world’s No. 3 automaker.
The loss was attributed in part to high gasoline prices driving customers away from big-ticket pickup trucks and sport utility vehicles in favor of smaller -- and less profitable -- vehicles, Ford said. Lower earnings at the company’s credit unit, a loss at its European luxury division, buyer incentives and employee buyout costs also hurt the bottom line.
“It was a dismal quarter,” said analyst John Novak of Morningstar Inc. “Everyone expected tough times, but the results looked bad across the board.”
For the three months ended June 30, Dearborn, Mich.-based Ford reported a loss of $123 million, or 7 cents a share, compared with a profit of $946 million, or 47 cents, in the second quarter of 2005. Sales fell 5.8% to $41.97 billion.
The loss raises questions about the turnaround plan -- dubbed Way Forward -- that Ford unveiled in January. Designed to retool Ford’s money-losing North American operations, the plan includes closing 14 facilities and eliminating as many as 30,000 jobs by 2012.
Some analysts questioned at the time whether the plan was bold enough to revive Ford’s fortunes in the United States.
On Thursday, Chief Executive William Clay Ford Jr. said recent shifts in the marketplace -- especially the speed with which buyers have switched from large trucks to smaller vehicles -- required the automaker to speed its cost-cutting campaign and the rollout of new models.
Although the CEO gave no details, executives hinted that deeper cutbacks could be in the offing.
“We have to move farther and faster to achieve what we want to achieve, and we will do that,” said Mark Fields, head of Ford’s Americas unit.
Sales of Ford’s Explorer SUV slumped 36% in June from a year earlier and those of the larger Expedition plunged 46% as gasoline prices climbed above $3 a gallon in many areas. Even sales of the Ford F-150 pickup, which are more dependent on commercial buyers, were off 10% as businesses delayed purchases.
“The truck and SUV markets that sustained our profitability for so long are getting smaller and more competitive,” William Ford said.
He also blamed higher raw material costs for the poor performance. The company said it was paying 15% more for steel since the start of the year and 25% more for platinum, a key ingredient in components such as catalytic converters.
Buyer incentives such as no-interest financing and $1,000 fuel allowances also are taking a toll, William Ford said. More trouble could be on the way in this area: The automaker said last week that it was adding two years to the powertrain warranty of its vehicles, potentially raising company-paid repair costs.
By the end of the year, the company will have achieved about a third of its planned personnel cuts through buyouts and attrition, the CEO said, and it is on track to reduce production capacity by 700,000 vehicles this year, or about 15%. The cuts helped trim the loss at Ford’s North American operations to $797 million in the quarter from $907 million a year earlier.
In further cost-saving moves, the automaker recently cut its quarterly dividend in half to 5 cents a share and reduced pay for its board of directors.
William Ford said the company had no plans to follow General Motors Corp.’s lead by selling its financing arm, saying Ford Motor Credit Co. “is a very core part of our business.” The unit had a rocky quarter, however, as rising interest rates pushed up borrowing costs and net income fell to $441 million from $740 million a year earlier.
Overseas, Ford’s Premier Automotive Group, which includes European luxury brands Jaguar, Volvo and Aston Martin, swung from a pretax profit of $17 million in the second quarter of 2005 to a $162-million loss.
William Ford had said recently that “the headwinds we faced at the beginning of 2006 have only become stronger,” but the second-quarter results still caught Wall Street by surprise.
Excluding one-time items such as employee buyouts, Ford lost $48 million, or 3 cents a share. On that basis, analysts were expecting a profit of 12 cents. Ford shares fell 14 cents to $6.19.
The chief executive said his company was monitoring the discussions between GM and the Renault-Nissan partnership about a possible alliance. But he noted that Ford already had overseas partners such as Mazda, and exploring additional alliances “is not our top priority.”
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Bloomberg News was used in compiling this report.
