Ford drops ’09 profit goal
Four dollar gas has put Ford Motor Co. in a fix.
After years of promising to return to profitability by 2009, the struggling Detroit automaker said Thursday that it did not expect to reach that goal and instead hopes to break even next year.
The nation’s second-largest carmaker blamed the darkened forecast on fuel prices -- the average price of a gallon of regular gas topped $4 in California for the first time Thursday, according to AAA -- along with rising commodities costs, a weak dollar and slumping consumer demand for larger vehicles.
In addition, Ford said it would cut an undisclosed number of jobs by August. Ford shares dropped 64 cents, or 8.2%, to $7.16.
Profitability “will take longer than we originally thought,” said Chief Executive Alan Mulally, who has repeatedly predicted a profitable 2009 for the company since taking the helm in September 2006. Ford lost $2.7 billion last year and $12.7 billion in 2006.
The news came just weeks after Dearborn, Mich.-based Ford raised Wall Street’s hopes by reporting a $100-million profit for the first quarter. Immediately afterward, billionaire investor Kirk Kerkorian announced that he had amassed a large stake in the company and intended to purchase more shares.
But since then, Ford said, the company has seen continued slides in sales of its most profitable models that forced it to reconsider its midterm prospects.
“We saw a real change in the industry demand for pickup trucks and SUVs,” in early May, Mulally said. “It seemed to us that we reached a tipping point where customers began shifting away from these vehicles.”
Through April, Ford saw a 10% drop in overall U.S. sales, compared with last year, and in April alone its sales of trucks and SUVs fell 18%. This week, Ford announced cutbacks in truck production at several plants, the latest in a series of moves directed at reducing operational costs.
Still, industry observers insist that Ford’s biggest problem is on the dealership lot: getting drivers in an increasingly bearish economy to buy its products.
“Given the weakness of the overall industry, I thought Ford’s old forecast was difficult,” said David Healy, analyst for Burnham Securities. The new expectations are “a recognition that the mix of vehicles and sales of vehicles are going in the wrong direction.”
For at least the last 15 years, Ford has made the bulk of its profit selling full-size SUVs such as the Explorer, and in particular its F-series pickup trucks, the top-selling vehicles in America. Two-thirds of its total vehicle sales through April were trucks and SUVs, compared with 42% at both Toyota and Honda.
Now, with those sales slumping, Ford has pointed to surging sales of small cars such as the Focus, which is up 30% for the year. The problem, analysts said, is that such vehicles are often money-losers for the company, even when sold at higher volumes.
“Historically, it’s been a real challenge for U.S. carmakers to make money off small cars,” said Mark Oline, credit analyst for Fitch Ratings.
Compounding the problem is that Ford has few small vehicles to offer consumers compared with rivals, putting it at a distinct disadvantage. Ford’s anticipated Fiesta compact car won’t be available in the U.S. until 2010.
“It’s unfortunate that a car like Fiesta can’t be on the market sooner,” Oline said.
--
