Ford absorbs loss as clock ticks on rivals
Amid swirling rumors about the fate of the U.S. auto industry, Ford Motor Co., the only domestic carmaker not to rely on federal aid, reported a first-quarter loss of $1.4 billion, bettering analysts’ expectations.
Although Ford’s results were received enthusiastically on Wall Street, they were in great part overshadowed by reports that the Obama administration was preparing a bankruptcy filing for Chrysler and that General Motors Corp. was considering eliminating its Pontiac brand.
In addition, the Treasury Department confirmed Friday that it had given GM an additional $2 billion in funding, raising the company’s total of federal loans to $15.4 billion.
“We appreciate President Obama’s and his administration’s ongoing support of GM and the domestic U.S. auto industry as we undertake the difficult but necessary actions to reinvent our company,” GM said in a statement.
Separately, the company called reports of the Pontiac brand’s demise “media speculation.” The White House has given GM a June 1 deadline to restructure obligations to bondholders and the United Auto Workers union or face possible bankruptcy, but the administration has indicated it would support the automaker regardless.
The administration has made fewer promises for Chrysler, and, unlike for GM, it has not extended any further loans to the smallest of the Big Three U.S. automakers, although it has indicated it would be prepared to offer up to $500 million above the $4 billion the company has already borrowed.
Chrysler faces a Friday deadline to negotiate a merger with Italian automaker Fiat and work out deals to reduce obligations with debt holders and unions. Reports in the New York Times and Wall Street Journal indicated that the administration’s auto task force had asked Chrysler to prepare a bankruptcy filing next week.
Friday morning, Chrysler Vice Chairman Jim Press held a conference call with the automaker’s more than 3,000 dealers to discuss the company’s progress. He denied the reports and said a bankruptcy filing was not imminent, according to dealers who took part in the call.
Press added that Steven Landry, Chrysler’s executive vice president of sales and marketing, was in Washington negotiating the Fiat deal and that the company still hoped to finalize that by midnight Thursday, those dealers said.
For its part, Ford remains the only major U.S. automaker to eschew federal aid, and Friday continued to insist it would not need bailout loans from the government. It has kept its head above water in part because of an aggressive cost-cutting program, as well as deeper cash reserves.
In large part because of that, what was a substantial quarterly loss for Ford was viewed in a positive light.
With sales volumes at three-decade lows, Ford’s revenue in the quarter declined 37% to $24.8 billion, and the Dearborn, Mich., automaker lost $1.9 billion on its automotive operations.
Its overall loss of $1.4 billion, or 60 cents a share, compares with a profit of $70 million, or 3 cents, a year earlier. Analysts had expected a loss last quarter of about $1.23 a share.
The market reacted positively to the news, with Ford shares rising 51 cents, or 11.4%, to close at $5.
Ford’s chief executive, Alan Mulally, said the company did not expect to require federal aid, instead predicting it would return to break-even or profitability -- on its own -- by 2011.
“We do not expect to require a bridge loan from the U.S. government,” Mulally said, unless there is an “unforeseen event” such as an “uncontrolled bankruptcy by a competitor.”
Because Ford borrowed $23 billion from private lenders in late 2006, it has not suffered the same liquidity problems as its Detroit competitors, despite suffering a similar sales drop.
That has also protected it from negative reaction on Wall Street. GM shares, which at times in the last year traded at prices several times that of Ford, closed at $1.69 on Friday, up 7 cents. Ford’s market capitalization stood at about $12 billion; GM’s barely $1 billion.
Ford “is successfully differentiating itself from its wounded domestic competitors,” said Efraim Levy, equity analyst at Standard & Poor’s.
Still, Ford’s results were far from glowing. Its cash burn -- the rate at which it used up its cash resources -- was $3.7 billion for the quarter, a level that analysts say is not sustainable over any period of time.
Ford’s chief financial officer, Lewis Booth, indicated that last quarter’s cash-burn rate, a key measure of a company’s viability and a hot point for Chrysler and GM over the last six months, would be Ford’s worst of the year.
Ford finished the quarter with $21.3 billion in cash on hand.
Itay Michaeli, auto analyst at Citi Investment Research, said Ford also beat some expectations in the first quarter of 2008, only to go on to a miserable string of results that left it with a $14.8-billion loss for the year. Based on that, and the prospect of continuing weak sales, he characterized Ford’s shares as “too expensive” and maintained his sell rating.
In an interview this week, Ford’s chairman, Bill Ford Jr., said the company “never really thought about” taking federal aid because the company believed it could go it alone.
That could prove a challenge if sales don’t turn around. Ford’s U.S. sales were down 43% in the first quarter, and its market share slipped slightly because of reduced sales to commercial and rental fleets.
Moreover, global sales, which have been a strong point for Ford in recent years, were down almost 20% in the quarter, according to Mulally, who said he expected worldwide sales for 2009 to fall about 15%, which he termed a “record.”
Some analysts contend that Ford will be forced to seek federal loans if sales continue at their current pace, roughly 30% below 2008’s already weak volumes in the U.S.
Ford “believes it won’t need government loans,” said Shelly Lombard, debt analyst at research firm Gimme Credit, in a report last week. But “that depends not only on how low vehicle sales go this year, but also on when sales recover and what levels they recover to in 2010 and 2011.”
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