Ford Reports Record $8.7-Billion Loss; Realigns Products, Plants, People
July 24, 2008

By Michelle Krebs

DEARBORN, Mich. - Ford Motor Co. reported Thursday morning a whopping second quarter  net loss of $8.7 billion, the largest quarterly loss in its history.

Ford's loss includes an $8-billion write-down to essentially restructure the company by massively realigning its North American product portfolio to put more emphasis on fuel-efficient small vehicles and reconfiguring its manufacturing operations.

"We continue to take decisive action in response to the rapidly changing business environment and remain absolutely committed to the four elements of our business transformation plan," said Ford President and CEO Alan Mulally in a statement.  "Our European and South American operations are robust and profitable.  We have momentum in Asia.  And we are uniquely positioned to leverage our global assets and the global strength of the Ford brand to quickly bring more small, fuel-efficient vehicles to North America."

The Product Plan

As expected, Ford also announced Thursday an acceleration of its plan to add fuel-efficient small vehicles to its North American product portfolio.

Mark Fields, Ford's President of the Americas, said in a conference call Thursday with media and ato analysts that two-thirds of its future product spending will be for cars and crossovers; those vehicles now represent just half of its product spending.

Fields said much of Ford's North American product offerings will be borrowed from its European operations. He said that by 2010 all Ford vehicles sold in the U.S. will share underpinnings with Ford of Europe models; by 2013, all will be shared. Today, none are shared.

Globally Ford will use 9 platforms, down from today's 25. Today, Ford has four B-segment (Fiesta) platforms, that number drops to one in the future. Ford has three C-segment (Focus) platforms, that drops to one. Ford has three C/D platforms that now include separate platforms for the midsize Ford Fusion sold in the U.S. and the Ford Mondeo sold in Europe and elsewhere. Those will be merged into one platform. Commercial vehicles, including the Econoline van sold in the U.S. and the Transit van sold in Europe, ride on four different platforms now; that narrows to one in the future.

It is a product plan that makes more sense. "It is prohibitively expensive for manufacturers to design and produce entirely new vehicles," said Jesse Toprak, executive director of industry analysis at Edmunds.com, parent of AutoObserver. "Bringing these vehicles over from Europe provides significant savings to Ford and allows the company to quickly align itself with current market conditions."

Ford CEO Alan Mulally said in the conference call it not only will save money but will give Ford economies of scale on a global basis. For instance, Ford eventually will generate 1 million sales a year from a single B-segment platform and 2 million sales a year from its single C-segment platform. Leverage global economies of scale is vital since smaller vehicles don't generate the high profits that pickup trucks and SUVs once did.

"It is a different business model," acknowledged Mulally. But he believes Ford can make a good profit on smaller vehicles by leveraging global platforms combined with the favorable contract Ford negotiated last year with the United Auto Workers union.

Ford will:

* bring to North America from Europe six small vehicle platforms in the B-segment, in which the upcoming Fiesta competes, and the C-car category, in which the Focus currently plays. The Focus in the U.S. finally will be the same one sold in Europe.

* double its hybrid line and production in 2009;

* double four-cylinder engine capacity by 2011;

* accelerate the launch of its EcoBoost engine that uses gasoline turbocharged direct-injected technology, unveiled at the Detroit auto show in January. The engine will go on the Lincoln MKS and Ford Flex. It will be offered on 80 percent of Ford's line by 2012;

* retool three large truck and SUV plants to small car production beginning in December;

* lead or be among the leaders in fuel economy in every product segment in which it competes, a goal General Motors recently stated for itself as well. Other fuel-saving technologies, including PowerShift twin-clut transmissions, six-speed automatics, direct injection, electric power-assisted steering, start-stop engines and twin independent variable cam timing will be employed;

Ford said the Ford, Lincoln, Mercury lines will be almost completely upgraded by the end of 2010. Here's what that product plan now includes:

* 2009 Ford F-150, on sale in late fall;

* 2010 Ford Fusion, Mercury Milan, Lincoln MKZ sedans, on sale in early 2009, with Fusion's and Milan's four-cylinder fuel economy expected to top Honda Accord and Toyota Camry, Ford says;

* 2010 Ford Fusion Hybrid and Mercury Milan Hybrid, beginning production late this year and on sale in early 2009 - with fuel economy expected to top the Toyota Camry hybrid, Ford claims;

* New Ford Mustang, including coupe, convertible and glass-roof models, on sale in early 2009;

* New Ford Taurus sedan with EcoBoost engine on sale in mid-2009;

* New European Transit Connect small multi-purpose van on sale in mid-2009;

* New Lincoln seven-passenger crossover with the EcoBoost engine on sale in mid-2009;

* New European Ford Fiesta, in both four- and five-door versions, in early 2010;

* New European Ford Focus, in four- and five-door versions, in 2010;

* New Mercury small car in 2010;

* New European small vehicle that Ford will only say will be a "whitespace" entry in North America in 2010;

* Next-generation Ford Explorer, based on the Ford Explorer America concept unveiled at the Detroit auto show in January in 2010. It will feature unibody construction, the EcoBoost engine, six-speed transmission, weight savings and improved aerodynamics for up to 25 percent better fuel economy, Ford says.

"We continue to take fast and decisive action implementing our plan and responding to the rapidly changing business environment," said Mulally in a statement. "Ford is moving aggressively using our global product strengths to introduce additional smaller vehicles in North America and to provide outstanding fuel economy with every new product."

The Manufacturing Plan

Ford will convert three existing North American truck and SUV plants for small car production, with the first conversion beginning this December. The moves are in addition to Ford's announcements in May and June that it is reducing its North American production plans for large trucks and SUVs for the remainder of 2008, as well as increasing production of smaller cars and crossovers.

Among the manufacturing realignment actions:

* Michigan Truck Plant in Wayne, Mich., which currently builds the Ford Expedition and Lincoln Navigator full-size SUVs, will be converted beginning this December to production of small cars derived from Ford's global C-car platform in 2010;

* Production of the Ford Expedition and Lincoln Navigator will be moved to the Kentucky Truck Plant in Louisville, Ky., early next year.

* Cuautitlan Assembly Plant in Mexico, which currently produces F-Series pickups, will be converted to begin production of the new Fiesta small car for North America in early 2010.

* Louisville (Ky.) Assembly Plant, which builds the Ford Explorer mid-size SUV, will be converted to produce small vehicles from Ford's global C-car platform beginning in 2011.

* Twin Cities (Minn.) Assembly Plant, which was scheduled to close in 2009, will continue production of the Ford Ranger through 2011 to meet consumer demand for the compact pickup.

* As previously announced, Kansas City Assembly Plant this year will add a third crew to its small utility line for the Ford Escape, Escape Hybrid and Mercury Mariner and Mariner Hybrid.

The People

Ford said it will continue to offer targeted hourly buyouts at its U.S. plants and facilities and remains on track to reduce salaried-related costs by 15 percent in North America by Aug. 1.

Ford also said it will accelerate its dealer consolidation plan, which, the automaker said will "will result in a dealer network that reflects the changing industry size and model mix." Ford is shooting for 14 percent market share. 

The Financials

Ford's second-quarter loss included $8 billion in special items. Of that, $5.3 billion is associated with the changes Ford announced and another $2.1 billion is associated with Ford Credit's leases, mostly on large trucks and SUVs which have drastically declined in value. Excluding the special item, Ford's loss was in line with what analysts predicted and compares with a net profit of $750 million in the second quarter of 2007.

Ford said it continues to have nearly $27 billion of cash on hand, down $2.1 billion from the end of the first quarter. The decrease primarily reflects working capital increases, upfront subvention payments to Ford Credit and automotive operating losses, offset partly by the proceeds of the Jaguar Land Rover sale, Ford said. 

Photos by Ford

1 - Ford's evolving product line

2 - Ford Fiesta comes to U.S. in 2010

3 - Euro-style Ford Focus finally arrives in the U.S. in 2010.

  

Posted by Michelle Krebs at 4:05 AM under Featured , Ford , News | Comments (2) | digg this | Seed Newsvine

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