Ford Loses $129 Million in Third Quarter; Nearly $3 Billion Before Special Charges
By Michelle Krebs November 7, 2008By Michelle Krebs
DEARBORN, Mich. - Ford Motor Co. reported Friday a net loss in the third quarter of $129 million, compared with a net loss of $380 million in the third quarter of 2007.
However, Ford took special charges during the quarter mostly related to retiree health-care costs. Excluding those, its third-quarter pre-tax loss was $2.7 billion, down from a profit of $194 million a year ago. On an after-tax basis, Ford's loss was $3 billion, compared with a loss of $24 million.
As expected, the loss prompted Ford to announce more cost cutting measures. They include: an additional 10-percent reduction in North American salaried ranks, a freeze on salaried pay increases and bonuses and an elimination of company matching funds to savings plans. It also includes cutting another 2,600 hourly jobs. Ford will also reduce overall capital spending, reduce spending in in manufacturing, information technology and advertising and lower inventories globally.
Ford's balance sheet illustrated how quickly automakers are burning through cash. Ford used $7.7 billion in cash in the quarter. By some estimates, that means Ford has only cash enough to fund operations for about seven months.
Ford said it closed the quarter with overall liquidity totaling $29.6 billion, which includes $10.7 billion in available credit lines. Unlike General Motors, which is announcing third-quarter results later Friday morning and more cost cuts, Ford borrowed money long before the current credit crunch hit.
"We continue to take fast and decisive action implementing our plan and responding to the
rapidly changing business environment," said Ford President and CEO Alan Mulally in a statement. On Thursday, Mulally joined General Motors CEO Rick Wagoner, Chrysler chief Robert Nardelli and UAW President Ron Gettelfinger in Washington, D.C., to make their case to a Congressional delegation headed by House Speaker Nancy Pelosi for federal assistance.
"We have a strategy that is broad and specific enough to handle the dramatic changes in today's environment," Mulally said. "We will continue to assess the rapidly changing business environment and modify implementation of our plan accordingly."
While Ford announced a host of cost-cutting and revenue-generating moves on Friday, it was adamant in noting that nearly all planned product programs remain on track and on time. The automaker did say a few select vehicles will be deferred until industry volumes recover and that Ford will reduce spending for large vehicles in declining segments.
More Cost Cutting
Ford's newest cost-cutting plan is intended to save another $3 billion in addition to the original $14 billion to $17 billion Ford hopes to save through 2010.
Specifically, Ford's revised cost-cutting plan will:
-- reduce North American salaried personnel-related costs by an additional 10 percent by the end of January 2009, through personnel reductions, attrition and "other actions."
-- further reduce the ranks of U.S. hourly employees by approximately 2,600 as a result of the most recent round of targeted buyouts - bringing Ford's total U.S. hourly reductions through buyouts in 2008 to approximately 7,000.
-- eliminate merit-pay increases for North America salaried employees in 2009.
-- eliminate performance bonuses for global salaried employees, including the Annual Incentive Compensation Plan for the 2008 performance year.
-- suspend matching funds for U.S. salaried employees participating in Ford's Savings and Stock Investment Plan, effective Jan. 1, 2009.
-- reduce annual capital spending to between $5 billion and $5.5 billion - enabled by efficiencies in Ford's global product-development system and reduced spending in declining product segments.
-- reduce engineering, manufacturing, IT and advertising costs through greater global efficiencies.
-- reduce inventories globally and achieving other working capital improvements.
-- return capital from Ford Credit to Ford Motor Company consistent with Ford Credit's plan for a smaller balance sheet and a focus on core Ford brands.
-- continue to develop incremental sources of automotive funding, including divesting of non-core operations and assets, and implementing equity-for-debt swaps.
Fewer Vehicles Sold
Ford sold 1,174,000 vehicles in the third quarter, down from 1,487,000 vehicles sold in the year-ago quarter. As a result, Ford's third-quarter revenue dropped to $32.1 billion from $41.1 billion a year ago. The decline reflected not only lower overall vehicles sales but the absence of vehicle sales and revenue from the sale of Jaguar and Land Rover to India's Tata Motors.
In addition, consumers' shift to smaller, lower-priced cars played a role in Ford's quarterly revenue.
Recession Rolls Out Globally
Most disconcerting, though not unexpected, is the fact that automotive recession long hitting North America is rolling out to some global markets. Global companies like Ford and GM had been relying from strong performance in overseas markets to buoy the sagging peformance in North America. But now those markets are weakening as well.
Here's Ford's rundown, region by region:
North America: Ford North America reported a pre-tax loss of $2.6 billion, compared with a loss of $1 billion a year ago. Third-quarter revenue plummeted to $10.8 billion from $16.7 billion from not only lower overall vehicle sales but also the shift of model mix from profit-rich trucks and SUVs to smaller, less-expensive cars.
South America: Ford South America reported a pre-tax profit of $480 million, compared with $386 million a year ago; revenue rose to $2.7 billion from $2.1 billion. South American economies are still flourishing and Ford's performance there reflects higher net pricing, favorable volume and mix and favorable changes in currency exchange rates, partly offset by higher net product costs.
Europe: Ford Europe reported a scant pre-tax profit of $69 million, compared with $293 million a year ago, even though revenue rose to $9.7 billion from $8.3 billion.
Volvo: Volvo's losses are widening. The Swedish automaker reported a pre-tax loss of $458 million, compared with a loss of $167 million a year ago. Revenue nosedived nearly $1 billion -- to $2.9 billion from $3.8 billion a year ago. Volvo is in the midst of restructuring, with plans to reduce global employment.
Asia Pacific and Africa: Even the once-thriving Asia-Pacific region suffered a blow. Ford Asia Pacific and Africa's pre-tax profit of $4 million compares with $30 million a year ago. Revenues dipped to $1.7 billion from $1.8 billion.
Mazda: Ford lost $1 million from its investment in Mazda and associated operations in the third quarter, compared with a profit of $14 million a year ago.
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