Ford to close plants, speed up cost-cutting

Automaker's profit down 19 percent in 2nd quarter

July 20, 2005|By Rick Popely | Rick Popely,CHICAGO TRIBUNE

After its second-quarter profit fell 19 percent, Ford Motor Co. said yesterday that it would close an unspecified number of plants and accelerate cost-cutting to revive its North American automotive operations.

Ford earned $946 million in the quarter, or 47 cents a diluted share, but its core North American auto unit swung to a $907 million loss from a $454 million pretax profit a year ago.

The Ford Motor Credit Co., the automaker's financial-services unit, earned $1.3 billion before taxes, automotive operations in other regions were profitable, and Ford received about $400 million in tax refunds and interest to offset North America's loss.

Chief Financial Officer Donat R. "Don" Leclair blamed declining truck sales and rising commodity costs for the company's North American performance.

Ford expects its auto operations will lose money this year, a major retreat from its earlier forecast of a $1.5 billion to $2 billion profit. Leclair pointed a finger at North America, where Ford has more plant capacity than its market share warrants.

"We realize we have excess capacity, and we will update you on our plans later this year," Leclair said during a conference call with analysts and media.

Leclair declined to discuss which plants are being considered or when they could close. Closings are negotiated with unions as part of contracts.

October 2007

The United Auto Workers contract runs until October 2007, so U.S. plants are likely off limits until then. The Canadian Auto Workers contract expires Sept. 20, and negotiations opened this week. Ford has 19 assembly plants in North America.

Ford has cut North American production capacity by 20 percent and about 20,000 jobs in the past three years, but yesterday's announcement underscores the competitive pressures domestic automakers continue to face from Asian rivals.

Toyota, Nissan, Honda and Hyundai have added North American plants and are moving into domestic strongholds such as sport utility vehicles and pickup trucks.

Brett Hoselton, senior auto analyst at KeyBanc Capital Markets, said Ford is "still playing catch-up" in trying to match production capacity to its dwindling market share.

"They have too many plants; it's that simple," Hoselton said, predicting that Ford faces a tough road back.

Since 1999, Ford's U.S. market share has fallen 6 percentage points, to 18.8 percent. This year, Ford's U.S. sales are down 5 percent, and traditional moneymakers like the Explorer and Expedition SUVs are off even more, forcing temporary layoffs at plants.

That prompted Ford in April to back away from a prediction it would earn $7 billion in pre-tax profit by 2006. Leclair said Ford would step up cost-cutting efforts with suppliers and hinted of job cuts beyond the 1,000 white-collar positions announced previously. "We have more to do," he said. "It's essentially an acceleration or extension of the plan we had before."

Ford's shares fell 9 cents, to $10.84, on the New York Stock Exchange yesterday.

Leclair reiterated yesterday that Ford expects to earn $1 to $1.25 a share this year before special charges, but he issued no guidance for the third or fourth quarters because of "the volatility" of the industry.

2004 earnings

Ford earned $1.73 a share in 2004 after charges. In January, the company said it expected to earn $1.75 to $1.95 a share for 2005, but it has lowered the forecast twice since.

Leclair said Ford is focusing on turning around its North American auto operations because earnings at Ford Credit, a cash cow in recent years, have likely peaked. Ford Credit's second-quarter pretax profit fell by $229 million because of higher interest rates.

The Chicago Tribune is a Tribune Publishing newspaper.

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