Ford lost $5.8 billion in 3Q

Amid tough restructuring, automaker's U.S. sales fell 8.3%

October 24, 2006|By Alana Semuels | Alana Semuels,Los Angeles Times

Ford Motor Co. reported yesterday that it lost $5.8 billion in the third quarter - its largest quarterly loss since 1992 - as the automaker struggled to implement a restructuring plan that included substantial cutbacks at factories across the country.

The slide is expected to last at least through the first half of next year as employee buyouts and plant closings continue and the No. 2 U.S. automaker struggles to wean itself from its long reliance on trucks.

"Everyone expected the number to be bad," said John Novak, an analyst with investment research firm Morningstar Inc. "But the amount of cash being burned is very high."

Ford reported negative operating cash flow of $3.1 billion for the third quarter. Novak said other disappointing numbers for the quarter included a lackluster performance at Ford's financing unit, whose net income fell 55 percent to $262 million, and sluggish sales in the company's luxury division, Premier Automotive Group, whose pretax loss rose more than fivefold to $593 million.

Third-quarter revenue fell 10 percent to $36.7 billion. U.S. vehicle sales fell 8.3 percent to 710,000, although the company said the year-earlier quarter was stronger than usual because of a promotion that gave all customers Ford's employee price discounts.

Ford also said it would restate earnings for the past five years because of accounting errors related to derivative transactions. The company said the restatements, which it will announce when it files its detailed quarterly report next month, would materially improve results for 2002, although it was too soon to tell how other results would be affected.

The third-quarter loss, amounting to $3.08 a share, compares with a loss of $284 million, or 15 cents, in the quarter last year. It brings Ford's net loss for the year to $7.24 billion through Sept. 30. Excluding one-time costs, Ford lost $1.2 billion in the quarter, or 62 cents a share, a penny lower than the consensus forecast of analysts.

There was little market reaction to the dismal report; Ford's shares slipped 11 cents, or 1.37 percent, to $7.90 yesterday on the New York Stock Exchange.

Novak of Morningstar said investors were not giving up on the company but were waiting to see what changes would be implemented by Alan Mulally, a former Boeing Co. turnaround specialist named last month to succeed William Clay Ford Jr. as chief executive.

Although changes could be slow to occur, Mulally was emphatic yesterday that they are needed.

"Let me make it clear: These results are unacceptable," Mulally said in a conference call with investors and reporters. "But we are committed to moving from here to create a viable business going forward."

Ford has struggled to maintain a toehold in the crucial U.S. market. Its share slipped to 15.5 percent in the third quarter, its lowest in decades.

In January, the company unveiled a sweeping turnaround plan under which Ford said it would eliminate 30,000 jobs by 2012 and close 14 facilities.

Lower-than-expected sales of large pickup trucks and sport utility vehicles in the first half of the year prompted the company to accelerate those cuts in September. Ford added two factories to the closings list, offered buyouts to all 75,000 of its union workers and said it would cut 14,000 white-collar jobs.

The process is well under way. The company said yesterday that 40 percent of the 10,400 factory employees it had taken back from Visteon Corp., the troubled parts subsidiary it spun off in 2000, had agreed to take buyouts. That was slightly more than it had expected. Ford workers have until Nov. 27 to decide whether to leave.

Analysts said that cutbacks alone won't be enough.

"At some point, this has to be a company about building a profitable product, not just shrinking," said Kevin Tynan, a senior auto analyst with Argus Research. "You have to put some meat on the bones, and that's really where the challenge lies."

Ford expects to have $26 billion cash and liquid assets by year's end, which Chief Financial Officer Donat R. Leclair said would prove important to the restructuring.

He said the company hopes to be profitable by 2009 and would spend $7 billion a year investing in new products as it tries to achieve that goal.

Alana Semuels writes for the Los Angeles Times.

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