Ford closes its worst year

Company loses $5.8 billion in 4Q but says '07 will be better

January 26, 2007|By Sarah A. Webster | Sarah A. Webster,Detroit Free Press

DETROIT -- After unveiling Ford Motor Co.'s record $12.7 billion loss for 2006, the company's chief executive officer offered assurances yesterday to plant workers, engineers, managers, dealers and others stunned by the news.

"We are at the bottom," Alan R. Mulally told the Free Press.

He pledged that 2007 would end on a stronger note as the company progresses through a major restructuring, though more losses are expected.

The costs of the restructuring, and a sweeping consumer shift away from Ford's most profitable pickups and SUVs, helped bring the company to this low point. The breathtaking loss reported yesterday represented $1,925 for each of the 6.6 million cars and trucks Ford sold around the world last year.

The loss was the worst annual performance in the company's 103-year history. In automotive history, it is exceeded only by General Motors Corp.'s $23.5 billion loss in 1992, when retiree benefit accounting changed.

The last three months of the year, in which Ford posted a $5.8 billion loss, also scored as the company's worst year-end quarter and the second-worst quarterly result in its history.

Mulally, appointed to his post in September after being credited with driving a turnaround at the Boeing Co., acknowledged that the climb out of the hole will be arduous, but he remained firm in his assessment that it could be accomplished.

"For the next few quarters, it's going to be worse year over year, but at the year end, 2007, overall it will be better," Mulally said. "And we will be back on our plan toward profitable growth in 2009."

Mulally spoke for Ford Motor yesterday. Chairman William Clay Ford Jr., who stepped down as CEO after hiring Mulally, remained out of the public eye.

Ultimately, Ford Motor's fate - and the success of its revamped Way Forward restructuring plan - boils down to this time-sensitive question: Can the automaker downsize fast enough and get a critical mass of appealing new cars and trucks to market before it runs out of cash?

The shrinking of Ford, which will close 16 plants and eliminate 44,000 jobs, is expected to be the easy part.

The challenge comes in predicting consumer tastes, managing the long lead times to develop new cars and trucks and getting the vehicles to market as Ford burns through an estimated $17 billion in cash through 2009.

Ford has hedged its bet by stuffing its coffers with more than $34 billion in cash, loans and other credit by the end of 2006. With its additional line of credit, Ford said it has $46 billion in available liquidity.

But that comes at a cost, with a new interest expense expected to cost about $300 million every three months, Ford's chief financial officer, Donat R. Leclair, estimated.

So a miscalculated product, serious quality glitch or strike - Ford is negotiating a new labor contract with the UAW this year - could represent a serious setback.

"It's going to be very tight," said Erich Merkle, director of automotive forecasting at IRN Inc., in Grand Rapids, Mich. "They're running against a clock right now."

Ford's shares seemed to get a little vote of confidence yesterday. The stock price shot up in the morning after the earnings report but closed at $8.22, nearly the same as the day before.

Although Wall Street generally remains skittish about Ford, some have expressed confidence that the automaker has stashed away enough cash and credit to survive until 2009.

By then, more than 70 percent of Ford's lineup for the Ford, Mercury and Lincoln brands will be new or freshened, and the company predicts that its troubled North American unit, which sells vehicles in the United States, Canada and Mexico, will return a profit that year.

Detroit industry insiders, who have been wooed and disappointed by a dizzying number of turnaround plans in recent years, remained skeptical - but hopeful - that Ford can pull it off this time.

"We'll see," said Robert Thibodeau, a prominent Ford dealer from Center Line, Mich. "It's difficult for all of us at this point in time. From the dealer perspective, we hope that they got things right, because we've got a lot invested as well. New product is imperative, and they've got to get it quick."

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