Ford CEO insists, `We're fine'

UP CLOSE

Mulally says slowing economy, credit woes won't hurt automaker's plan for profitability

August 31, 2007|By BLOOMBERG NEWS

Ford Motor Co. Chief Executive Officer Alan Mulally said the "head winds" of a slowing economy and tighter credit won't delay the automaker's return to profitability.

"We put together a pretty robust transformation plan," Mulally said in an interview this week in New York. He said the strategy, which has the second-biggest U.S. automaker turning a profit in 2009, anticipated the risks of an economic slowdown as well as greater difficulty for companies and consumers in borrowing from their usual lenders.

Mulally, 62, is wrapping up his first year as CEO after joining the Dearborn, Mich., automaker from Boeing Co. Though Ford posted a surprise $750 million profit in the second quarter, the car market has deteriorated since then amid the subprime mortgage crisis and a drop in consumer confidence triggered by tumbling stock prices and falling home values.

"The economy certainly is not helping them," said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Mich. "The lending crisis is hitting them and maybe hitting them hard."

As for the prospect of lower demand for cars and trucks, Mulally said Ford wanted to make sure its plan "was robust enough to handle an upside and also a downside."

"We're fine in the near term, over the next few years," he said.

His optimism isn't shared by some investors. Ford's credit-default swaps have risen 57 percent since late February, a sign of decreasing confidence in the company's ability to meet its debt obligations. Credit default swaps of General Motors Corp., the biggest U.S. automaker, have doubled in the same period.

"Given their precarious financial situation," Ford faces more risk from an economic downturn than GM and Chrysler LLC, Virag said. GM lost $1.98 billion last year, and Chrysler, acquired this month by Cerberus Capital Management LP, lost $680 million.

The rise in Ford's swaps prices reflects concern about the economy and credit conditions rather than the automaker's own prospects, Mulally said.

Tighter credit "means we have to keep taking the actions to deliver on our plan," Mulally said. "We'll keep looking at that data and we'll keep making adjustments, which means you have to take out a little more on the cost side."

Ford borrowed $23.4 billion last year to pay for its restructuring while continuing to develop new models. "We are in very good shape as far as liquidity," Mulally said. "We are not in danger of bankruptcy."

The credit crisis hasn't diminished interest among potential buyers of Ford's European Jaguar and Land Rover units, Mulally said.

Jaguar and Land Rover have continued to attract interest from bidders, he said. "We love the breadth of the buyers, we love the depth of the buyers," Mulally said. He said Ford expects to resolve the fate of the units by late this year or early next year. He declined to provide a more specific timeline.

Ford has received preliminary bids from private-equity firms including TPG Inc., Cerberus Capital Management LLC, Ripplewood Holdings LLC and One Equity Partners LLC, people familiar with the bids said this month.

Also bidding are two Indian automakers, Tata Motors Ltd. and Mahindra & Mahindra Ltd., the people said. Tata Group, parent of Tata Motors, confirmed its interest last week.

Ford is selling Jaguar and Land Rover as part of its strategy to focus on rebuilding the Ford, Lincoln and Mercury brands.

The automaker is slashing production capacity to reflect its shrinking U.S. market share. Ford held 25.7 percent of the U.S. market in 1995, the last year it recorded an increase. This year's share through July was 16.4 percent. Mulally wants to stabilize the U.S. share of its Ford, Lincoln and Mercury brands at 14 percent to 15 percent. In July, it fell to 13.7 percent.

Ford is cutting more than 40,000 jobs in North America under a restructuring announced last year. That includes buyouts of U.S. factory workers, where the last of the departures will occur next month.

About 37,000 factory workers accepted buyouts last year, and about 27,000 had departed Ford as of mid-June. Ford plans to close 16 North American plants by 2016. Ten have been identified, and most of them will be closed by the end of next year.

By 2012, Ford will have closed 16 of 41 North American plants.

Mulally declined to comment on Ford's negotiations with the United Auto Workers union for a new contract to replace a four-year agreement that expires Sept. 14. He said he holds regular discussions with union officials and shares information with them. The union understands that its health depends on Ford's, he suggested.

"There might be more clarity than ever before about what needs to be done to create a viable company," he said.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.