Ford: Despite $2.75 billion loss in 4th quarter, turnaround working

Ford CEO Alan Mulally
UPDATED: 1/24/08, 4:12 pm ET DETROIT -- Even though it lost $2.75 billion in the fourth quarter, Ford Motor Co. says its losses are shrinking and its turnaround plan is working.

That fourth-quarter loss compares with a net loss of $5.6 billion in the year-earlier period. For all of 2007, Ford lost $2.67 billion, an improvement from 2006’s $12.6 billion loss.

“Our full-year results indicate we are heading in the right direction,” CEO Alan Mulally said today.

Industry analysts noted that, unlike earlier quarters in 2007, Ford reported no positive surprise in the fourth quarter.

“Overall, automotive results were weaker than we expected,” Morgan Stanley analyst Jonathan Steinmetz wrote in a research note.

Ford reported a pretax loss of $1.6 billion for its North American auto unit in the fourth quarter, compared with a loss of $2.7 billion in the year-earlier quarter. For the full year, Ford lost $3.5 billion before taxes on the North American auto business. That was an improvement from a loss of $6.0 billion a year ago.

Those fourth-quarter North American results were “much worse than expected,” Credit Suisse analyst Chris Ceraso wrote in a research note. Credit Suisse had estimated a pretax quarterly loss of $705 million in North America.

Said Ceraso: It “looks like the North America shortfall vs. our forecast can be tied to pricing that was less of a year-to-year improvement than we expected and overall cost performance that was weaker than we expected.”LABOR COST CUTS

Ford had been expected to announce buyouts as part of a labor contract reached late last year, but the automaker had not provided any details until Thursday.

Analysts have hailed the contract for its potential to slash the company's labor costs by allowing it to hire new workers at half the wage rate of current employees. The pact also shifts retiree health-care obligations to a new trust fund.

Mulally said on a conference call with analysts and reporters that Ford was offering buyouts to all 54,000 of its employees represented by the United Auto Workers union. He said the buyouts would be offered in two stages — one that runs from now through the end of February, and another that starts on February 18 and runs through March 17.

He said most workers who accept buyouts would leave the company in the second quarter. He gave no details on how many workers Ford aims to trim through the buyouts.

The buyout packages will mirror those offered toward the end of 2006, but one will be more generous.

A package that offered retirement-eligible workers a $35,000 lump-sum incentive in 2006 will now offer a $50,000 lump-sum incentive for “non-skilled” employees and a $70,000 lump-sum incentive for “skilled” employees.

Ford has about 12,000 U.S. factory workers eligible for retirement, Mulally said on the call.

Ford cut its work force by 32,800 employees in 2007 in an effort to bring production in line with demand in the crucial North American market.

Ford posted a pre-tax loss of $1.6 billion in that market in the fourth quarter, compared with a loss of $2.7 billion a year earlier. The improvement reflected higher margins on vehicles as the automaker pulled away from cut-rate sales to car rental companies and held back from offering large consumer incentives.

Ford’s finance arm, Ford Motor Credit, said net income dropped 33 percent to $186 million in the fourth quarter. The unit reported net income of $775 million for 2007 and said it expects about the same results in 2008.

“Guidance for this unit called for flat 2008 profits, suggesting management expects higher credit costs to likely be offset by cost savings,” JP Morgan analyst Himanshu Patel said.

Reuters contributed to this report

You can reach Amy Wilson at awilson@crain.com

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