Ford Has $1.19 Bln 1st-Qtr Loss on Job-Cutting Costs

[Marc]

More Ford stories...

April 21 (Bloomberg) -- Ford Motor Co. reported a first- quarter loss of $1.19 billion on expenses related to cutting jobs and closing plants while declining sales of sport-utility vehicles led to the sixth North American loss in seven quarters.

The net loss of 64 cents a share compared with net income of $1.21 billion, or 60 cents, in 2005's first quarter. Excluding costs Ford considers one-time items, Ford had a profit of $458 million, or 24 cents a share, just below analysts' estimates. Revenue for Ford, the world's third-largest automaker, fell 9 percent to $41.1 billion as U.S. auto sales fell.

"My concern is do they have the big picture right the next couple of years?'' said Mirko Mikelic, a senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan. "They're moving in the right direction. Obviously, they're in a perilous situation. They continue losing market share. Their costs are increasing. You can't sustain that.''

The loss was Ford's largest since a $5.07 billion loss in 2001's fourth quarter, which also contained costs to close plants and cut jobs as part of Chief Executive Officer William Clay Ford Jr.'s first restructuring. He repeated that the current plan will restore North American profits by 2008.

"This transformation isn't going to be quick, and it isn't going to be painless,'' Bill Ford said in a statement today.

30,000 Job Cuts

Ford, of Dearborn, Michigan, recorded costs of $1.65 billion, or 88 cents, related to the 30,000 job cuts and 12 plant closings planned for North America by 2012. The company's North American operations had a pretax loss of $457 million, compared with a pretax profit of $664 million a year ago.

Excluding costs, Ford was expected to report a profit of 25 cents a share, the average estimate of 16 analysts surveyed by Thomson Financial.

Sales of the Explorer, the company's top-selling SUV, fell 25 percent in the quarter following a 29 percent slide in 2005. The Expedition large SUV declined 21 percent. Ford's overall sales of U.S. cars and light trucks dropped 2.8 percent. The company lost 1.2 points of U.S. market share in the quarter after losing share in the 10 previous years.

SUVs "are the highest-profitable, highest-margin vehicles, and they're not having a good time right now,'' Dan Poole, who helps manage about $34 billion at Cleveland-based National City Corp., including Ford shares, said in an interview before the release of earnings.

Job-Cutting Costs

The job-cutting expenses included $1.13 billion, or 61 cents a share, in costs for layoffs of factory workers, buyouts and benefits where furloughed workers continue to collect 95 percent of their take-home pay.

Also included were costs of $183 million, or 10 cents a share, related to idling a St. Louis factory last month; $62 million, or 3 cents, for job cuts not directly related to a restructuring plan announced in January; and $269 million, or 61 cents, for pension curtailment costs.

Ford announced in January it planned to cut jobs in North America after recording a $1.6 billion loss in the region in 2005. The idled St. Louis factory is one of two plants that produced the Explorer. Ford has scheduled vehicle-assembly plants in four other U.S. cities to close by 2008.

Ford normally doesn't provide profit figures for specific vehicles. The Explorer generated $13 billion in profits from 1990 through 1997, according to a deposition by a company financial analyst in a court case involving an Explorer that had rolled over.

Explorer Stalls

The Explorer had been the No. 1-selling SUV in the U.S. every year until last year, when it was passed by General Motors Corp.'s Chevrolet TrailBlazer. The Explorer hit a 15-year low in sales in November.

"With gas at over $3 a gallon, I'm not sure'' SUV sales will revive "anytime soon,'' National City's Poole said.

The national U.S. price of unleaded gasoline was $2.80 a gallon on April 19, compared with $2.50 a month earlier and $2.22 a gallon one year ago, according to AAA's gasoline-price Web site.

North America is Ford's largest auto unit, generating 46 percent of Ford Motor's total revenue and 53 percent of automotive revenue in 2005.

Ford Credit

Ford Motor Credit had net income of $479 million, a drop from $710 million in 2005's first quarter. The unit's loan portfolio has decreased as the automaker sells fewer cars and trucks. The unit had net income of $2.5 billion in 2005 as its profits overcame losses in worldwide auto operations, enabling Ford to report 2005 net income of $2 billion.

Ford shares rose 35 cents, or 4.6 percent, to $7.95 yesterday in New York Stock Exchange composite trading. They've gained 3 percent this year.

The annual cost of insuring $10 million of Ford Motor Credit debt for five years using credit default swaps rose 7 basis points, or $7,000, to 487 basis points according to Deutsche Bank AG prices at 7:15 a.m. in New York. Ford Motor Credit traded at a record high of 650 basis points in May. The cost of insuring the debt of Ford Motor Co., rose 15 basis points to 935 basis points.

 

[Dave Dunn]

It's no wonder that big auto is losing money hand over fist when they have to continue to pay their laid off workers 95% of their salary.

Unions have come a long way from protecting the workers from inhumane treatment. Now they're in the business of making sure their dues sources are provided with golden hammocks.

 

[RoxaneB]

I read this and sat scratching my head. Last week, I had a one-day introduction to lean manufacturing and the topic was raised about the fear of going lean. How people have seen companies go lean simply by laying people off.

Then I see Ford lays off people and continues to lose money. Maybe lean just isn't the way to go? *tongue in cheek comment*

Some thing just doesn't add up.

Paragraph after paragraph was about job losses...except towards the end when they talk about SUV sales.

With the price of gas skyrocketing and the upcoming summer travel season having many experts stating that gas won't be coming back down to earth any time soon, with the price of electricity going up (at least in my area), taxes and so on...who the heck can afford a Ford (or any gas guzzing vehicle nowadays)?

While growing up, my family was purely domestic...except for the Celica purchased prior to my birth (and sold shortly thereafter). I was a domestic girl with my first car being a Taurus. Second car was a Pontiac...too many problems with the Fords in the family (all of them had undergone a recall for something or other).

So what has Toyota done to jump into the market? I hestitate to call them an import now...especially as the plant that built my newest car is just up the road here in Cambridge, Ontario. Yup...that's right...domestic girl has gone "import" and is the very proud and satisfied owner of a Matrix.

If our domestic automakers want to make it in the world, it's time for them to look at doing more than just letting people go. Heck, they need people...with fresh ideas, fresh energy, fresh eyes! Their processes and designs and materials need to change.

Bill Ford is correct when he says that it won't be painless. It's too bad that it takes pain to prompt people to change. Now they need to figure out the right things to change.

 

[Ken K]

Yup...that's right...domestic girl has gone "import" and is the very proud and satisfied owner of a Matrix.

I'm really curious...what makes you so proud buying an import? It seems you would rather support a foreign company than your own neighbors, and that makes you proud????????????????????????????????

 

[RoxaneB]

I'm really curious...what makes you so proud buying an import? It seems you would rather support a foreign company than your own neighbors, and that makes you proud????????????????????????????????

All in all, I am proud that I made what was the smart choice (for me). It has nothing to do with supporting a foreign company or my neighbours...although, as I said, my car was actually made just up the road from where I work...my "neighbours" work at that company, so I am actually supporting them.

 

[qualeety]

sad but true....

it really does not matter where the cars are made....the truth is the money(profit) is going back to Japan / Korea and anywhere else.

They are not here to create jobs for us/canada. They are here because they want to make money.

So, let's wake up and smell the coffee...

 

[Kevin H]

I've been buying "American" most of my life and quite frankly IMO it's time for the big 2 & 1/2 to wake up and smell the coffee.

The next time I replace my primary vehicle, which hopefully will be some years in the future, I'll be seriously looking at the so-called imports unless something has changed significantly with the so-called domestic producers.

Having said that, I try to buy "American" or "Canadian" when possible. It's hard to do when we have so few domestic producers of clothing, tools, and other items left. Even a lot of books are showing up as having been printed in other countries.

As a historical reenactor, many of my purchases support that hobby, and many are made from local craftspeople. I'm fairly comfortable with that - getting something beautiful/unique and not contributing to balance of trade issues. But it would be a lot more difficult to make those purchases if I were raising a family.

 

[Jen Kirley]

it really does not matter where the cars are made....the truth is the money(profit) is going back to Japan / Korea and anywhere else.

They are not here to create jobs for us/canada. They are here because they want to make money.

So, let's wake up and smell the coffee...

True, they are here to make money and not jobs. Also true, the profit goes overseas, though some stock dividends/capital gains come back to U.S. investors.

However, for every dollar earned in a manufacturing enterprise there is a churn of other dollars earned and spent, e.g. for utilities, goods and support supplies/services, transportation, plant and equipment and their maintenance, and so on. These dollars are churned locally and profoundly affect local economies, in no small part through the employees' salaries, and in my perception would dwarf the profits dollars.

Foreign car companies are building plants in the U.S., while the "Big 2 1/2" are closing many plants in comparison.

So you see, to assign my approval I more heavily favor the manufacturing's location than its ownership location.

 

[Craig H.]

True, they are here to make money and not jobs. Also true, the profit goes overseas, though some stock dividends/capital gains come back to U.S. investors.

However, for every dollar earned in a manufacturing enterprise there is a churn of other dollars earned and spent, e.g. for utilities, goods and support supplies/services, transportation, plant and equipment and their maintenance, and so on. These dollars are churned locally and profoundly affect local economies, in no small part through the employees' salaries, and in my perception would dwarf the profits dollars.

Foreign car companies are building plants in the U.S., while the "Big 2 1/2" are closing many plants in comparison.

So you see, to assign my approval I more heavily favor the manufacturing's location than its ownership location.

Yes, Jennifer. Economists call the rate of this "churn" the velocity of money. The dollar in salary becomes a dollar for an ice cream cone becomes a dollar for a high school kid's wages becomes a dollar for the movies Friday night becomes....

The higher the velocity the bigger the immediate impact.

 

[Ragnar]

it really does not matter where the cars are made....the truth is the money(profit) is going back to Japan / Korea and anywhere else.

They are not here to create jobs for us/canada. They are here because they want to make money.

So, let's wake up and smell the coffee...

Not intending to be confrontational, but it is for that same reason (Want to make money) Ford is investing 10 Billion dollars in the Asian automobile industry. I would not recomend buying a Chinese Import made by Ford because the profits come back to America. And don't kid yourself China's manufacturing capability and capacity will soon out grow their domestic comsumption of automobiles the same way it has in Canada, all be it, it will take a little longer. The Asian Fords, GMs and Chryslers will be free flowing into the American automotive markets at VERY competitive prices. I agree we need to "Wake up and smell the coffee" but for reasons other than where the profits are going.