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Restructuring costs could push red ink to $9B in '06. (http://www.detnews.com/apps/pbcs.dll/article?AID=/20060914/AUTO01/609140365/1148)

Bryce G. Hoffman - Detroit News - Sept. 14, 2006

http://www.cleanmpg.com/photos/data/501/Ford_Logo.jpg
The Ford Franchise in deep trouble.

Ford Motor Co. projects its worldwide automotive operations will lose nearly $6 billion this year, and the company as a whole could lose as much as $9 billion once restructuring costs are factored in, according to internal company forecasts.

A Sept. 6 report under the heading "Automotive Profit Forecast" that was prepared by Ford Chief Financial Officer Don Leclair's office projects Ford's global automotive operations will post a pretax loss of $5.6 billion to $5.9 billion, excluding non-recurring charges. A senior Ford source with firsthand knowledge of the report provided details to The Detroit News.

The projected loss would be a nearly six-fold increase over Ford's $1 billion pretax global automotive loss last year and illustrates the depth of the automaker's problems in its core car and truck business.

The figures closely track the projections of analysts with Wall Street firms BNP Paribas and JPMorgan Securities who spoke with The News on Wednesday.

Company spokesman Oscar Suris would neither confirm nor deny the financial projections. "We do not verify the authenticity of any secret or confidential information improperly shared outside the Ford Motor Company," he said.

The projections surfaced as Ford's Board of Directors meets today in Dearborn to discuss intensifying the pace and scope of the company's turnaround effort. A plan that includes more job cuts and other actions could be announced as early as Friday.

According to the internal Ford report, the automaker's struggling North American auto business accounts for most of the projected $6 billion pretax loss. Ford's North American automotive operations posted a pretax loss of $1.6 billion in 2005.

The report also shows that Ford expects to lose money in 2006 in each of its global markets, with the exception of South America. Even the fast-growing Asia-Pacific region is expected to post a slight loss, though Japan's Mazda Motor Corp., which is controlled by Ford, is expected to be profitable.

When one-time charges related to the company's ongoing restructuring effort are included, Ford's 2006 pretax loss could climb to $8 billion to $9 billion, according to other internal projections cited by the senior Ford source.

How high the losses climb will depend in part on how many workers take advantage of Ford's buyout offers, which are expected to be expanded as part of the new restructuring plan. Profits at Ford Credit, the automaker's captive finance unit, also would be included in Ford's overall results.

The losses would come in stark contrast to Ford's pledge in 2002 that it would make $7 billion in pretax profit by 2006.

Since then, Ford has been buffeted by rising material costs, a consumer shift away from profitable SUVs and intensifying competition from foreign automakers. Ford has lost U.S. market share for 10 straight years.

Ford routinely prepares financial projections for internal planning purposes, but has not provided financial guidance to Wall Street since January.

Companies usually offer guidance to analysts on a quarterly basis, but are not obligated to do so. General Motors Corp. also has stopped providing financial projections, citing uncertain market conditions.

Ford's decision to withhold guidance has frustrated Wall Street and forced analysts to draw their own conclusions.

According to a report published Friday by Erich Selle of JPMorgan Securities, Ford stands to lose more than $8.4 billion in cash this year. That would leave the company with less than $17 billion in cash -- significantly less than the $20 billion Ford told analysts it expected to end the year with, Selle said.

Selle believes Ford will have to sell some assets to raise additional cash.

"We expect Ford's need to enhance liquidity at its automotive operations and improve its access to capital at the finance unit to cause the company to pursue a sale of a partial stake in Ford Motor Credit over the next year," he said.

For months, Ford insisted that this was not an option. More recently, the company has acknowledged that "everything is on the table" and internal studies have been prepared exploring this possibility.

The projections in the Ford reports are consistent with estimates developed independently by BNP Paribas analyst Bradley Rubin.

He noted that other analysts predict Ford will post a smaller loss.
"It's not a huge surprise to us," he said. "But they are certainly going to take the street by surprise."

Ford worldwide automotive operations lost $1 billion pretax in the first six months of 2006.

Historically, the first half of the year is better for domestic automakers than the last half. Ford's bottom line will take a hit from its decision to slash factory output by 21 percent in the fourth quarter.

"That's why this restructuring plan has got to be perfect," Rubin said. "They've got to get 40 to 50 percent of the people out the door. It's just got to be a lot smaller company."

Ford now finds itself in the same position as rival GM, which posted a $10.6 billion loss in 2005. While that delivered a big blow to GM's stock, it also allowed the automaker to put its financial problems behind it, allowing the company to move forward with its own restructuring plan in 2006.

"If it's going to be bad, you might as well make it really bad," said David Cole, chairman of the Center for Automotive Research. "Really, it's a matter of survival. Ford got hit really hard, and it's going to be worse in the third and fourth quarters."

It just cracks me up how Ford and GM always say "Our solution is to lay off workers and close factories" instead of "Our solution is to build cars people actually want to buy".

The execs also never seem to want to cut their own pay in the face of billion dollar losses. Oh, they'll fire 30,000 workers making $29k each, but will they shave one penny off their $100 million/year "executive comp"? Not on your life.

Several times when I tune into BBC World Service at night, they mention this and point out Detroit has put all their eggs in the SUV market. I'm imaging other forum flaming me "what do the Brits/Europeans know? They can't afford them - but we Americans can because we have a great economy!". Of course the implicatin is Americans are more prosperous than Europeans because our economy is more market driven - I'll actually agree with that general statement, but this is where their argument if flawed...

The proliferation of SUVs are the result of a regulated market - not a free market. Safety and CAFE standard loopholes for trucks partially account for this, but Detroit management/labor is probably more responsible. Labor sought and received wages/benefits that were unstainable in the auto industry in part because management prefered to give the stockholders a good quarter or two with a shortened strike and sacfirice the long-term future. Trucks and SUVs becaume about the only thing they could make with a profit. The public is finally choosing trimmer vehicles, putting that cash cow on a diet.

...and I'd get flamed by some gas-guzzeling lovers as anti-free market. :rolleyes:

It just cracks me up how Ford and GM always say "Our solution is to lay off workers and close factories" instead of "Our solution is to build cars people actually want to buy".

The execs also never seem to want to cut their own pay in the face of billion dollar losses. Oh, they'll fire 30,000 workers making $29k each, but will they shave one penny off their $100 million/year "executive comp"? Not on your life.

When a company is loosing money, exec pay should go down to zero until they are back in the black and when profitable it should be adjusted based on performance.

It just cracks me up how Ford and GM always say "Our solution is to lay off workers and close factories" instead of "Our solution is to build cars people actually want to buy".Last night on the news, I saw a plant employee who said something to the tune of, "People just aren't buying American cars. With the the price of gas being so high and our main product in large vehicles, people are choosing economy cars instead."

Now, while I don't argue with what he said, I feel that there's more impact by reversing the order in which you say them:
"With the the price of gas being so high and our main product in large vehicles, people are choosing economy cars instead. People just aren't buying American cars."

In my opinion, starting with "people aren't buying American cars" makes it sound anti-patriotic. On the othe hand, leading with "we build large vehicles" makes a better case to follow with "people don't buy American cars."

I agree. If Ford built a car that was similar to a Fit/Yaris, they'd get a LOT of sales. Also, what's stopping Ford from making Fusion/Focus hybrids to compete against the Camry/Prius hybrids?

Unlike GM, Ford doesn't build junk. They make great vehicles, but not the right *kind* of vehicles.

They need to adapt rather than surrender.

Back then, Ford might have been thinking: "How could it get any worse?" :(