Ford Pushes Cost Cuts After $7.7 Billion 3Q Cash-Burn
DETROIT -(Dow Jones)- Ford Motor Co. (F) Friday announced wide-ranging cost cuts after burning through $7.7 billion in cash in the third quarter, as revenue plunged owing to rapidly deteriorating auto-market conditions.
The Dearborn, Mich., auto maker hopes to improve the cash position in its automotive business by between $14 billion and $17 billion by the end of 2010, through a mix of job cuts, reduced benefits, lower capital spending, divestiture of noncore assets and new financing measures.
“Ford’s actions are based on the expectation that the global auto industry downturn will be deeper, broader and longer than was previously assumed,” the company said. Ford said volume declines in 2009 are expected to be comparable with this year’s steep declines, and that the company “will continue to adjust its production in line with the lower demand.”
Ford, like its domestic peers, is in a race against the clock to boost liquidity as global auto sales suffer the effects of deteriorating investor confidence and tight credit conditions. Ford and other auto makers have had to ramp up restructuring efforts in recent weeks, while seeking financial support from governments to weather the downturn.
Ford’s operating loss, excluding items, widened to $3 billion, or $1.31 a share, in the third quarter, from $24 million a year earlier. The net loss for the latest period, of $129 million, or 6 cents a share, included a $2.3 billion gain mostly related to writing off retiree health costs being transferred to a union-run trusts.
Revenue in the third quarter was $32.1 billion, down $9 billion from the year earlier period, as revenue in the automotive business dropped 23% to $27.8 billion.
In recent premarket trading, shares of Ford were up 3.5% to $2.05 as investors awaited third-quarter results from General Motors Corp. (GM) that are expected to show huge losses.
Ford Confident In Liquidity Position
Investors are paying particularly close attention to the cash-outflow numbers from Ford and GM, amid concerns that the companies might face a liquidity crunch by next year. In the case of Ford, the $7.7 billion reduction in its cash position in the third quarter marked a dramatic acceleration from the $2.1 billion decline in the previous three-month period.
Ford Chief Financial Officer Lewis Booth told reporters the company is ” comfortable with its liquidity position” despite the big outflow in the latest quarter. He declined, however, to comment on whether the worst is behind Ford in terms of cash burn.
Much of the outflow in the third quarter related to lower production volumes as the auto maker idled plants and laid off workers to respond to the drop in consumer demand. The trend continues in the fourth quarter as the company plans to reduce its salaried work force by 10% and cut the output of trucks and cars by about 200,000 vehicles from last year.
Ford finished the third quarter with gross cash in its automotive business of $18.9 billion, and available credit lines of $10.7 billion. Booth said Ford doesn’t expect to tap the loan revolvers, noting that the company will continue to aggressively reduce costs and manage cash with discipline.
Brian Johnson, analyst at Barclays, said Friday during an interview with CNBC, that the amount of cash Ford burned through in the third quarter was higher than expected. Nonetheless, he said that Ford is in a better position than GM on that front and could make it through 2010 just by using current cash and available credit.
Ford is in a better position than its rivals in part owing to a decision in late 2006 by Chief Executive Officer Alan Mulally, who had just recently joined the company, to raise about $23 billion in debt using almost all the company’s assets as collateral. Also under Mulally’s leadership, the company has sold off its Aston Martin, Jaguar and Land Rover luxury brands.
North American Weakness
Despite those moves, Ford has registered $24 billion in net losses since the start of 2006, and its stock price has traded at multidecade lows in recent months.
The major source of weakness continues to be North American operations. Ford North America reported a pretax loss of $2.6 billion for the third quarter, compared with a loss of $1 billion a year earlier. Revenue plunged 35% to $10.8 billion in Ford’s North American automotive business.
The company has been stung by a steep decline in demand from consumers grappling with mounting economic woes and reduced availability of credit in recent months. For much of the year, Ford and its peers were hurt primarily by the sharp decline in sales of trucks and sport-utility vehicles as fuel prices hit record highs. But just as fuel prices started receding, a financial system and capital markets crisis sent consumer confidence reeling, keeping potential buyers out of showrooms entirely.
The weakness has expanded around the globe in ways that auto makers hadn’t anticipated, further reducing optimism about the prospects for U.S. auto makers. Until the latest quarter, international sales had helped offset weakness at home. Now, a slew of foreign auto makers have reported disappointing earnings and weak outlooks as the global scenario deteriorates.
Ford Europe’s pretax profit fell to $69 million in the third quarter, versus $ 293 million a year ago, even as revenue increased 17% to $9.7 billion. Ford’s Volvo Cars unit reported a pretax loss of $458 million, versus a loss of $167 million a year ago.
Pretax profit in Ford’s Asia Pacific and Africa business narrowed to $4 million from $30 million in the third quarter of 2007. Ford South America had a profit of $480 million, up from $386 million.
Ford’s finance arm reported a pretax profit of $161 million, down from $546 million a year ago. Though down, Ford Motor Credit continues to provide profits for the parent company, a stark contrast to the steep losses at GM’s lending arm, GMAC Financial Services.
-By Jeff Bennett, Dow Jones Newswires; (248) 204-5542; jeff.bennett@ dowjones.com
-By Stephen Wisnefski, Dow Jones Newswires; (312) 750 4142; stephen.wisnefski@ dowjones.com
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11-07-08 0913ET
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