Ford Has $2.98 Billion Operating Loss as Sales Plunge

Nov. 7 (Bloomberg) — Ford Motor Co., with U.S. sales shredded by the worst financial crisis since the Great Depression, posted a third-quarter operating loss of $2.98 billion and said it used up $7.7 billion in cash.

The per-share operating loss of $1.31 was wider than the 93-cent average of 10 analyst estimates compiled by Bloomberg. Ford said it would trim more salaried jobs by January, deepen its fourth-quarter production cuts and shrink capital spending by as much as 17 percent.

Revenue plunged 22 percent to $32.1 billion, forcing Ford to triple its consumption of cash compared with the second quarter. Cash, cash equivalents and marketable securities for Ford’s automotive business plummeted 29 percent to $18.9 billion on Sept. 30, the Dearborn, Michigan-based company said today.

“Cash burn is the No. 1 issue,” Rebecca Lindland, an IHS Global Insight Inc. analyst, said in a Bloomberg Television interview. “We associate cash burn with General Motors. It has not always been a problem with Ford. That is potentially a new problem.”

Ford is among the automakers approaching European governments for 40 billion euros ($51.2 billion) in loans, Chief Financial Officer Lewis Booth told reporters at the company’s headquarters. The aid request echoes the companies’ appeal for U.S. financial assistance.

Ford, GM

Ford’s larger competitor, General Motors Corp., reported an operating loss of $4.2 billion, or $7.35 a share. Because of a one-time gain related to retiree medical bills, GM’s net loss was $2.5 billion, or $4.45 a share.

The loss for Ford, the second-biggest U.S. automaker, excluded a gain for shedding future retiree medical bills under a new union contract. Including the gain, Ford had a net loss of $129 million, or 6 cents. The year-earlier net loss was $380 million, or 19 cents a share.

Ford fell 7 cents to $1.91 at 11:46 a.m. in New York Stock Exchange composite trading. The shares tumbled 71 percent this year through yesterday.

Ford disclosed steps to improve cash by as much as $17 billion through 2010, including a slash in annual capital spending of as much as $1 billion.

Salaried-personnel costs in North America will be trimmed an additional 10 percent by the end of January, expanding on a 15 percent reduction this year, Ford said. The company had 22,600 salaried employees in North America as of Sept. 30. Merit-pay increases for such personnel also will be eliminated in 2009.

`Comfortable’ With Liquidity

The company also will suspend matching contributions for 401(k) retirement accounts for U.S. salaried employees starting Jan. 1. Ford previously halted such payments from July 2005 until June 2007.

`We’re comfortable with our liquidity,” Booth said. “We are putting in place a lot of actions to make sure we stay comfortable with our liquidity situation.”

Booth said Ford’s cash plans don’t assume the automaker will receive low-interest loans from either U.S. or European governments.

Ford’s use of cash included the operating loss as well as a drain of $3.6 billion in working capital. The company made fewer vehicles and got less revenue from dealers buying inventory. With payments due to suppliers for parts purchased earlier, Ford had to use cash.

Ford expects to use up less cash in this quarter than it did in the third quarter, Chief Executive Officer Alan Mulally said on a conference call, without providing a figure.

Cutting Production

After chopping North American output by 34 percent in the quarter, Ford said today will reduce fourth-quarter production by 211,000 vehicles. That’s a 33 percent cut instead of the 27 percent that had been planned.

Ford’s U.S. auto sales tumbled 25 percent in the quarter, steeper than the 18 percent industrywide slide. Vehicles sold last month at an annual rate that was the weakest since 1985.

Mulally is trying to steer Ford back to profit by diversifying the automaker’s product lineup and cutting costs. Under Mulally, Ford is retooling three North American truck plants to produce small cars and moving to develop models that can be sold worldwide.

The company has lost $24 billion since 2005, the last time it reported a full-year profit.

Ford reported a gain of $2.3 billion for transferring the retiree health-care obligations to a so-called Voluntary Employee Beneficiary Association, or VEBA, trust set up under its 2007 contract with the United Auto Workers union.

Ford estimated in November 2007 that its future liability would be $23.7 billion, and has said it would contribute $13.6 billion in notes and cash to the fund.

Regional Results

Ford’s worldwide automotive operations had a pretax loss of $2.9 billion, including a $2.6 billion deficit in North America. A year earlier, the pretax loss was $362 million, with a deficit of $1 billion in North America.

The company’s European unit had a $69 million pretax profit, falling from $293 million a year earlier. The Sweden-based Volvo unit’s pretax loss widened to $458 million from $167 million. Ford also lost $1 billion from its one-third stake in Mazda Motor Corp., compared with a $14 million profit a year earlier.

Ford Motor Credit Co., the automaker’s consumer-lending unit, said net income fell to $95 million from $334 million.

Rising fuel prices and the credit crunch squeezed Ford in the quarter. U.S. retail gasoline averaged $3.85 a gallon, 35 percent more than a year earlier, damping demand for the pickup trucks, sport-utility vehicles and vans that accounted for almost two-thirds of Ford’s sales.

While gasoline prices eased after peaking at more than $4 a gallon in July, Ford wasn’t able to recover because the freeze in debt markets sapped consumer confidence and made it harder for buyers to find loans.

Ford dismissed 1,500 salaried employees in the quarter to help slash 15 percent of its costs for that workforce in North America. The company cut 200 salaried jobs in the second quarter.

Buyouts for U.S. factory workers in the quarter totaled 2,600, as employees accepted offers of as much as $140,000 for them to depart.

To contact the reporter on this story: Bill Koenig in Dearborn, Michigan, at wkoenig@bloomberg.net

Last Updated: November 7, 2008 11:48 EST
By Bill Koenig

Source: Bloomberg

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