Stuck in Reverse

In its core North American operations, Ford reported a pretax loss of $2 billion, compared with a pre-tax loss of $1.2 billion a year ago. Revenue declined to $15.4 billion from $18.2 billion. Market share in North America declined from 17.5 percent at the end of 2005 to 15.5 percent this year.

Don Leclair, Ford's chief financial officer, gave analysts a detailed look at Ford's financial wreckage. In a conference call yesterday, he said Ford's earnings will drop in the next three quarters. Leclair warned that other big negative charges loom later this year, including a charge related to the final bill for the buyout offers of hourly workers.

He said vehicle production in coming quarters will be throttled back, much of it coming in high-profit truck and SUV categories. The scheduled production cuts and permanent factory closings will further erode Ford's market share, threatening its No. 2 position in the U.S. market.

Leclair said he expected the automaker's cash flow to continue to be negative by a "substantial amount" over the next few years. Ford's cash drain amounted to $3 billion in the latest quarter, or close to $250 million a week. Leclair said Ford is searching for options to raise cash to keep its position strong. The company is seeking to sell its Aston Martin luxury brand and will sell more bonds.

Some analysts said that Ford's cash reserve is enough to stave off bankruptcy but that the automaker can't go on losing money forever. "If profitability never comes, something has got to give," said Kevin Tynan, senior analyst with Argus Research Corp. "It's a very key time."

Leclair said the automaker will continue to pump money into vehicle development. Ford said it would restore profitability at its North American division by 2009, a year later than an earlier pledge.

Chaison said Ford's hourly workers are the most vulnerable to the company's financial difficulties. "They can either accept the buyouts or continue to work for a company that is in serious financial trouble," he said.

Analysts seem to be willing to give Mulally some time to put his stamp on the company. In yesterday's conference call, an analyst asked Mulally to give his take on initial reviews of Ford's product plans. Mulally responded that he had not had a chance to start those detailed reviews.

Pete Hastings, vice president of corporate fixed income at Morgan Keegan & Co., said Mulally is still learning the company. "Mulally said 'they' instead of 'we' several times during the call," Hastings said. "It's fairly complex to try to turn this thing around. I would say next quarter's results should be 'we' instead of 'they.' "

Ford also said it plans to restate its financial results from 2001 to the second quarter of 2006 to correct accounting errors involving financial instruments used to hedge against interest rate volatility. Ford said the final restatement amounts haven't been determined.