Ford Had Its Worst Loss Ever In 2006
Friday, January 26, 2007
Ford Motor yesterday reported a $12.7 billion loss for 2006, its biggest in its 103-year history, as the company struggles to correct strategic mistakes, fend off Asian rivals and remake itself into a smaller, more competitive automaker.
The loss, compared with a profit of $1.4 billion in 2005, underscores the difficulty of Ford's campaign to slash costs, reduce its workforce, close plants and re-engineer its assembly lines to adapt quickly to shifts in the marketplace. Ford hopes to emerge from its restructuring with a stronger lineup of smaller vehicles that offer better gasoline mileage. The strategy also would leave Ford with as little as 14 percent of the market in 2008, compared with 25 percent in the late 1990s.
So far, however, Ford has been unable to deliver the kind of home-run products that have helped rescue it in the past. Charlie Hughes, a former auto industry executive, said Ford has too many brands. He said the company has spent a lot of "wasted effort" on building and marketing seven different brands.
"They need to clear the decks and get back to being Ford, and declare they are going to beat Toyota," Hughes said. "The brand that Ford has to have as a success is the Ford brand."
Analysts expect Toyota to surpass Ford in U.S. sales this year. With its rapid advance, Toyota is threatening to overtake General Motors as the world's largest auto manufacturer. GM, which had been scheduled to report earnings next week, said yesterday its results would be delayed because of accounting adjustments. The company also said its performance continued to improve last year and that it expected profits to rise in the fourth quarter, compared with the same period a year ago.
Alan R. Mulally, Ford's chief executive, said the company has "very solid plans in place" for an overhaul and has a good "operating rhythm." Ford executives said yesterday they anticipate losses for at least two more years, although they also said they were confident the company could turn a profit in 2009.
"We know where we are. We are dealing with it. We are on plan," Mulally said.
Ford is sitting on a cash cushion of $34 billion after arranging $25 billion in loans this year, using plants and luxury brands like Volvo as collateral. Ford, which said it spent $9.9 billion on restructuring costs last year, blamed the loss in 2006 on a profit collapse in its truck-dependent North American division. In the fourth quarter, Ford had a loss of $5.8 billion, compared with a loss of $74 million last year. Fourth-quarter revenue fell 13 percent, to $40.3 billion. For the full year, revenue fell 9.5 percent, to $160.1 billion from $176.9 billion in 2005.
Among Detroit automakers, analysts view Ford's financial condition as the most dire. Peter Hastings, a bond analyst at Morgan Keegan, said Ford's results were "in line with our poor expectations; obviously the numbers were terrible."
Hastings said Ford has enough cash to make it for another year or two, depending on the outcome of labor negotiations with the United Auto Workers union that are to start this summer.
"I was listening to the chief financial officer's comment that he expects results to be substantially better," he said. "Our reply is that they better be. They better be billions better."
Ford's stock, which had slumped earlier in the day, closed yesterday at $8.22 per share, up 2 cents.
The automaker has survived harsh periods before. In the 1980s, Ford managed a resurgence based on the Taurus model and amassed huge profits in the 1990s from the boom in sales for large sport-utility vehicles like the Explorer.
"We sometimes tend to forget that between 1996 and 2000, Ford made $38 billion," said Harley Shaiken, an economics professor at the University of California at Berkeley. "It was making more money than General Motors. This is a company that has a lot going for it. It is in a dark moment, but that doesn't mean that Ford is out of the game."