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Ford plans to offer more buyouts after cutting loss in half

The No. 3 automaker says it's still on track for profitability in 2009, but doubts arise.

January 25, 2008|Ken Bensinger | Times Staff Writer

Ford lost $2.7 billion in 2007, the company reported Thursday, a substantial improvement over the $12.6 billion of red ink it spilled a year earlier. But with losses continuing and market share falling, doubts have increased about whether the troubled automaker can accelerate its turnaround plan.

Ford, the No. 3 seller of cars and trucks in the U.S., said it lost $2.75 billion in the fourth quarter, half as much as in the same period in 2006. The quarterly loss was close to analyst expectations and the market showed little reaction to the news, with Ford stock falling 4 cents to $6.26.

The improvement in Ford's bottom line, however, came largely from cost-cutting efforts, including reducing labor and healthcare expenses, rather than from increased sales -- a troubling sign as economic conditions promise to challenge all carmakers in 2008.

In the fourth quarter, Ford sold 545,097 vehicles, a 6.5% decline from the year-ago period. For the full year, Ford's share of the U.S. market dropped to 14.8%, from 16.4% in 2006.

Nevertheless, Ford Motor Co. President and Chief Executive Alan Mulally said Thursday the company was still on track to return to profitability in 2009.

It may be difficult, considering current market conditions. Industry analysts expect automakers to sell 500,000 fewer cars in the U.S. than they did in 2007, and for Ford, they say, the prospects are particularly dim.

"Ford is making very, very slow progress," said Shelly Lombard, a credit analyst for Gimme Credit, who questions whether Ford's savings from workforce reductions and the recently signed pact with the United Auto Workers union will be sufficient to match its expenses moving forward.

Another issue, she said, was Ford's product mix. While other companies, such as Toyota Motor Corp. and General Motors Corp., have engaged in very public efforts to produce image-conscious hybrid vehicles, Ford has lagged in development of desirable new vehicles.

One example is the Verve, a small sedan Ford unveiled at the Detroit auto show this month. The car was heralded as one of the best introductions at the show and a perfect addition to a lineup heavy with gas-guzzling trucks. Yet the Verve isn't slated for sale in the U.S. until 2010. With gas prices near record highs and fears of a recession looming, Lombard said, "It'd be nice to have some new product out now."

Ford said Thursday it would attempt to further lower costs by offering buyouts to nearly all of its 54,000 hourly American workers.

"The U.S. economy is slowing, and the outlook for the auto industry remains challenging," Mulally said.

Since 2006, Ford has reduced its workforce by 44,000 and has replaced many line workers with lower priced labor. Even so, Ford may have trouble reducing its workforce, said Brett Hoselton, auto analyst at KeyBanc securities, because less than 33% of its employees are within five years of retirement age, compared with about 60% of GM workers.

Moreover, he said, a continued focus on cost cutting may handicap Ford in the critical area of product development. "The company is being run by bean counters," Hoselton said. "They always pick the beans over the product."

Last year, Ford announced intentions to sell Jaguar and Land Rover, two of the three components of its Premier Automotive Group. That unit, which also includes Volvo, had a profit of $504 million in 2007, compared with a loss of $344 million in 2006.

In the last two years, Ford has lost a combined $15.3 billion. In 2005, its last profitable year, it earned $1.4 billion. The most recent quarterly loss was Ford's ninth in the last 10 quarters.

ken.bensinger@latimes.com

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