Ford posts profit; more cuts coming
Ford posts profit; more cuts coming
Automaker earns $100M in 1st quarter but plans further U.S. production, job cutbacks.
Bryce G. Hoffman / The Detroit News
Ford Motor Co.'s surprise $100 million first-quarter profit pushed Blue Oval shares nearly 12 percent higher Thursday, but the Dearborn automaker warned that deeper cost cuts will be necessary to meet its goal of returning to full-year profitability in 2009.
Ford CEO Alan Mulally said the company will continue to take tough action to match its North American production to declining demand for its vehicles in the region, where it continues to lose money. The automaker will cut production by 20,000 vehicles in the second quarter, on top of an already scaled-back 2008 production plan, resulting in 100,000 fewer cars and trucks being built in the region compared to the second quarter of 2007.
More job cuts also are coming, with another round of buyout offers targeted at specific factories and product lines. Only 4,200 hourly workers signed up for the last round of companywide buyouts -- about half of what Ford wanted.
"We remain committed to our key business objectives -- including our goal of reaching North America and overall automotive profitability in 2009 -- despite the challenges of soft economies, rising oil and commodity prices, and adversity in the credit markets," Mulally said in a conference call with analysts and reporters. "Going forward, we will continue to right-size the business."
Ford's profit equaled about 5 cents per share for the first three months of 2008. That compared with a net loss of $282 million, or 15 cents per share, in the first quarter of 2007 and marked the automaker's sixth consecutive quarter of year-over-year improvement.
Excluding special items, Ford made $525 million after taxes, or 20 cents per share. That was significantly better than the 16-cents-per-share loss Wall Street was expecting. The company's first quarter pre-tax operating profit from continuing operations, excluding special items, was $736 million, up $669 million from a year ago.
Capacity to match demand
The idea that Ford can find profitability as a smaller company represents a radical departure from business as usual in Detroit. But Chief Financial Officer Don Leclair told The Detroit News that Ford's success in Europe and South America shows it can work.
Ford's European operations are about a third the size of those in North America, but the company earned $739 million there in the first quarter, up from $219 million a year ago. In South America, which is even smaller, Ford's profit increased to $257 million from $113 million.
"We've done it South America and we've done it in Europe and we're trying to do in North America," Leclair said in an interview Thursday. "That's where we have the issues."
In the past, Ford and other Detroit automakers have fought to hold on to every point of market share in the United States, even if it meant selling vehicles at a loss. Companies were loath to shutter factories in which they invested hundreds of millions of dollars, instead hoping that sales lost to foreign rivals could be reclaimed. The fact that union contracts required manufacturers to continue paying workers even if their plants were idled did not help.
Mulally, who came to Ford from the aerospace industry, was dismayed by that business model.
"The thing that really got me is how this industry would keep production going and wait for a better day instead of taking the actions that are needed to be profitable," Mulally told The Detroit News in an interview Thursday. "We just have to do whatever it takes to match our capacity to the real demand."
That means cutting shifts and offering more buyouts.
With the latest round of buyouts, Ford has cut its U.S. factory work force by about 40,000 people since the end of 2005.
That contributed to $1.2 billion in cost-cuts the company reported for the quarter, and helped trim its loss on auto operations in North America to $45 million from $613 million a year ago.
Last month, Ford announced shift reductions at its assembly plants in Louisville and Chicago, as well as an engine plant in Cleveland. Together, those actions will sideline about 2,500 workers.
Eliminating a shift at the two assembly plants will save Ford nearly as much as closing one of them outright, Leclair said, adding that the company has no plans to idle any factories beyond those already agreed to as part of its new contract with the United Auto Workers.
But Mulally said the company reserves the right to take additional steps to downsize production if the economy continues to deteriorate.
U.S. car and truck sales are down 8 percent through March as worried consumers pull back on purchases amid a housing slump, soaring fuel prices and a tight credit market. Ford sales are off 9 percent this year.
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