Jump to content
Sign in to follow this  

Ford Motor Lowers Outlook

Recommended Posts

Ford Motor Lowers Outlook, North American Output Levels
May 22, 2008 4:57 p.m.
Link to Source

DETROIT -- Ford Motor Co., responding to troubling U.S. sales trends and high commodity prices, said it no longer expects to meet its long-standing goal of reaching full-year profitability in 2009.

The Dearborn, Mich., auto maker -- which said it expects to be "about break-even companywide in 2009 on a pre-tax basis, excluding special items" -- also announced plans to further reduce its North American production for the remainder of this year. The biggest cuts will come in output of pickup trucks and sport-utility vehicles, which have seen a big sales decline amid the surge in fuel prices.

Ford shares, which had been bolstered in recent months by optimism about the company's apparent progress in restructuring, were down 8.9% at $7.11 in recent trading on the New York Stock Exchange.

As average gasoline prices crossed the $3.50 per gallon mark, customers moved away from pickup truck and SUV purchases faster than expected, Ford Chief Executive Officer Alan Mulally said during a conference call. In the past few weeks alone, the market share of large pickup trucks in the U.S. has dropped to 9% from 11% while the market share of large SUVs has shrunk to 4% from 6.8% in the first quarter.

"We saw a real change in the industry demand for pickup trucks and SUVs in the first two weeks of May," Mr. Mulally said. "It seemed to us that we reached a tipping point where customers began shifting away from these vehicles at an accelerated rate. Based on everything we can see on the outlook for fuel prices we do not anticipate a rapid turn around in business condition."

Mr. Mulally, who was recruited by Bill Ford Jr. in mid-2006 to turn around the company, had repeatedly said, including last month, that the company's automotive operations would return to full-year profitability in 2009. However, "it now looks like it will take longer than expected to achieve our North American automotive profitability goal," he said Thursday.

Mr. Mulally said the company will intensify buyouts on a plant-by-plant basis, but has no plans to offer another company-wide round of incentives. Ford will continue cutting both hourly and salaried workers, and Mr. Mulally left open the possibility of closing a U.S. plant.

GM, Chrysler Also in Bind

Ford's announcements raise questions about how General Motors Corp. and Chrysler LLC will fare this year. GM has planned on a second-half rebound in sales while Ford has always said it sees no such bounce coming. Chrysler, meanwhile, relies on the U.S. for a majority of its sales and its product portfolio is dominated by gas-gulping pickup trucks, SUVs and Jeeps.

"Ford's industry outlook means GM will be hurting as well," said Gimme Credit high-yield analyst Shelly Lombard. "Ford had more momentum and a larger percentage of truck sales but GM is being pecked to death by a bunch of unrelated problems (such as the financial difficulties at finance arm GMAC and ongoing bankruptcy at Delphi), so any weakness in auto demand amplifies GM's existing problems."

GM shares were recently down 2.7% at $18.61. Chrysler, which was acquired last year by Cerberus Capital Management LP, isn't a publicly traded company.

Ford now plans to produce 690,000 vehicles in North America during the second quarter. That is a 20,000 production cut on top of its plans to already reduce output by 101,000 units during the quarter. In the third quarter, Ford will cut production by another 15% to 20% from the same period in 2007 and it expects a 2% to 8% output cut in the fourth quarter.

Driving the reduction is the poor selling performance of pickup truck and SUVs, which are falling as consumers move toward more fuel-efficient, smaller cars. The auto maker now expects industry sales in 2008, including medium and heavy trucks, to be between 15 million and 15.4 million units.

For years Ford has been the pickup truck industry leader, thanks to the success of its F Series models, the biggest-selling vehicle line in the U.S. As recently as 2006, the company had projected that F-Series sales would exceed 900,000 units for the third straight year.

Sales of the F-Series, however, slipped to just under 800,000 in 2006 and to 690,000 last year, as the pickup truck segment got hit by problems in the housing sector and the rise in fuel prices. F-Series sales were down 16% in the first four months of 2008, while overall light truck sales -- including SUVs -- were down 18%.

Focus on Smaller Vehicles

Ford said it is planning to increase production of several smaller models that have been selling well, including the Ford Focus, Fusion, Edge, and Escape, the Mercury Milan and Mariner, and the Lincoln MKX and Lincoln MKZ.

Ford said it is planning further manufacturing capacity adjustments to accelerate the introduction of more fuel-efficient small cars and crossovers, which have some of the functions of traditional SUVs but are built on car platforms and consumer less fuel.

Global Insight analyst Aaron Bragman said Ford's profit delay underscores the pressure U.S. auto makers face from the slowing economy and rapidly sinking sales of pickup trucks and full-size SUVs.

"We think this is really a work of the U.S. economy," Mr. Bragman said. "They're going to be boosting production of the Focus, the Edge, all of the passenger vehicles that are selling well for them. But when you come from a position where you're selling tons of trucks, and people aren't buying trucks, it's going to affect you."

Meantime, Ford also said Thursday it would be neutral with respect to the 20-million-share tender offer by Kirk Kerkorian's Tracinda Corp. The $8.50-a-share offer would increase Kerkorian's stake in Ford to 5.5% from 4.7%, if the full amount is purchased before the offer expires June 9.

Tracinda, when it unveiled its Ford stake last month, said it was pleased with the progress Ford was making and had no plans to seek a management overhaul. Tracinda said earlier this month, however, that it could seek to further increase its stake and may offer suggestions on business strategy, raising expectations that Mr. Kerkorian will take on his traditional role of activist.

Share this post

Link to post
Share on other sites

Your content will need to be approved by a moderator

You are commenting as a guest. If you have an account, please sign in.
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

About us

CheersandGears.com - Founded 2001

We ♥ Cars

Get in touch

Follow us

Recent tweets



Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.