Ford: $8.7 billion second-quarter loss

Bryce G. Hoffman / The Detroit News

DEARBORN — Ford Motor Co. posted a staggering $8.7 billion second-quarter loss today, largely due to write-offs associated with a decline in value of its North American assets Ford Credit’s lease portfolio.

But the dramatic shift away from big trucks and sport utility vehicles toward smaller, more fuel-efficient vehicles that dealt a major blow to the company’s North American automobile business did not help much either.

Excluding special items, the company’s loss from continuing operations was $1 billion before taxes and $1.4 billion after taxes. That translated into a net loss of 62 cents per share. Wall Street had been anticipating a loss of 27 cents per share, according to a survey of a dozen analysts by the Thomson Financial Network.

That compared to a net profit of $750 million, or 31 cents per share, in the second quarter of 2007. But Ford said it remains on track to meet its goal of cutting $5 billion in operating costs by the end of the year and said its overseas operations remain strong.

"We continue to take decisive action in response to the rapidly changing business environment and remain absolutely committed to the four elements of our business transformation plan," said CEO Alan Mulally. "Our European and South American operations are robust and profitable. We have momentum in Asia. And we are uniquely positioned to leverage our global assets and the global strength of the Ford brand to quickly bring more small, fuel-efficient vehicles to North America."

But Ford’s automotive operations in the United States continue to suffer. They reported a pre-tax loss of $1.3 billion, compared with a loss of $270 million a year ago, largely as a result of a shift away from trucks and SUVs and weaker net pricing.

Responding to this change in consumer demand, Ford also announced that three of its large truck and SUV plants in North America will retool to produce small cars, beginning in December. It also said it will bring six of its smaller, less thirsty European models to the United States.

These unprecedented moves had been anticipated since The Detroit News first reported they were in the works early last month.

"We continue to take fast and decisive action implementing our plan and responding to the rapidly changing business environment," Mulally said. "Ford is moving aggressively using our global product strengths to introduce additional smaller vehicles in North America and to provide outstanding fuel economy with every new product."

In addition, Ford outlined an accelerated restructuring program that will include:

• Adding new fuel-efficient small cars and crossovers to its North American product lineup.

• Doubling hybrid vehicle production and lineup in 2009.

• Doubling North American capacity for four-cylinder engines by 2011.

The company also confirmed that Mercury will remain part of its North American brand portfolio. Mercury, which has been starved for profits, will get a new small car in 2010.

Ford lost more than $2.7 billion last year and has lost more than $15 billion since 2005. In May, the company abandoned its long-stated goal of returning to profitability in 2009 and has since said it sees no bottom to the current crisis gripping the U.S. auto industry.

In an effort to respond to declining demand for its cars and trucks, the Dearborn automaker already has begun a third round of blue-collar buyouts at many of its U.S. factories and is in the process of slashing 15 percent of its salaried payroll in North America. Ford also has dramatically scaled back production of pickups and SUVs.

As part of its realignment, Ford said it will take the following plant actions:

• Michigan Truck Plant in Wayne, which currently builds the Ford Expedition and Lincoln Navigator full-size SUVs, will be converted beginning this December to production of small cars derived from Ford’s global C-car platform in 2010.

• Production of the Ford Expedition and Lincoln Navigator will be moved to the Kentucky Truck Plant in Louisville early next year.

• Cuautitlan Assembly Plant in Mexico, which currently produces F-Series pickups, will be converted to begin production of the new Fiesta small car for North America in early 2010.

• Louisville Assembly Plant, which builds the Ford Explorer mid-size SUV, will be converted to produce small vehicles from Ford’s global C-car platform beginning in 2011.

• Twin Cities Assembly Plant in St. Paul, Minn., which was scheduled to close in 2009, will continue production of the Ford Ranger through 2011 to meet consumer demand for the compact pickup.

• As previously announced, Kansas City Assembly Plant this year will add a third crew to its small utility line for the Ford Escape, Escape Hybrid and Mercury Mariner and Mariner Hybrid.

Product analysts said Ford’s decision to bring over more fuel-efficient models from Europe makes sense.

"It is prohibitively expensive for manufacturers to design and produce entirely new vehicles," said Jesse Toprak, executive director of industry analysis at Edmunds.com. "Bringing these vehicles over from Europe provides significant savings to Ford and allows the company to quickly align itself with current market conditions."

By building these vehicles in the United States, Ford can avoid the penalty imposed by a weak U.S. dollar on imports from overseas. But it remains to be seen whether the company, which has long been accustomed to the high profits generated by bigger vehicles can make money off lower-margin small cars.

"Over the past decades, Ford has generated over 60 percent of its sales from trucks and SUVs," said David Kudla, CEO of Mainstay Capital Management LLC. "This sales mix is a legacy from consumer preferences in the 1990s, when the company’s Explorer SUV and F-series pickup truck were top sellers. In an environment where gas is $4 per gallon, these vehicles have been piling up on dealer lots. First half sales were reportedly down 40 percent for SUVs, and 31 percent for trucks and vans, compared to the same period in 2007."

Even some smaller cars are suffering as a weak U.S. economy keeps more Americans off dealer lots.

On Wednesday, J.D. Power and Associates cut its 2008 light-vehicle sales forecast to 14.2 million units — a 12 percent decrease from the 16.1 million units sold in 2007.

"The weak performance seen in June 2008 is expected to carry over into July, and year-over-year comparisons mark June as the weakest month on a seasonally adjusted annualized rate since 1993," said Jeff Schuster, the firm’s executive director of automotive forecasting.

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