Q4 for Ford will be even worse, stock prices still rise
Oh boy. It looks like the $5.8 billion loss Ford just reported isn't the end of the red ink for the foreseeable future. On Oct. 23, new Ford Motor Co. CEO Alan Mulally had to announce those huge third-quarter losses, the biggest quarterly loss since 1992. The Premier Automotive Group (the luxury group that includes Land Rover, Aston Martin, Jaguar, and Volvo), alone was responsible for $600 million of that loss. Now the company has announced that fourth-quarter earnings will also be dismal due to production cuts, lack of SUV demand, and employee buyouts.Chief Financial Officer Don Leclaire reassured those in attendance that Ford's cash reserves were adequate to meet the crisis at the meeting on Monday. Although Ford had a negative cash flow of $3.1 billion during the quarter, it finished the period with $23.6 billion. This was partially possible after it transferred $3 billion from their VEBA (Voluntary Employee Benefits Assn.) fund.
Particularly troubling, at least according to Goldman Sachs analyst Robert Barry, were losses from the Ford Premier Auto Group and Ford Motor Credit: "The scale of losses in PAG were worse than expected -- a loss of $593 million vs. our estimates of a $134 million loss. And Ford Motor Credit earnings were well below our expectations -- just $448 million vs. our $710 million estimate." Goldman Sachs had rated Ford a "sell," but just removed that tag today, apparently feeling that the restructuring might make a difference. "We think the focus will remain weighted to restructuring upside," Robert Barry of Goldman Sachs said in a note to clients, after he upgraded Ford shares today to "neutral" from "sell."
It made a difference for Ford stock prices too, as shares were up 4.8 percent to $8.28 in afternoon trading on the New York Stock Exchange. That represents the biggest one-day percentage gain since late August when expectations were high for a turnaround plan by the automaker. That doesn't mean Ford is out of the water just yet, and to his credit, Mulally admitted that Ford's results were "unacceptable" and really didn't try to spin the numbers. After accounting for $2.1 billion of the previous quarter's loss, Mulally said that the sale of Jaguar and Land Rover is again being considered: "Clearly, the review of that is high on my priority list." Aston Martin is still on the block and has had at least three potential buyers step forward. The sale of AM could bring $500-$750 million.
On top of that, Ford is going to have to restate losses all the way back to 2001 as a result of a discrepancy in derivative investment accounting. None of this boosts Wall Street's confidence in the automaker. On the plus side though, Ford saw an unexpected gain from interest on overpaid taxes from as far back as the early 1990s, earnings from its South American operations, and from their share of increased Mazda sales. Mulally also said that Ford has stopped looking for an alliance with another automaker, such as the recently scrubbed Renault-Nissan deal with GM.
[Sources: BusinessWeek and Automotive News, sub req.]
Reader Comments (Page 1 of 1)
Jack 10:35PM (12/15/2008)
It the big three get their (UAW) bail-out then they not servive. If they go bankrupt they they could servive.
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noub 8:09AM (10/25/2006)
Ford is in the same shape than GM one year ago !
Now GM is about to be profitable, let's hope that Ford will do the same within one year.
Beginning the "cost cutting" plan is great, it is time also to think about product. Unfortunately, the first results of that product plan will be seen in 2009 at the ealiest !
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Brian 8:39AM (10/25/2006)
"None of this boosts Wall Street's confidence in the automaker"
Stick to blogging about cars. The fact that Ford has outpaced the Dow by about 100% since this summer speaks volumes about Wall Street's confidence in Ford.
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Ford 8:55AM (10/25/2006)
Ford is a bunch of whimpy loosers. they had decades to catch up. They move at a turtles pace, really who cares about Ford anymore? at least GM is showing promise..who'd of thought Hyundai, who forced the Excel on unknowing americans would be better at designing and building cars than long established Ford.
I just read tha
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Ford 8:59AM (10/25/2006)
I just read that ford is killing the Taurus???what??? the only well known Model besides Musatang, and they Kill the car and the name...Taurus was originally Ford's life line..perfect example of complete ignorance in detroit, especially @Ford
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noub 9:03AM (10/25/2006)
one question, maybe the Ford top executives will answer later.
I have one scenario in my mind, can Ford rename the next 500 (which is due to 2010-2010) the new Ford Taurus ?
the 500 name will be nowere in people mind so it is quite easy to discontinue it.
This will be a kind of revival like the Mustang today !
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C. McFeeny 9:26AM (10/25/2006)
I love how everyone chimes in with their digs at Ford. I love how everyone in the auto-blog-o-sphere has all of the knowledge to fix Ford's North American business while the Ford managment has no clue. God, if only Ford would listen to you auto-wise bloggers we'd be swimmin' in money over here in Dearborn instead of bleeding it. Look, I wish Ford would listen to some of the ideas I have about bringing European product over here, but I also acknowledge that there is a lot going on right now that we don't know about and won't know about -- ever. Why don't you all give Ford a chance to show us exactly where the Way Forward is heading? Mullally has only been in his seat for a couple weeks.
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Piter 9:48AM (10/25/2006)
Why is PAG losing money.
I thought things were well at Volvo, Land Rover, Austin, .. is it Jaguar thats bringing the whole unit down?
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All World Automotive 10:14AM (10/25/2006)
Will some one make a run at these guys?
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Jeff 10:32AM (10/25/2006)
@Number 3 and 4... dude, if the news this week about the last taurus rolling of the line was shocking to you, you obviously haven't been paying much attention over the last three years or so. Ford's been planning to phase that car out for several years now, replaced by both the 500 and the Fusion. The only reason it hadn't been phased out till now was that it was being sold for low-profit, resale value degrading fleet purposes. Sales numbers looked pretty good recently for the Taurus, compared to the Fusion or the 500. But for one thing, you gotta consider that the Taurus was really replaced by three cars, the Fusion, the 500 and the Freestyle. Secondly, those sales numbers were probably almost all fleet sales, and that doesn't do much good for Ford. All the car companies are trying to scale back Fleet sales. In that respect, the Taurus served a pretty good purpose as a Fleet only car, keeping the Fusion market from getting diluted with used Fleet cars.
Anyways, I'm rambling.... If you're all surprised and you think Ford's killing off of the Taurus is ignorant, you need to pay a bit more attention. Maybe if Ford hadn't killed the Taurus with an over the top restyling and lack of developement about 10 years ago, things coulda been different... But that ship sailed a long time ago, and right now fresh product from ford is a smart move.
I'm also pretty surprised about PAG, i thought those three were doing at least as good as Jaguar is doing bad. I still think selling Jaguar would be stupid at this point, they're only now at a crucial point with Jaguar putting out the new S-Type. Sell the company now and how much could they actually fetch for it?
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stephen hartt 10:22PM (10/25/2006)
clearly ignorants is bliss! reading some of your blogs! turnarounds and restructering dont happen over night!
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noub 10:53AM (10/25/2006)
Jeff is right when he is saying that it is not the appropriate moment to sell jaguar.
there are about to unveiled the new S type which is going on sell late in 2007 (one year to wait) but this can be a good turn around for Jag. Anyway, the development cost is already done, so ford must give jag a chance.
With the sell of aston, they will be able to leverage jag more in the luxury car company and let volvo and lincoln battle at the level it is right now !
regarding the PAG group, volvo is not in a good shape this year but with the brand new S80, C70 and the futur C30, the futur is bright. Same thing for Land Rover with the new LR3
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Rock 11:04AM (10/25/2006)
Does amyone besides me think that Ford stock at 8.28 is a great bargain?
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Brian 11:47AM (10/25/2006)
#11
Rock, if you have a few thousand bucks you are ok with losing, then yes F is a good bargain.
There's a whole lot of upside potential, yet there's still a lot of risk for losing your money. That's why I say to make sure it's money you can afford to lose.
I made a few thousand profit already. I'm glad I didn't listen to my friends that told me it was the worst investment idea I've ever had. But do your own research! If you listen to me posting on an internet blog then it would indeed be the worst investment decision you can make.
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Infinihertz 12:24PM (10/25/2006)
Rock, I've been following the stock daily for the past several months, and I agree with Brian. If it goes back down to $7.50 or below, I'd think it would be a good deal. At $8.48 as of right now, it'll probably go up some more gradually but I'd be surprised if it went way above $9 and stayed there (well, in 2006 anyway). As Brian said, it all depends on if you're comfortable with the risk.
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CapnBlubs 1:16PM (10/25/2006)
1) Ford may not be rated as such, but as Brian said quite perfectly, it is a good buy if you're willing to take a risk. In fact, if you think Ford is going to survive, period, it's worth it, because if it does make it out of the woods it sure as hell isn't going to be stuck sub-$10 for eternity. Don't expect to make a ton of money immediately but if you're patient it will turn out well. I'm 95% confident in a positive outcome, but 0% sure of the timeframe.
2) The Taurus was a good car, had its run, and I personally love the Fusion. The gears are turning slowly but Ford will start heading in the right direction.
3) I agree with previous posters talking about the blog/analyst negativity. I'm a political moderate who is not a particular fan of either main party, but I have to say I look at Ford bashers the same way I do Bush bashers (and America bashers). For some reason it's so cool to rip on this company and its leadership, just like it's so cool to rip on this country and this leadership. But what do you really want? For them to succeed, hopefully, unless you're utterly an imbecile. This country needs Ford, and YOU need this country.
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KT 2:29PM (10/25/2006)
OMG...this has to be a first....four educated, well thought out posts in a row (10-14). Thanks for your participation!
There is going to be red ink until at least '09 according to Ford's statements since mid-September. That's no secret. Hopefully they can get it turned around.
As far as an investment? I would reiterate what has already been stated. If you had bought it earlier in the year when it was low 7's to high 6's, then that was a no-brainer.
You'll see Ford start bringing some euro platforms over here in the near future. However, it won't be the Focus.
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gbh 11:59AM (10/26/2006)
As long as you're looking at the stock as a pump-n-dump, then you might flip out and make some cash.
Apologies to all the warm-fuzzy-it's-gonna-be-better-you'll-see-Mary-Poppins folks but the US auto industry in no more a long term play than the airline industry.
If you look at the fundamentals of the company, Ford and GM are not, and cannot be profitable.
Here's where the long-term realities set in. UNLESS both Ford and GM file bankruptcy and reorg, they are stuck with overhead and legacy costs that are going up like a rocket, while market share (and profit potential) drops like a rock. Neither one has a Taurus in the pipeline. 'Nuff said.
GM is over 40B in the hole and the hole gets deeper everyday.
Ford is actually not in quite as dire a predicament at the moment. Though their losses were greater, Ford is just now getting to the point of having to secure their capital borrowing (yes, that means signing over factories and the little else they still own).
Bottom line: Ford or GM stock is great for day traders. There is no longterm value in either stock, because in today's world, they simply cannot be profitable. They shell game around to hide the fact that the losses are even bigger than most folks understand. But...
Sooner, rather than later all the cars on lots booked as sales, all the ridiculous overhead, and even more untenebale legacy costs will simply not be able to be paid by borrowing yet another billion or two from Peter to pay Paul.
When nobody can shuffle the bills (or the BS) anymore one of two things will happen: the domestics either set this all straight by simply axing half of the redundant white collars, and paying the UAW something a little closer to what that job is worth. Or, they declare bankruptcy so the courts do it for them.
As Brian said, make sure it's money you can afford to lose. Which should be your rule of thumb anytime you play the markets.
Think about this. Warren Buffett, he, and by extension Berkshire-Hathaway, love manufacturing companies. Stuff that is quasi-durable goods? Even better.
Warren Buffett could have used just a *portion* of his own money or BH money and BOUGHT FORD AND GM OUTRIGHT. Coulda owned them both for less than 35B.
If you believe the heyday of ridiculous profits on gas-guzzlers is coming back, and Ford and GM are suddenly going to retake the market then maybe Ford and GM can recover without bankruptcy.
Buffett and the smart money at Berkshire-Hathaway don't see it coming back. Neither do I.
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Spectacular Bid 5:54PM (10/27/2006)
... and the execs at Aston Martin must be thinking - "thank god they are parting with us". It is a little like being ask to leave the Titanic before it fully pushed off on voyage across the Atlantic.
Someone asked about the health of PAG and it's my understanding that Rover and Jaguar have racked up the biggest losses. Both have had to their product lines revamped due to costly flops. Egads - just look at the almost Suzuki knock-off, no killed LR Freelander. Cheap looking outside and cheap materials inside. The replacement for 2007, Freelander 2, looks slightly better.
Land Rover did however see improvements with their top end model doing quite nicely in 2006 with sales so all is not bleak there.
Aston is in the black, but obviously contributing few significant profits. Although I still doubt until the cheque is chased for the sale of the company will there be a slight return on total investments made by Ford into Aston. Volvo incurred losses, but it has improved to positively contribute. The brand almost seems lost in the family without its quirky ads of before and bland looks of the cars. Volvo with its high costs of production (labor in Sweden, yikes!) will never add to the bottom line like Audi does for VW.
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Pete Angilly 8:09PM (11/05/2006)
If anyone has ever done research on Warren Buffet you would know why he would never buy a car company. Warren says "The car business is very cyclical, we don't like businesses that have that level of volatility"
Warren is probably the greatest investor of all time. That doesn't mean he can't miss a great opportunity as he acknowledges quite often. 2 years ago he passed on Merck at $25 when all the pro's had that company dead and buried, it's almost $50 today and guess what all the EXPERTS are recommending now. "We like big pharma, It's a great business."
In 1991 I purchased Chrysler stock at $11 yep, you read that right $11. All the experts said that THIS time they really are going under. What happened? 2 years later I sold the stock at $75. Thanks Wall Street experts. (They all loved the stock then)_
It may be of interest to note that Chrysler was actually bailed out by Uncle Sam in the form of loan guarentee's. That means we all co-signed a giant loan package to guarentee those poor Banks that we would cover old number 3's ass if need be.
Read "Well made in America" it chronicles Harley Davidson's brush with the death. Guess what they did?
Asked President Reagan to impose tariffs on those Japanese motorcycles that were kicking their butts.
Then, and this is the important part, they literally went to Japan to find out how Honda built motorcycles. We all know how that stock appreciated. And still is.
Next thing I want all of you to do is read about Alan Mullally. This guy brought Boeing back from the post 911 brink by using TOYOTA'S manufactoring model to streamline the aircraft industry. IT WORKED!! Sound familiar?
Here it is... BUY FORD STOCK NOW! I don't care if you get it at $7, or $6 or $8 because in 3 years it's gonna be at $25. A 300% return! Mark my words.
Nothing changes in this world because people don't change. Dot com/ Florida Real Estate/ what were the experts saying about this stuff when people were sleeping out at condo sales offices to get their deposits in first? Answer... There's no end in sight, we can't keep up with the demand.
That's why I love reading all the dooms day entries in these blogs about Ford. The more people who think they're all done the better I sleep at night. Get on this train now or watch the smart money wave to you at $25.
P.S. Mullally's contract gives him 200,000 shares in 2010 if the stock price is $30. Guess what he's gonna do?
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