Filed under: Ford, Earnings/Financials
Ford announces $129 million Q3 loss, more production and job cuts on the way
Ford Motor Company this morning announced a third quarter loss of $129 million and pre-tax loss of $2.7 billion if we're not counting special items like $2 billion in savings from shifting responsibility for retiree health care to the UAW-run VEBA account. Ford, however, says it remains on track with its turnaround plan and has $18.9 billion in cash on hand, lines of credit worth $10.7 billion and overall liquidity of $29.6 billion. Nevertheless, the Dearborn-based automaker is planning more white-collar job cuts to the tune of 10%. More money will be saved by combining its engineering and product development globally, as well as slowing production, investment in information technology and advertising costs. Ford also said it will "continue to explore divestitures of non-core assests...", which we take to mean that Volvo and its stake in Mazda are not off limits.
Ford also said that nearly all of its planned product programs are going forward, except for large vehicles in declining segments and a few other select projects (we'll trying to find out which ones). The wish of many for more European Fords is safe, however, with the automaker reiterating its commitment to bring six European small Fords to the U.S.
Though Ford's North American operations accounted for the bulk of its Q3 loss, every other region recorded a profit while Ford's stake in Mazda cost the automaker $1 million and Volvo lost $458 million.
Stay tuned, as GM will be announcing its Q3 results and "important changes" at 11AM EST.
[Source: Ford]
PRESS RELEASE
FORD REPORTS 3Q $129 MILLION NET LOSS; FURTHER COST AND CASH IMPROVEMENTS PLANNED TO CONTINUE IMPLEMENTING PRODUCT-LED TRANSFORMATION AND OFFSET GLOBAL INDUSTRY WEAKNESS
- Net loss of $129 million, or $0.06 a share, for the third quarter of 2008
- Pre-tax loss of $2.7 billion from continuing operations, excluding special items ++
- Favorable curtailment gain in excess of $2 billion related to approval of retiree health care agreement
- Company remains on track to achieve $5 billion in cost reductions in North America by the end of 2008 compared with 2005 (at constant volume, mix and exchange; excluding special items)
- Automotive gross cash (including cash and cash equivalents, net marketable securities and loaned securities) on Sept. 30, 2008 totals $18.9 billion +++
- Available credit lines total $10.7 billion; overall liquidity totals $29.6 billion
- Company planning further cost and cash improvements to continue implementing Ford's product-led transformation plan and offset continued weakness in the global automotive industry
The company also today announced additional actions to reduce costs and improve Automotive gross cash to enable Ford to continue to implement its product-led transformation plan despite the continued weakness in the global automotive market and economic environment.
Improvement actions include: an additional 10 percent reduction in North American salaried personnel-related costs; a reduction in capital spending enabled by efficiencies in Ford's global engineering and product development; a reduction in manufacturing, information technology, and advertising costs due to the company's "One Ford" global operations; and a reduction of inventories globally. Ford also said it would continue to explore divestitures of non-core assets and utilize equity-for-debt swaps and other incremental sources of financing to strengthen the company's balance sheet.
At the same time, Ford reiterated its continued investment in the smaller, more fuel-efficient, high-quality products that will result in a more balanced global portfolio. Ford confirmed that nearly all planned product programs remain on track and on time – aside from a few select vehicles that will be deferred until industry volumes recover. Ford will, however, reduce spending for large vehicles in declining segments.
"We continue to take fast and decisive action implementing our plan and responding to the rapidly changing business environment," said Ford President and CEO Alan Mulally. "We have a strategy that is broad and specific enough to handle the dramatic changes in today's environment. We will continue to assess the rapidly changing business environment and modify implementation of our plan accordingly."
THIRD QUARTER 2008 RESULTS
The 2008 operating data discussed below exclude Jaguar Land Rover, which was sold on June 2, 2008. Jaguar Land Rover and Aston Martin data are, however, included in the 2007 data, except where otherwise noted. See tables following "Safe Harbor/Risk Factors" for the amounts attributable to Jaguar Land Rover and any necessary reconciliation to U.S. GAAP.
On an after-tax basis, Ford's third quarter operating loss from continuing operations, excluding special items, was about $3 billion, or $1.31 per share, compared with a loss of $24 million, or 1 cent per share, a year ago.
Ford's third quarter revenue was $32.1 billion, down from $41.1 billion a year ago. The decline reflects lower volume, the sale of Jaguar Land Rover, changing product mix and lower net pricing, partly offset by favorable changes in currency exchange rates.
Special items improved pre-tax results by $2.2 billion in the third quarter, or $1.25 per share, which is primarily due to the retiree health care curtailment gain in excess of $2 billion related to the approval of the retiree health care settlement agreement with the United Auto Workers.
Automotive gross cash, including cash and cash equivalents, net marketable securities and loaned securities, was $18.9 billion on Sept. 30, down from $26.6 billion at the end of the second quarter. The decrease primarily reflects Automotive pre-tax operating losses, changes in working capital and other timing differences, and upfront subvention payments to Ford Credit.
Ford's Automotive cash flow during the third quarter was significantly affected by a number of unique factors during the quarter, including the decision to reduce truck production to allow for an orderly sell-down of dealer inventories to make way for new models. Overall, Ford's global third quarter production levels were more than 100,000 units below retail sales and nearly 500,000 units below the second quarter levels. This had a substantial impact on profits, and the decline in production resulted in about a $3 billion reduction in payables during the quarter.
"Strengthening our balance sheet has been and remains a core element of our transformation plan," said Lewis Booth, Ford executive vice president and chief financial officer. "We were fortunate to have gone to the markets at the right time two years ago to obtain significant liquidity to implement our plan and invest in the new products that will secure our future. We will continue to aggressively reduce costs and manage our cash with absolute discipline to ensure we have the resources to fund our plan going forward."
In addition, Ford said it will continue working with a number of governments around the world to maximize the availability of funding to provide further protection against the uncertain economic environment that the entire automotive industry is facing.
The following discussion of third quarter highlights and results are on a pre-tax basis and exclude special items. See tables following "Safe Harbor/Risk Factors" for the nature and amount of these special items and any necessary reconciliation to U.S. GAAP. Discussion of Automotive operating cost changes is at constant volume, mix, and exchange, and excludes special items.
THIRD QUARTER 2008 HIGHLIGHTS
- Launched the new 2009 Ford F-150 full-size pickup with best-in-class capability and unsurpassed fuel economy. The F-Series remains the No.1-selling truck in America for 31 years running.
- Launched the new Ford Fiesta small car in Europe, the first of Ford's new global small cars. Production began in Cologne, Germany, and the car is now going on sale in Europe. Fiesta also is beginning to now go on sale in Asia and will be introduced in North America in early 2010.
- Debuted at the Paris motor show the all-new Ford Ka, a stylish subcompact car that goes on sale in Europe late this year and is featured in the new James Bond movie "Quantum of Solace."
- Launched the Ford Focus in China and the Ford Escape in key Asia Pacific and Africa markets.
- Improved vehicle quality again, marking four consecutive years of progress. Ford, Lincoln and Mercury vehicles collectively reduced things gone wrong by 7.7 percent compared to last year, pulling Ford into a statistical quality tie with Honda and Toyota atop the list of seven major automakers in the U.S. Global Quality Research System study.
- Achieved the leading number of "Top Safety Picks" from the U.S. Insurance Institute for Highway Safety with the 2009 Ford Flex and Lincoln MKS earning top honors. This builds on Ford's achievement of the most U.S. government 5-star safety ratings in the auto industry.
- Achieved total company cost reductions of $300 million despite commodity cost increases of more than $1 billion. During the first nine months, Automotive costs are down about $3 billion globally, and the company now is on track to reduce costs by about $4 billion for the full year.
- Confirmed that Ford North America remains on track to achieve or exceed its commitment of reducing $5 billion in annual operating costs by the end of 2008 compared with 2005.
- Achieved continued strong results for Ford South America with a profit of $480 million.
AUTOMOTIVE SECTOR
For the third quarter of 2008, Ford's worldwide Automotive sector reported a pre-tax loss of $2.9 billion, compared with a pre-tax loss of $362 million during the same period a year ago.
The deterioration was due to lower volume and unfavorable mix, particularly for North America and Volvo, unfavorable net interest expense and related fair-market value adjustments, and lower net pricing, partly offset by favorable cost changes.
Worldwide Automotive revenue in the third quarter was $27.8 billion, down from $36.3 billion a year ago. The decline reflected lower volume, the sale of Jaguar Land Rover, unfavorable product mix and lower net pricing, partly offset by favorable changes in currency exchange rates.
Total vehicle wholesales in the third quarter were 1,174,000, compared with 1,487,000 units a year ago.
North America: For the third quarter, Ford North America reported a pre-tax loss of $2.6 billion, compared with a loss of $1 billion a year ago. The decline reflected unfavorable volume and mix, and unfavorable net pricing, partly offset by cost changes. Unfavorable volume and mix primarily reflected a decline in the U.S. industry volumes, changing product mix, lower dealer stocks and lower market share. Third quarter revenue was $10.8 billion, down from $16.7 billion a year ago.
South America: For the third quarter, Ford South America reported a pre-tax profit of $480 million, compared with $386 million a year ago. The increase reflected higher net pricing, favorable volume and mix, and favorable changes in currency exchange rates, partly offset by higher net product costs. Third quarter revenue was $2.7 billion, up from $2.1 billion a year ago.
Europe: For the third quarter, Ford Europe reported a pre-tax profit of $69 million, compared with $293 million a year ago. The decline was primarily due to unfavorable cost changes (unfavorable mark-to-market adjustments for commodity hedges) and currency exchange, partly offset by net pricing. Third quarter revenue was $9.7 billion, up from $8.3 billion a year ago.
Volvo: For the third quarter, Volvo reported a pre-tax loss of $458 million, compared with a loss of $167 million a year ago. The decline was due to unfavorable volume and mix. Third quarter revenue was $2.9 billion, down from $3.8 billion a year ago. As part of its restructuring, Volvo plans a total reduction of 6,000 employees worldwide, including 1,200 agency employees.
Asia Pacific and Africa: For the third quarter, Ford Asia Pacific and Africa's pre-tax profit of $4 million compares with $30 million a year ago. The decline was due to unfavorable volume and mix, partly offset by favorable net pricing. Third quarter revenue was $1.7 billion, down from $1.8 billion a year ago.
Mazda: Ford lost $1 million from its investment in Mazda and associated operations in the third quarter, compared with a profit of $14 million a year ago.
Other Automotive: Other Automotive, which consists primarily of interest and financing-related costs, reported a third quarter pre-tax loss of $411 million. This included net interest expense of $440 million.
FINANCIAL SERVICES SECTOR
For the third quarter, the Financial Services sector reported a pre-tax profit of $159 million, compared with $556 million a year ago.
Ford Motor Credit Company: Ford Credit reported a pre-tax profit of $161 million in the third quarter, compared with $546 million a year ago. The decline primarily reflected the non-recurrence of net gains related to market valuation adjustments from derivatives, a higher provision for credit losses, and lower volume, partly offset by a higher financing margin.
OUTLOOK
Ford said it is more focused than ever on implementing its transformation plan to respond to the significant challenges presented by the continued global economic downturn. Ford's plan includes:
- Aggressively restructuring to operate profitably at the current demand and changing model mix
- Accelerating the development of new products that customers want and value
- Financing the plan and improving the balance sheet
- Working together effectively as one team, leveraging Ford's global assets
Ford said its plan to deliver more of the safe, affordable, high-quality, fuel-efficient vehicles that consumers want and value remains solidly in place. The plan includes:
- Delivering best-in-class or among the best fuel economy with every new vehicle introduced globally.
- Introducing industry-leading, fuel-saving EcoBoost engines and doubling the number and volume of hybrid vehicles.
- Leveraging Ford's product strengths to deliver more global vehicles in the B, C, C/D and commercial van segments. By 2010, nearly 40 percent of Ford's product entries in these segments will be shared between Ford North America and Ford Europe, and 100 percent alignment will be achieved by 2013.
- Upgrading the Ford, Lincoln, Mercury lineup in North America almost completely by the end of 2010.
- Bringing six European small vehicles to North America from global B-car and C-car platforms.
- Retooling three North American truck plants to produce small, fuel efficient vehicles.
- Building on vehicle quality that is now on par with Honda and Toyota – and that consistently is being recognized by important third-parties like J.D. Power and Associates' Initial Quality Study – driven by Ford's disciplined and standardized processes for every product.
- Building on vehicle safety leadership – with the most U.S. government 5-star safety ratings of any auto company and recently moving past Honda for the industry's most IIHS "Top Safety Picks" – plus new smart safety features, such as the industry-first MyKey technology that limits top speed and audio volume for teens and the first forward crash-avoidance system for mainstream vehicles.
- Supporting Ford's global products with a lean, flexible global manufacturing system.
The actions include:
- Reducing North American salaried personnel-related costs by an additional 10 percent by the end of January 2009, through personnel reductions, attrition and other actions. The reductions are in addition to personnel-related cost actions already taken in Ford North America and under way in Ford of Europe, Ford Asia Pacific and Africa, and Volvo.
- Further reduction of U.S. hourly employees by approximately 2,600 as a result of the most recent round of targeted buyouts – bringing Ford's total U.S. hourly reductions through buyouts in 2008 to approximately 7,000.
- Eliminating merit pay increases for North America salaried employees in 2009.
- Eliminating performance bonuses for global salaried employees, including the Annual Incentive Compensation Plan for the 2008 performance year.
- Suspending matching funds for U.S. salaried employees participating in Ford's Savings and Stock Investment Plan, effective Jan. 1, 2009.
- Reducing annual capital spending to between $5 billion and $5.5 billion – enabled by efficiencies in Ford's global product development system and reduced spending in declining product segments.
- Reducing engineering, manufacturing, IT and advertising costs through greater global efficiencies.
- Reducing inventories globally and achieving other working capital improvements.
- Return of capital from Ford Credit to Ford Motor Company consistent with Ford Credit's plan for a smaller balance sheet and a focus on core Ford brands.
- Continuing to develop incremental sources of Automotive funding, including divesting of non-core operations and assets, and implementing equity-for-debt swaps.
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Reader Comments (Page 1 of 2)
tankd0g 9:04AM (11/07/2008)
Million? there's a word I haven't heard in a while.
Reply
Gabagool 9:23AM (11/07/2008)
Exactly, but i can guaranty you that Billion will be the word used for GM.
Derek 10:10AM (11/07/2008)
That's a $129M net loss, excluding special items. If you exclude those special items I think GM actually had a profit in one of the last few quarters.
Read the article and you see the total with special items is a $2.7B loss.
Brn 9:19AM (11/07/2008)
Help me with my math. They lost a total of 129 million. 1 million of it from Mazda. 458 million from Volvo. Does that mean the rest of Ford made 330 million?
Reply
Kitko 9:27AM (11/07/2008)
$1 million Mazda loss was created as a loss in Mazda shares value. Volvo, which is, unlike Mazda, fully owned by Ford, generate the said loss.
Both of these numbers would be accounted for in the $2.98 billion quarterly operating loss.
In other words, 1 million and 458 million are not part of 129 million net loss.
AngeloD 9:28AM (11/07/2008)
Volvo is a millstone around Ford's neck. It has been for some time, and it needs to be sold off quickly.
$458 million, from a smaller company the size of Volvo? That is a scandal.
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Zach 10:27AM (11/07/2008)
If I'm not mistaking, Ford can't sell off Volvo because it's another part the mortgaged for money a few years back.
Enlightened_One 3:24PM (11/07/2008)
Volvo is an integral part of all of Ford's products, even the ones that have been sold (Aston Martin, Jaguar, Range Rover) Volvo produces all the safety systems for Ford's brands. They produce much of the technology as well. So even though they may have lost 458 Million, it is more of an operating cost for the developement of Ford's technologies. Ford should help Volvo sell their product instead of using them as their in house developer, then you would not see the huge loss, but then again Volvo is helping Ford create better products (safe & reliable). BTW Volvo's and Aston Martin's stereo interfaces are exactly the same, so it isn't just safety systems being used.
noidor 9:30AM (11/07/2008)
Unemployment rate shot up to 6.5%, GDP shrank (even with the absurd way inflation is calculated, i.e. GDP deflator), however, in other news, GM still does not see a recession in 2008!
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inteller 10:09AM (11/07/2008)
That is because they are predicting a depression in 2009. Just skip right to it.....when GM does anything, they do it big!
Nobody Special 9:31AM (11/07/2008)
Excellent!!!!! Let's build some more Trrrruuuucccckkkkkssss!!!!! (then, we'll go to Washington, cry them a river and ask for money!!!)
most excellent!!!! great idea!!!!
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happy_penguin 10:08AM (11/07/2008)
They build what they sell, dumbass. If people want to buy trucks, they'll build them.
C.W. 10:39AM (11/07/2008)
yeah. your comment is stupid on many levels.
Ford builds trucks because:
1) they are good at it
2) people need them/want them/buy them
3) they make tons of cash on them
4) they build a socially responsible truck (now) that has amazing fuel economy numbers as well as emission levels.
You comment is also stupid because they dont JUST build trucks. They spend more R&D money on alternative fuel powertrains and hybrids than ANY other OEM. In fact, they are rated as the #2 company in the world for R&D spend. This is why their hybrid Fusion and Milan are going to spank Toyota. Ford is using NEW-In house technology that THEY developed... not some japanese company.
FINALLY: Ford IS bringing a slew of hot vehicles in the next few years. they are not backing down from product investment like a lot of other companies.
So stop being dumb and making your cynical remarks that you think have any basis of truth. Ford would be DUMB to stop building trucks!!!!! geesh.
Nobody Special 12:39PM (11/07/2008)
Thank you both for the intellectual replies. Yes, Ford does build good trucks - we've used them for our business and I've used them for work etc.
The point is Custer, is that they (and so have the other two companies) built there profits around them to a fault. This isn't rocket science, they have excellent vehicles that are relevant (in Europe) but by choice, have not built here. The few attempts were Americanized versions that were not to the same standards of the Euro models. Any argument that they wouldn't sell is a totally blind view of the reality of sales of the Pacific auto companies.
So when an economy turns south, those who have a BALANCED MARKET SHARE will have an easier time ADJUSTING to it. Yes, now they have got 'their game face on' and are serious, but in the meantime, the workers get let go, and are screwed.
Hey there - quit acting like a flag waving 'Merican over those that have decided to take the money of over long-term viability/responsibility when they knew better - sounds just like your comments? Don't it?
psu48187 1:56PM (11/07/2008)
@ Nobody Special: Your comments still don't make much sense. I mean Honda and Toyota, companies highly regarding for having a healthy product portfolio, are facing the same issues that the domestic automakers are.
For those of you that insist that the heavy reliance on trucks and SUVs continue to burry the domestic automakers, apparently have some sort of jaded misunderstanding of the automotive industry. There are a lot of variables in play here.
That One Person 5:58PM (11/07/2008)
Ford cut truck production. They are also shifting some truck plants to produce cars in the future.
If you want to call Ford guilty, you can also call Toyota guilty. Or even Nissan.
Another problem Ford has is that the profit margins for cars is extremely thin and in the case of the Focus (things may have changed), they actually lose money on every car.
Nobody Special 9:54PM (11/07/2008)
So exactly how long and how detailed do you all want to go? Public policy? Strategic business planning? Global markets? Quarterly report influences? Come on people get a grip - I don't see any of you saying anything in-depth here - nice sound bites though...
Yes of course there are many, many, influences at play - MY POINT is to simply state that they 'big 3' are all in the same noose that they tied together with greed as their motivating factor and if they had been interested in long term PLANNING they wouldn't be so bad off. DOH!!!
Avinash machado 9:44AM (11/07/2008)
Gabagool seems to never resist the chance to post an Anti-GM comment. Even though this is a post about Ford he manages to slip in something negative about GM.
Reply
alan 10:19AM (11/07/2008)
I hope they decide to bring the Focus RS stateside...
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Zach 10:28AM (11/07/2008)
It's already here in the skin of the Volvo C30.
But personally, I'd LOVE to have the E-Focus RS here. Such a sweeeet lookin' car and wicked-awesome to drive.