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Record Losses at Ford; Big Changes Coming?


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Posting the worst quarterly loss in its history, Ford Motor Co. says it is "aggressively accelerating" plans to shift from a truck-based to high-mileage, car and crossover-based company.

Despite an $8.7 billion loss - driven largely by losses in the U.S. and an $8.03 billion write-off of North American assets and bad loans - CEO Alan Mulally tried to put a good face on Ford's worsening performance, touting "strong results" in many of its overseas markets, such as China, and highlighting plans to consolidate U.S. and European product lines.

But it was difficult to spin an upside on a quarter when virtually everything went wrong, where soaring fuel prices caused the collapse of sales of some of Ford's traditionally strongest models. In recent months, the full-sized F-Series pickup, the nation's best-selling model line for 27 years, has been repeatedly surpassed by high-mileage imports, such as the Honda Civic.

For their part, industry analysts had collectively been forecasting a loss of around $0.27 a share for the April-June quarter. But the figures came in at a loss of $3.88 a share, or $0.62, if you exclude those one-time items.

Ford's latest dose of bad news comes in bitter contrast to the positive outlook it had shown prior to the run-up in fuel prices that began earlier this year. Through much of 2007, Mulally and his top lieutenant, President of the Americas Mark Fields, had been forecasting a return to by 2008, but both now decline to say when the company will see any black ink.

If anything, Mulally said during a conference call scheduled to discuss the latest earnings, "The second half will continue to be challenging."

Yet Ford officials refused to remain glum, and highlighted the potential of a turnaround plan that has been accelerated sharply since fuel prices started nearing $4 a gallon.

"We have absolutely the right plan to respond to the changing business environment and begin to grow again for the long term," Mulally said in a statement.

Elements of the updated turnaround plan have been dribbling out in recent weeks and include an expanded role for Ford's European operations in the revival of the company's North American presence.

A sizable number of European models will be brought to the States, starting with the upcoming launch of the Transit Connect, a small commercial van. More significant, at least from a volume standpoint, will be the 2010 launch here of such Euro-derived models as the subcompact Fiesta and next-generation Focus compact. A small car also will be added to the ailing Mercury division's line-up.

During their briefing, Mulally and Fields noted that light truck production will continue to be ratcheted down by several hundred thousand units more than originally planned during the last half of 2008.

More significantly, three plants traditionally used for truck production will be converted to build passenger cars and car-based crossovers. That includes a Mexican facility that will switch from F-Series production to the new Fiesta, and the suburban-Detroit Michigan, truck plant, which will stop building models like the Lincoln Navigator and switch to several unnamed "Global C-Car" models, possibly including the next Focus.

Meanwhile, Ford also hopes to revive its once best-selling Explorer SUV, converting it to a car-based crossover when it launches the next generation of the product several years from now.

Like its domestic rivals, Ford found it highly profitable to produce high-margin trucks, such as the F-Series and Navigator. By comparison, it has traditionally struggled to make money on cars, particularly small models like Fiesta and Focus. Can it improve the business case for small sedans, coupes, hatchbacks and wagons, going forward?

That remains to be seen, but it will help that the automaker will share product development - and many of the mechanicals - with Europe. The savings through expanded economies of scale should be "staggering," said Mulally. Analysts say it will also help that Americans are changing the way they view small cars, perceiving models like the popular Mini Cooper as worth the sort of premium normally paid for larger models. If Ford can change perceptions of products like Fiesta, it may also be able to earn a profit.

But with the transformation of its lineup still several years away, Ford is expected to continue struggling, especially as the automaker doesn't forecast a revival of the overall American market until 2011. The question is whether it can reign in costs - with projected savings of more than $5 billion this year - enough to survive with its dwindling supply of cash.
 
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Comments (6)
  1. No mention of the Transit coming to replace the Econoline...cool, just walk away and give it to Nissan to build in Canton.

  2. Ford makes great trucks and they need to take advantage of that perception. Why then are they allowing the Ranger to die a slow painful death. Provide Americans with a up to date clever small truck and they will buy it. The transit will fill it's commercial niche nicely, but we need a small truck with some kind of style that does not date back to 1992.

  3. Using the Mini as a model for volume sales is wrong-headed. The Mini sells on exclusivity, rarity and cache. Overpriced, underbuilt and sadly British, the Mini sells on an image and a perceived performance. But in no way it is a model for a real car company.
    Mini works as a profit center for the ever overpriced BMW, but not a large, mainstream auto manufacturer. What Ford offers, and has offered, is inexpensive, reliable transport for the masses. It can hit an occasional home run with a Mustang or an Explorer, but it needs bread and butter, not truffles.
    Can the Mini paradigm work for Ford, that is an essentially a cult car propped up with forced exclusivity versus a car sold with carpet bombing levels of advertising, public perceptions of "hey I'm going to go to the Ford shop and buy me a car to take home today" as opposed to the Mini model of "we'll take your deposit and call you in six months on our price fixed car"? I seriously doubt it.

  4. I have driven a number of Ford Europe's cars and have always wondered why they are not offered here in the US. The Mondeo is a very capable car and although not in the BMW class it can cruise all day down the autobahn at 200 km/h in safety and comfort. The diesels are great.
    Models like the S Max, Focus Cabriolet/Coupe are very stylish and practical. I have always wondered why the European Ford Galaxy is not offered in the US.

  5. Ed, I don't want to dismiss your concerns, but I also will hold to my original point. Yes, Mini does sell on exclusivity, to a degree, though I believe that element is becoming less significant over time. The key to Mini is that it really taught? reminded? Americans that small is not synonymous with cheap. It is something that Europeans have long accepted. (I could also have used Smart, or the BMW 1-er, though each would have their own problems as my example.)
    I think that there are other realities shifting in the business, one of which is that even volume cars are, with rare exception, not so much about volume anymore. When I started driving, the Chevrolet Impala was just past the point it was generating nearly 1 million sales annually, at peak. When I started covering the auto business, 30 years ago, pushing 1/2 million was not an unusual figure for high-volume models. Today, with the exception of a handful of cars and trucks, 250,000 is rare, and 100,000 is even considered quite successful. And for specialty models, we're down in the range of 30,000 or less.
    Part of the potential, but also part of the challenge, for a maker, like Ford, is to come up with something that can both appeal to this smaller audience AND make a profit in the process, something Detroit has traditionally been unable to do on small cars.
    FYI, the Mustang, for whatever we might sniff at it, probably commands a similar stature as you describe for Mini. So Ford CAN do it.
    Paul E.

  6. Just don't quite, get it! ???. How is it, that some of the greatest minds from the industrial empires, [created] by the auto Industry ??, have "'DETERMINED??: That it will be: Fuel miserly autos, that is going to save the day!.
    I just don't see it, least that a ways; any ol'e way!. Since you write about the auto industry most of your time {have a question} : has the auto industry?; gone messianic??. We are the way, we are the will, we will be all you will ever need to know and have to know!. Their getting really strange up at that place called Detroit!.

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