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.