GM, Ford Under Siege






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The core North American Operations of both the Ford Motor Co. and General Motors Corp. remain under intense pressure as they continue to pile up big losses during the first three months of 2006.

Ford Motor Co. posted a $1.2-billion loss or 64 cents per share during the first quarter, as the company continued to feel the effects from a sharp drop in the sales of sport-utility vehicles. Its revenues shrank by nine percent.

The loss represented the company’s worst showing in more than four years and coming on the heels of General Motors’ relatively strong showing in the first quarter, raised new doubts about the effectiveness of the company’s turnaround plan.

GM reported a first-quarter loss of $323 million, or 57 cents per share. It was GM’s sixth straight quarterly loss but it also was an improvement over the first quarter of 2005, when GM lost $1.3 billion, or $2.22 per share. But it beat expectations and sent GM shares up by nearly ten percent.

Ford shares dropped 8.05 percent on the news, falling 67 cents to close Friday at $7.34.

Merrill Lynch analyst John Murphy said in a note to investors that Ford’s operating income was below expectations, noting analysts had expected the company to earn at least 25 cents per share from continuing operations.

“We believe implementation has been slow and it could be some time before benefits are realized,” Murphy said.

William Clay Ford Jr., Ford’s chairman and chief executive officer, however, emphasized that with the exception of the North America, all of the company’s operations were profitable as the company posted earnings of $458 million, or 24 cents per share, from continuing operations.

However, Ford’s North American automotive unit reported a pretax loss of $2.9 billion for the first quarter, compared with a $557 million profit the previous year. Excluding one-time charges on the quarterly statement, the North American unit lost $457 million, compared to a $644 million profit in 2005.

Mark Fields, the executive in charge of Ford’s automotive operations, told analysts that while the restructuring of Ford’s automotive business is far from complete, the company is about where he thought it would be when the “Way Forward” plan was launched back in January.

Ford has benefited from the successful introduction of the Ford Fusion, Mercury Milan, and Lincoln Zephyr, but the margins on the new vehicles are smaller than on those of the SUVs, which have been losing sales.

Fields added he was mindful of the challenges his company faces from rivals, but is taking steps to stay competitive. The automaker has built a strong position in the crossover market and will strengthen it later this year when it rolls out the new Ford Edge and Lincoln MKX.

However, the cost of the North American restructuring is steep.
Special charges linked to the restructuring included a charge of $1.7 billion, or 61 cents per share, for costs associated with expected North America Way Forward–related layoff and jobs bank benefits and voluntary termination packages, and $414 million, or 14 cents per share, of related non-cash pension curtailment charges.

Meanwhile, GM North America posted a loss of nearly $946 million in the first quarter, but the company’s executives insist they are pleased with the progress made by the unit at the heart of the company.

GM Chairman and Chief Executive Officer Richard Wagoner said the attrition program approved by the United Auto Workers last month represents a significant step forward in the continuing restructuring of the North American operations. In addition, the first-quarter loss included a $484 million charge for the retiree healthcare settlement with the UAW, which was approved March 31 by the federal court in Detroit.

For the first quarter in 2005, GM had reported an adjusted loss of $1.5 billion. Higher production volumes, improved mix, and better net pricing contributed $1.1 billion of improvement to GMNA operating earnings during the first quarter, GM officials said.

Fritz Henderson, GM’s chief financial officer, said the successful launch of new full-size sport utility vehicles boosted income per vehicle by almost 33 percent and helped narrow GM North America’s operating loss significantly. GM also reduced inventories during the quarter and remains optimistic about the prospects for the new full-size SUVs despite rising gasoline prices, Henderson said.

“North America posted a loss of just $462 million, or 82 cents per share (minus the charge), about half of our expectation, on stronger production volume and mix,” Merrill Lynch’s Murphy said in a note to investors.

“Cost-cutting efforts, healthcare concessions, and restructuring should help GM narrow NA losses in 2006, but they will remain substantial,” Murphy added. Moreover, the decline in GM’s North American market share is likely to force GM to cut production later this year, Murphy added in his note.


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