Ford Loses $5.8B in Q3


Ford lost $5.8 billion in the third quarter, along with two full points of market share.


Even Ford’s operations in Asia and Europe lost money, though they had recently turned in small profits for the world’s number-three automaker. The red ink in the third quarter left Ford with a loss of $7.24 billion for the first nine months of the year and left it facing another loss in the fourth quarter.


The lone mitigating factor in the massive loss was that continuing operations only caused $1.2 billion, or 62 cents per share, of the damage, a figure somewhat smaller than analysts’ estimates.


Ford’s huge loss was exacerbated by a sharp drop in the company’s revenue, particularly in North America, where sales of pickup trucks and sport-utility vehicles have declined sharply. Revenue dropped ten percent to $36.7 billion in the third quarter from the same period a year ago.


Don Leclair, Ford chief financial officer, acknowledged the automaker had run through more than $3.1 billion in cash during the third quarter.


Leclair, while acknowledging the next nine to twelve months will be difficult for the automaker, said the cuts made so far in the company’s “Way Forward” turnaround plan should start paying dividends during the second half of 2007.


“It’s going to take a while for those benefits to be evident in better earnings and cash flow,” answered Moody’s Investors Service analyst Bruce Clark, who predicted that Ford would not see substantial savings from the Way Forward plan until 2009.


Alan Mulally, Ford’s new chief executive, described the latest results as “unacceptable.” He countered, though, that since joining the company he has been impressed by employees’ love of the company and their desire to serve its customers.


“This is a critical time,” said Mulally, a former Boeing manufacturing executive who joined the company only in September. “We clearly recognize it and plan to deal with the business realities we are facing,” he told reporters and industry analysts in a conference call Monday morning.


“Clearly Ford has recognized the shift in consumer demand over the last couple of years. They really focus more on fuel-efficient, smaller vehicles. Not only in the autos but also the crossover vehicles,” he added.


Along with the loss, Ford disclosed that it plans to restate earnings for 2001 due to accounting errors involving derivative transactions in its credit company. The restatement is expected to alter the financial results from 2001 through the first quarter of 2006. The company expected the restatement would improve results for 2002, but said results are still under review by auditors.


Leclair said Ford had $23.6 billion in cash available at the end of the quarter, but it was considering using its automotive assets as collateral to borrow cash to maintain liquidity.


“Stabilization of Ford’s revenue performance in 2007 is unlikely, given production cutbacks, a slowing economy, enhanced competition in the critical pickup segment, and lack of new impact products,” a research note from Fitch said.


Ford said special charges for the third quarter of 2006 totaled $5.26 billion before taxes. The charges included $2.2 billion to re-value assets in North America and a $1.6 billion write-off that reflected the declining value of both Jaguar and Land Rover.


Excluding charges, Ford would have lost $2 billion on its North American automotive operations in the latest quarter. The company lost $1.2 billion in North America in the third quarter of last year.

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