"We're comfortable we'll get through this year," said Lewis Booth, Ford's Chief Financial Officer.
Ford Motor Company is showing signs of staging a turnaround even as its key competitors General Motors Corporation and Chrysler LLC face bankruptcy.
Ford reported it finished the first quarter of 2009 with a large loss $1.4 billion. The loss, however, was significantly smaller than some analysts expected. In addition, Ford claimed it used less cash in the first quarter, slowing its cash burn that had some observers suggesting that like GM and Chrysler, Ford would eventually need help from the U.S. Treasury.
Ford finished the first quarter with $21.3 billion in automotive gross cash and reiterated that, based on current planning assumptions of 10.5-12 million unit sales a year in the U.S., it does not expect to seek a bridge loan from the U.S. government. U.S. sales through April are running under 10 million units at an annual rate.
Cash outflow, which totaled about -$3.7 billion in the first quarter, will decline through the balance of the year, said Lewis Booth, Ford’s chief financial officer. “We’re comfortable we’ll get through this year,” he said.
In the first quarter, Ford took a number of actions to strengthen its overall weak business, and also started discussions with interested parties regarding the sale of loss-making Volvo, Q1 -$255 million, where it took a $700 million charge based on the difference between book value and the expected ultimate sale price. More write downs are possible. Every Ford Automotive region, except South America, +$63 million compared with a profit of $257 million a year ago, lost money during the quarter, as did its finance subsidiary, Ford Motor Credit. First quarter revenue was $10.2 billion in North America, down from $17.1 billion a year ago. Ford Europe reported a pre-tax loss of $550 million, compared with a profit of $739 million a year ago.
In one of Ford’s ongoing weaknesses that has negative long-term implications, Ford Asia Pacific and Africa’s pre-tax loss was $96 million, compared with a profit of $1 million a year ago. Asia is projected to be the only growth market in the world going forward, and Ford is simply not a player in Asia.
“Our results in the first quarter reflected the extremely difficult business environment and weak demand for autos around the world,” said Ford President and CEO Alan Mulally, who noted that demand for new vehicles had dropped in every significant market around the world.
Ford reduced its structural costs by $1.9 billion in the first quarter. A new labor agreement with the United Auto Workers signed in February also promises to save the company $500 million this year, and the debt exchange completed during the first quarter by using a combination of cash and newly issued stock, will also reduce the company’s annual interest costs by about $500 million.
“Despite the challenges, Ford made strong progress on our transformation plan by gaining share with strong new products, slowing operating-related cash outflows, reducing outstanding debt, lowering our structural costs and reaching new agreements with the UAW,” Mulally said.
Based on current assumptions, Ford said it remains on track to meet or beat its financial targets, including the target for its overall and North American Automotive pre-tax results to be breakeven or better in 2011, excluding special items.
Mulally also confirmed the company was increasing production during the second quarter both in North America and in Europe. Inventories because of previous cutbacks have dropped dramatically and it appears there is an opportunity for some growth. The company’s market share in Europe has increased slightly to 9.4%, up 0.5%, a ten year high. U.S. market share declined once again, but Ford said its retail share was even at 12.7%, based on a newly minted way of calculating by excluding fleet sales. Ford’s overall share of the U.S. market, measured traditionally, is down to 13.9%, a loss of 1.1%.
In contrast, GM announced yesterday that it was closing 13 final assembly plants temporarily during the second and third quarters in an effort to reduce inventories.
Ford also is continuing to invest in its new products. The company’s product pipeline is in very good shape and will continue to yield new vehicles that will allow the company to continue to compete in virtually every segment, Mulally claimed.
Ford’s first quarter 2009 pre-tax operating loss, excluding special items, was approximately $2 billion, a decline from a profit of $686 million a year ago. In ordinary times a negative $2.7 billion swing would not allow for the optimistic statements from the executive team who produced such results. On an after-tax basis, Ford lost $1.8 billion in the first quarter, or 75 cents per share, compared with a profit of $477 million, or 20 cents per share, a year ago. With such results, the company’s future is by no means secure.
Ford Motor Credit Company also reported a net loss of $13 million in the first quarter of 2009, a decrease of $37 million from net income of $24 million a year earlier. On a pre-tax basis, Ford Motor Credit reported a loss of $36 million in the first quarter, compared with earnings of $32 million in the previous year.
“Like the rest of the industry, Ford Motor Credit continues to be affected by credit market constraints, reduced vehicle sales, low consumer confidence, and job contraction in difficult economic conditions,” said Mike Bannister, Ford Motor Credit chairman and CEO.
“However, we continue to provide consistent levels of support to Ford Motor Company dealers and customers in the downturn through our strong business and prudent lending practices.”
Ken Zino reported on and edited this story.