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SUVs drive Ford to $123M loss

Analysts who expected second-quarter profits from Ford Motor Co. see their hopes dashed by America's shift away from gas-guzzlers.

By ASSOCIATED PRESS
Published July 21, 2006

DETROIT - Ford Motor Co. dashed Wall Street's hopes for a profitable second quarter Thursday, blaming its dependence on high-margin SUVs for a $123-million loss as consumers shifted toward gas-sipping cars.

The nation's second-largest automaker, whose shares slipped more than 2 percent, sought to appease its critics by pledging to speed up its North American turnaround plan, but didn't say how.

Ford, which has been losing market share to Asian manufacturers for a decade, has been badly stung by high gas prices because big trucks and sport utility vehicles account for nearly 70 percent of the vehicles it sells. Despite some recent success with new car models like the Ford Fusion and Mercury Milan, the speed with which consumers have migrated away from gas-guzzlers has caught the company by surprise.

Chairman and chief executive Bill Ford said the company has to speed up its 6-month-old turnaround effort, but insisted it was moving in the right direction.

"We have the right strategy, and the cultural change has been remarkable. There's a new sense of candor and urgency, an awareness of what needs to be done and an intense focus on fixing the business," he said in a conference call with investors.

Bill Ford said the company would announce new turnaround measures within the next two months, but refused to elaborate.

The Dearborn, Mich., automaker's "Way Forward" plan, launched six months ago, calls for shedding 25,000 to 30,000 jobs and closing 14 plants by 2012. By year's end, the company will have cut production capacity 15 percent and will be a third of the way toward its targeted number of employee cuts, Bill Ford said.

The company's loss of 7 cents per share for the April-June period contrasted with a profit of $946-million, or 47 cents per share, in the second quarter of last year. Revenue fell 6 percent to $41.97-billion from $44.55-billion.

Excluding special items, Ford's second-quarter loss from continuing operations was 3 cents a share. Wall Street had been expecting a profit of 12 cents per share, according to a survey of analysts by Thomson Financial.

Ford's shares fell 14 cents to close at $6.19 on the New York Stock Exchange.

In North America, Ford had a pretax loss of $797-million, compared with last year's $907-million loss in the second quarter. Ford said its successes in cutting costs were offset by the market shift toward cars. It also blamed higher sales incentives and adverse foreign currency exchange rates.

"We're moving fast to meet growing customer demand for cars and crossovers," Bill Ford said. "But the speed and the magnitude of the market shift is putting added pressure on our costs."

Ford executives acknowledged they had not foreseen the size of the obstacles they faced when they first announced their turnaround plan. But they provided no clues how they would compensate for that, other than to say the changes would come faster and might go further than previously planned.

"The key question is how Ford's solution has changed in response to a more difficult environment," Morgan Stanley analyst Jonathan Steinmetz said in a research note Thursday. "This is not yet clear."

Bank of America analyst Ron Tadross said he expected both Ford and General Motors Corp., which is in the midst of its own restructuring, to continue to lose market share.

"Throwing cash at cost reductions ... does not produce sustainable improvements unless the share loss stops," he said in a note to investors.

Tadross said both companies are "ripe for a management change."

For the first half of the year, Ford lost $1.3-billion, or 70 cents a share, in contrast with a profit of $2.16-billion, or $1.05 a share, a year ago. Six-month revenue fell to $83-billion from $89.7-billion a year ago.

[Last modified July 20, 2006, 23:51:27]