Ford’s Q3 Results ‘Encouraging,’ Mulally Says

Ford Motor Co. reports a better-than-expected third-quarter loss of $380 million, while at the same time revealing it most likely will retain its Volvo Cars subsidiary, which has been under strategic review.

“We want to enhance Volvo’s performance as a global producer of vehicles and allow (it) to work more as standalone company in the absence of (the Premier Automotive Group),” says President and CEO Alan Mulally, who notes the sale of the two other remaining PAG brands – Jaguar Cars and Land Rover – should be wrapped up early next year.

“We want to build synergies (between) Ford and Volvo and keep positioning Volvo as a premium brand,” Mulally says.

Volvo has been positioned as a near-premium brand in the past, Mulally adds. But because of more recent cars and cross/utility vehicles injected into the lineup, Volvo is “really moving to a premium brand,” he says. “They’re going to be fine I think.”

In a separate statement, Volvo CEO Fredrik Arp says Ford will begin to report Volvo financial details separately beginning with 2008 results, but notes the auto maker is “not profitable today, and we expect to be unprofitable (for) 2007.”

He emphasizes Volvo will “continue as part of Ford's global business, and we are not for sale.

“It is clear though that we need to take action to strengthen our business,” Arp adds. “The continued weakness of the U.S. dollar vs. the Swedish krona and euro, together with our increased investments in the market and our aggressive product launch strategy in recent years to strengthen our competitiveness, have adversely impacted our financial position.”

Arp says Volvo will work with Ford to develop a sustainable profitable business, enhance its position as a global producer of premium cars and continue to exploit synergies with Ford in product development and purchasing.

Ford’s $380 million third-quarter net loss amounts to $0.19 a share, a vast improvement over the net loss of $2.79 per share, or $5.2 billion, the auto maker posted in like-2006.

“Our third-quarter performance is very encouraging,” Mulally says. “We can see our plan taking hold with significant improvement in continuing in our core automotive operations.”

Ford says the improvement largely was due to “higher net pricing, lower costs and improved volume and mix.” However, the continuing weakening of the U.S. dollar impeded further gains.

Excluding special items, Ford’s third-quarter loss was $0.01 per share, or $24 million, compared with a loss of $850 million, or $0.45 a share, in like-2006.

Special items, which included charges with personnel reductions and restructuring initiatives, reduced pre-tax results by $350 million in the quarter, the auto maker says.

Ford ended the quarter with $35.6 billion in cash, an increase of $1.7 billion vs. year-end 2006.

In a conference call with analysts and journalists, Mulally declines to provide details of the tentative agreement reached with the United Auto Workers union last weekend.

However, he does say the contract will “improve competitiveness going forward,” assuming it is ratified by rank-and-file UAW members as expected.

The “new agreement is very supportive of our plan to return to profitability,” he says, adding the auto maker is on track to turn a profit in 2009.

Ford CEO wants to build synergies between Ford and Volvo.

Ford’s worldwide automotive revenue for the quarter was $36.3 billion, up from $32.5 billion year-ago. The auto maker wholesaled 1,487,000 vehicles in the quarter, up 20,000 vs. like-2006.

Overall, Ford’s North American operations posted a pre-tax loss of $1 billion in the quarter, compared with a loss of $1.9 billion year-ago. North American revenue was $16.5 billion, up from $15.4 billion in like-2006.

Despite the loss in the key North American market, Mulally says Ford’s turnaround is on track, noting the auto maker reduced personnel by 6,800 in the third-quarter.

South America remains a bright spot in Ford’s global operations, posting a third-quarter pre-tax profit of $386 million, up from $201 million from year-ago. Earnings would have been higher if Ford wasn’t constrained by capacity, Chief Financial Officer Don Leclair says.

Third-quarter revenue in South America improved to $2.1 billion from $1.5 billion year-ago.

Ford of Europe also turned in a solid performance, with a pre-tax profit of $293 million. Revenue totaled $8.3 billion, compared with $7.3 billion year-ago.

Ford credits the improvement to lower costs and higher net pricing. However, those conditions were offset somewhat by lower volume and a less favorable mix, Ford says.

“The reasons why we’re doing well in Europe is we sized the place, lowered capacity to meet demand and accelerated product development,” says Leclair, adding he thinks the upward trend is sustainable. “Our cost base is good, plants are operating at capacity and our products are well accepted.”

PAG posted a pre-tax loss of $97 million for the quarter, an improvement from the $508 million in red ink in like-2006.

In a reversal of trends, the result reflected a loss at Volvo, which partially was offset by a small profit at the combined Jaguar and Land Rover operations.

It was the “best-ever quarter for Land Rover,” Mulally says.

The weak U.S. dollar negatively impacted profitability at both Ford of Europe and PAG, the auto maker says.

Ford’s Asia/Pacific and Africa operations posted a pre-tax profit of $30 million, an impressive turnaround considering the region lost $56 million year-ago. Revenue was $1.8 billion compared with $1.6 billion in 2006.

Mazda Motor Corp. turned in a weak performance, with Ford’s investment in the Japan-based auto maker earning it $18 million, down from $40 million year-ago. Ford did not reveal reasons for the downturn at Mazda.

Leclair says Ford could break even for entire-2007.

“We’re ahead of or equal to our (turnaround) plan in all areas,” he says. “We expect a substantial year-over-year improvement in the fourth quarter and expect full-year results to be a small loss to about break even.”

Meanwhile, Ford says it is confident it has stabilized its North American light-vehicle market share at 13%.

“It is a period of stabilization, which is a key part of our plan,” Mulally says. “We’ve focused on adding some smaller cars and smaller utilities and CUVs that consumers really do want and value. The newer products are doing well in the marketplace, offsetting the weakness in some of our older products.”

One of the new vehicles expected to bolster Ford’s presence in the important small-car segment is the ’08 Focus, just now hitting dealerships. Focus production at Ford’s Wayne, MI, assembly plant was halted for two days last week due to a parts shortage, but that issue has since been resolved and production has resumed, a spokeswoman says.

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