Ford Sees Silver Lining in $2.7 Billion Loss

Despite the continued red ink, executives say a look beyond the bottom line of the latest financial report reveals Ford Motor Co.’s recovery plan is working.

And the auto maker says it will take another big step toward its goal of returning to profitability in 2009, revealing plans for a new round of buyout offers to all its 54,000 hourly workers.

The buyouts will help Ford unlock the potential of its new labor contract with the United Auto Workers union that allows it to pay lower wages to new hires.

Ford today reported it lost $2.7 billion, or $1.35 per share, in 2007, due to a fourth-quarter loss totaling $2.8 billion, or $1.30 a share.

While a multi-billion dollar deficit is never cause for celebration, Ford executives maintain the auto maker has taken a step in the right direction, dramatically improving its financial results from year-ago when it was $12.7 billion in the red.

“Overall, our plan is working and we continue to show progress,” says President and CEO Alan Mulally during a conference call with investors and journalists. “Our net loss was…an improvement of nearly $10 billion vs. 2006.”

Mulally credits the gains to ongoing efforts to align production more closely with demand.

In an effort to further accelerate that plan, Ford is offering another round of buyouts for UAW-represented workers in two stages. The first, already under way, involves employees at facilities slated for closing under Ford’s ongoing North American restructuring strategy. Those workers have until Feb. 28 to accept one of eight buyout packages and would leave the company by March 1.

A second stage is set for Feb. 18-March 17, with all of Ford’s 54,000 hourly workers eligible. Most employees accepting buyouts in this round would depart by April 1, with all separations to be completed by year’s end.

Mulally declines to reveal whether the current buyout packages are more lucrative than those offered last year, when about 33,600 U.S. hourly workers left the company.

“We will be making adjustments to some of the packages, but we would like to allow Ford and the UAW to have discussions with employees next week so we can talk to them first,” he says.

Ford’s salaried ranks also may be thinned in 2008, Chief Financial Officer Don LeClair says, with most of the cuts coming via attrition. However, he leaves open the possibility some may be forced to leave.

In 2007, Ford says it trimmed its salaried workforce to 23,700, a reduction of 7,800 employees since the end of 2006.

Additionally, employees at Ford’s Automotive Component Holding LLC operation, composed of unwanted manufacturing plants acquired from former subsidiary Visteon Corp., will be redeployed or separated from the company by year-end, LeClair says.

During the conference call, Ford also announces the sale of ACH’s driveshaft business, which will result in the relocation of some 300 salaried and hourly employees from a Monroe (MI) plant to a new facility operated by Neapco Drivelines in Van Buren Township, MI.

Flex part of second-half 2008 product offensive.

The personnel reductions are integral to ongoing efforts to align capacity to demand, reduce costs by $5 billion this year and hit its 2009 profitability goal, the auto maker says.

Ford’s automotive operations lost $1.1 billion pre-tax in 2007, an improvement from a loss of $5.1 billion year-ago, thanks to higher net pricing, lower costs and a favorable product mix – partially offset by unfavorable exchange rates and higher net interest.

In 2007, Ford continued to struggle in its key North American market, posting a pre-tax net loss of $3.5 billion vs. a $6.0 billion loss in like-2006.

For the fourth-quarter, Ford’s North American operations reported a pre-tax loss of $1.6 billion, compared with a $2.7 billion loss year-ago.

Mulally says he expects a boost in sales in North America in the year’s second half, when new products such as the Ford Flex cross/utility vehicle and ’09 F-150 fullsize pickup hit the market.

Ford fell shy of its goal of maintaining a 13% North American retail market share in 2007. Its Ford, Lincoln and Mercury brands held 10.1% of the U.S. retail market and 14.6% of the overall domestic market, including fleets. Mulally blames the decline on the drop in fullsize-pickup demand resulting from the weak housing market and high fuel prices.

At year’s end, Ford had $34.6 billion in cash, an increase of $700 million from like-2006.

The auto maker turned in solid performances in most regions outside North America, including South America, where it earned a full-year pre-tax profit of $1.2 billion, up from $551 million year-ago. The results would have been better had capacity not been constrained, LeClair says.

Ford of Europe also gained, recording a pre-tax profit of $997 million, up from $455 million in like-2006. Ford’s European market share stood at 8.3% in the 19 markets the auto maker tracks, LeClair says.

The Premier Automotive Group – Volvo Car, Land Rover and Jaguar Cars – reported a full-year pre-tax profit of $504 million, compared with a loss of $344 million year-ago. In a surprising turnabout, Volvo, the usual moneymaker, incurred a loss for the year, while Land Rover and Jaguar turned a profit. Ford doesn’t break out individual numbers for the brands.

In the fourth-quarter, PAG reported a $59 million profit, down from $174 million year-ago. The decline was blamed on losses at Volvo, which has been suffering from a weak U.S. dollar and higher-than-usual incentives.

LeClair says there currently are no plans to build Volvos in the U.S. in order to circumvent exchange-rate issues.

“We’re doing a review of the (Volvo) business, and (Ford of Europe Executive Vice President Lewis) Booth and (Volvo CEO Fredrik) Arp are working on a plan to improve business results. That’s the main focus of our efforts right now,” he says, noting there are no plans to sell Volvo.

Ford operations in the Asia/Pacific and Africa region reported a full-year pre-tax profit of $40 million, compared with a pre-tax loss of $185 million year-ago. In the fourth-quarter, Asia/Pacific and Africa posted a pre-tax profit of $10 million, compared with a loss of $135 million in like-2006. Ford says the performance reflects cost improvements and higher profits in the burgeoning Chinese market.

Ford’s 33.4% stake in Mazda Motor Corp. earned it a full-year $204 million profit, compared with $168 million year-ago. In the fourth-quarter, Ford earned $83 million from its investment in Mazda, up from $51 million in like-2006

Mulally says the improving results mean Ford will stick to its game plan.

“Our top priority is to have a truly global product plan and move faster to produce vehicles, reduce components and reduce complexity,” he says. “We’re going to improve our balance sheet and work together as one team. It’s a circle of continuous improvement.”

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