Ford falls to record full-year loss of $12.7bn

Ford falls to record full-year loss of $12.7bn
By John Reed in London
Copyright The Financial Times Limited 2007
Published: January 25 2007 12:55 | Last updated: January 25 2007 13:23



Ford Motor on Thursday reported a net loss of $12.7bn or $6.79 a share for 2006, the largest in its 103-year history and one of the largest ever for a carmaker.

The figure exceeds the $10.6bn net loss reported by General Motors in 2005, previously the largest reported in recent years by any of Detroit’s troubled Big Three automakers.

Ford’s net loss includes a total of $9.9bn costs associated with its restructuring efforts and fixed impairments. Before Thursday’s announcement, analysts had said they expected Ford to take large charges on its earnings in order to reflect the full brunt of its massive ongoing restructuring.

The company’s largest previous net loss was $7.3 bn in 1992, and it reported net income of $1.4 bn, or 77 cents a share in 2005.

The net loss for the fourth quarter of 2006 was $5.8 bn, or $3.05 a share.

Ford’s full-year sales and revenue for 2006 was $160.1bn, down from $176.9bn a year ago, reflecting its rapid loss of market share in its core North American market.

Seeking to stem its mounting losses, Ford last year introduced its Way Forward plan under which it is reducing staff, cutting costs, and revamping its product line. Ford has said it does not expect its North American operations to return to profitability before 2009.

Last year about 38,000 hourly workers at Ford and its Automotive Component Holdings division accepted buyout packages. Ford’s white-collar staff is to be reduced by 14,000 or about a third under the restructuring plan.

The effort is being led by chief executive Alan Mulally, the Boeing executive who last year replaced Bill Ford, Ford’s chairman and a member of the company’s controlling shareholder family.

Last month Ford raised $23.5 bn of new liquidity by leveraging its assets to give itself breathing room as it seeks to remake its business.

“We began aggressive actions in 2006 to restructure our automotive business so we can operate profitably at lower volumes and with a product mix that better reflects consumer demand for smaller, more fuel-efficient vehicles,” Mr Mulally said in a statement.

“We fully recognise our business reality and are dealing with it. We have a plan and we are on track to deliver.”

Ford is due to give more details about its earnings in conference calls with media and investors later on Thursday.

Taken by region, Ford’s North American automotive operations reported a pre-tax loss of $6.1bn, compared to a loss of $1.5bn in 2005. This reflected in part higher incentive spending, lower market share and a reduction of dealer stocks, partially offset by cost reductions.

Ford’s sales in North America, its core market, were $69.4bn for the year, compared to $80.6bn a year ago.

The company reported profits of $551m and $469m, respectively, from its South American and European divisions, but a loss of $185m from Asia-Pacific and Africa.

The Premier Automotive Group, which owns the Volvo, Jaguar, Land Rover and Aston Martin brands, reported a full-year pre-tax loss of $327 m, compared with a pre-tax loss of $89 m a year ago.

Ford, which is in the process of selling Aston Martin, says it has no current plans to sell its troubled Jaguar marque, but is understood to have tested the market for potential buyers.

Ford does not break down the earnings of PAG’s individual brands, but the Detroit News newspaper this week reported that the Jaguar brand lost more than $715 m in 2006, citing an internal analysis presented to Ford executives.

Ford’s share of the profit of Japan’s Mazda, of which it owns 33.4 per cent, was $168m, down from $255m a year ago.

In 2007, Ford predicted that its U.S. market share would continue to decline, but that market share in other regions would increase. The company said its cash flow would be negative, and its capital spending would be about $7 bn.

In line with previous guidance, Ford said its North American operation would continue to lose money, but it forecast a return to profit for PAG.

Like Detroit’s other automakers, Ford is struggling with high raw-material costs, large pension and healthcare liabilities, and intensifying competition from foreign rivals.

GM, which lost more than $3 bn in the first nine months of 2006, is due to release its fourth-quarter and annual earnings on January 30. DaimlerChrysler will report earnings on February 14, when it is also due to announce a restructuring plan for its lossmaking US Chrysler division.