Ford Loses Record $12.7B in 2006

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January 25, 2007
By Nick Bunkley New York Times
DEARBORN, Mich., Jan. 25 - The Ford Motor Company had the worst year in its history in 2006, losing $12.7 billion and suffering sharp
erosion of its share of the United States auto market.
Ford lost $5.8 billion in the fourth quarter alone, the company reported today. In the same period a year earlier, it lost a comparatively trivial $74 million.
The company took in $160.1 billion in revenue in 2006, 9 percent less than in 2005.
Ford's full-year loss, equivalent to $6.79 per share, far exceeded the $7.39 billion it lost in 1992, the worst previous year in its 103-year history, and it even surpassed the $10.6 billion loss posted by General Motors in 2005. But it is still short of the $23.5 billion that G.M. lost in its worst year, 1992.
Most of Ford's red ink in 2006 came from the cost of shrinking and reorganizing the company, buying out workers and writing down asset values. Those charges accounted for $9.9 billion of the full-year loss after taxes. But Ford's day-to-day business did very poorly as well, with a loss of $2.8 billion on continuing operations, compared with a $1.9 billion loss in 2005.
The figures were an unwelcome surprise to many Wall Street analysts, who on average had forecast a loss of about $2.5 billion for the year, excluding restructuring charges and other costs that Ford considers one-time items.
Still, Ford's stock price ticked upward in morning trading, gaining about 20 cents a share to trade near $8.40 a share at midday, roughly where it was a year ago. The stock has been rising since mid-December, in part because gasoline prices have eased a bit.
Ford's woes are greatest in North America, where its automotive operations lost $6.1 billion before taxes, and sales revenue fell by 14 percent to $69.4 billion. The North American losses, four times as bad as the year before, more than wiped out profits from automotive operations overseas.
Jonathan Steinmetz, an automotive analyst at Morgan Stanley, called those results "terrible," noting that the North American figures represent a loss of $4,700 on every vehicle sold.
"The best we can say for the quarter is that it's over," Mr. Steinmetz wrote in a note to clients this morning.
The fourth quarter of 2006 was the first full earnings period for Ford under its new chief executive, Alan R. Mulally, who was hired away from Boeing in September. With Mr. Mulally at the helm, Ford took the unprecedented step of pledging nearly all of its United States assets, from its factories to its blue oval logo, as collateral to borrow more than $23 billion.
The financing leaves Ford with access to $46 billion in cash, although it expects to burn through $17 billion by 2009. In addition, the interest that Ford must pay will most likely drive down earnings from automotive operations even more in 2007. But the company's chief financial officer, Don R. Leclair, said Ford's overall results will be "substantially better" this year.
Mr. Mulally insisted repeatedly today, on a conference call with reporters and analysts, that Ford's effort to overhaul itself, known as the Way Forward, is on track. But to outside observers, the company's financial results have yet to give any sign of progress, and Ford concedes that its market share will continue to slide at least through September.
"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. "We fully recognize our business reality and are dealing with it. We have a plan and we are on track to deliver."
About 40 percent of Ford's hourly workers - some 30,000 employees - have agreed to leave their jobs this year in exchange for buyout or early-retirement packages, and the company is also shedding about 14,000 salaried positions. Those cuts, along with plans to close nine plants by the end of next year, are part of the Way Forward plan, which is meant to return the company to profitability in North America by 2009.
In 2006, Mr. Mulally said, Ford cut its annual structural costs by $1.4 billion. The restructuring plan calls for shaving off another $3.6 billion within two years.
Ford's financial deterioration has caused something of a brain drain at the company, and the arrival of Mr. Mulally has been expected to prompt some other executives to leave as well. Despite its huge losses, Mr. Mulally acknowledged today that the company is considering offering bonuses to some executives to persuade them to stay on.
"At the end of the day, our success going forward will depend on having a skilled and motivated team," he said, adding that a final decision would be made in the next few months.
The move could backfire by making unionized workers more resistant to the concessions that Ford wants from them to become more competitive. Ford did not pay any bonuses in 2005, when it made $1.44 billion.
Ford expects to lose its grip on second place in the American market sometime this year, when it is overtaken by Toyota. Ford's market share has fallen to 17.5 percent last year, from 25.7 percent a decade ago. By the end of the year, Ford's internal projections show that the company may even fall to fourth place, behind Toyota, the Chrysler unit of DaimlerChrysler and General Motors, the market leader.
Mr. Mulally caused a stir in Detroit last month when he flew to Tokyo to meet with Fujio Cho, the chairman of the Toyota Motor Company. Mr. Mulally said he asked for Mr. Cho's advice on ways to streamline Ford's manufacturing operations, and the that the two men had discussed cooperation on some technical matters.
But Mr. Mulally could well have sought Mr. Cho's financial counsel, too, because the Ford loss for 2006 happens to almost exactly match the profit Toyota earned in 2005. That means there is a difference of more than $25 billion between the two companies' financial performances.
The biggest blow to Ford in recent years has come from rising gasoline prices, which depressed sales of the big pickups and sport utility vehicles it depends on for profits.
Yet another $.02 worth from a proud owner of a 1970 Mach 1 351C @ http://community.webshots.com/album/18644819fHAehGJAjt
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Stockholders know that when a company is not profitable and deductible business expenses exceed income, that is a good time to make tax free capital investments. Ford is spending billons on a half dozen new products and modernizing its plants.

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and spending billions in paying off 50,000 slacker union workers to quit
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The problem isn't the workers, mostly management's and slightly the union's errors.
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They agreed to the contract. And, just because they are union workers doesn't make them slackers.
Get a clue.
Jeff
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Ford has no idea what to produce. Most of their vehicles are dated at introduction. Look at the edge. Does it provide anything new? No. Why not think outside the box. Retro is hot so why not make a modernized 60's era bronco. With removable top ford can compete with Jeep for the open air crowd.
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Or used better gas. Lower octane fuel cause valves to vibrate in seats when it knocks even below a audible level. This leads to erosion and togehter with higher exhaust temps from retarded spark timing needed with lower octane fuel, leads to eventual burning of valves. They do not tell you that though. ----------------- TheSnoMan.com
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The octane rating needed is clearly stated in the owners manual. If higher octane than what is in the owners manual is needed, then the resulting failures is still the manufacturer's fault.
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Regular fuel is fine if the engine is designed for it. I notice some engines with a CR too high for regular octane specify regular can be used. Sure let it knock so we can adjust it, a sure way to the troubles you mention. IMO Toyota's Camry 3.5L V6 has too high a CR for the specified regular fuel. I Emailed Toyota about this and they said premium fuel is needed for best performance. We could add for longer engine life eh!
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wrote:

I doubt if using premium fuel in modern engines with knock sensors has a significant effect on engine life (assuming the PCM has enough adjustment range to compensate for the use of regular fuel). With the knock sensor strategy, the PCM adjusts the timing until knock is detected and then adjusts it back down to the point that the knock is eliminated - BUT - for this sort of strategy to work it has to occasionally (based on some sort of algorithm) advance the timing until knock is detected. I suppose it might be that with premium fuel the engine never knocks under any allowed ignition advance but I doubt it. Ford did recommend premium fuel for the 32V Navigator, but the knock sensors do protect the engine when regular is used. The 2V Expedition version of the engine was specified to run on regular fuel, but the PCM would adjust the timing if you used premium fuel and increase the performance slightly. I owned two Expedition, and in over 250k miles of driving I never had a problem with spark knock. I did try running premium for multiple tank fulls in my 1997 Expedition but I could never detect any difference in performance or fuel economy. At least as far as I was concerned, running premium was just a way to give the oil companies another $0.20 per gallon.
I have noticed that many of the Japanese companies are now specifying premium fuel but allowing the use of regular fuel. I think this is done for two reasons - 1) By making premium fuel the primary specified fuel they can advertise the slightly higher HP numbers achieved when using premium fuel and 2) by specifying premium fuel in the manuals, the EPA will use premium fuel when conducting the emission and fuel mileage tests. When using premium fuel the cars get slightly better fuel economy. This is good for the CAFE game but not really detectable in real world driving. I have seen it claimed that for engines that have knock sensors, using premium will increase fuel economy by 3% to 5%. I don't think must people keep careful enough records to detect a .6 to 1.2 mpg increase. Companies that follow this strategy (specifying premium fuel for mundane cars) are doing a disservice to many of their Customers. The slight fuel economy improvements associated with the use of premium fuel will not offset the much higher cost of premium fuel. I doubt if the typical Camry driver can detect the difference in performance. I doubt an "expert" could detect the difference without a dyno or a stopwatch. So in the end, by specifying premium fuel Toyota, is screwing the little blue haired little old ladies who are the primary Camry buyers. I suppose if economy was the primary goal, they wouldn't be driving a Camry (and for sure not a 3.5L Camry).
Ed
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Mr White...that was a very good write-up.
You should contribute more often....time permitting.
skimmer
wrote:

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wrote:

Snoman. I use(d) the best gas I can buy at the local supply station. How much better can it get...and where can I buy it?
skimmer
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wrote:

Sounds like you need a lawyer to sell it to the judge.
Jeff
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They need to get and keep people who may be able to help them. Obviously they don't feel those they are letting go will be needed.
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I agree that executive pay in this country has gotten out of hand. but so has the salaries paid to entertainers, pro athletes, and some politicians. It was my understanding that Bill Ford was not taking a salary. I think in the end he realized that he was not smart enough to correct Ford's problems. When looking for the guy to turn things around he had only a few choices - promote one of the exiting upper management team - possible, but given the current problems, it seem like this would not inspire outside investors, 2) reach down into the ranks and pick some bright young guy - again this is not going to inspire investors, 3) hire a "super star" from outside the company. Obviously Ford decided to try #3. Having lived through my employer doing this, I can tell you it has risks. At least in Ford's case they hired someone that has some experience with manufacturing and unions and was successful in turning around a major corporation. I feel certain that this will work out better than hiring a loud mouthed self promoting cookie salesman. However, when you decide to go with the "super star" strategy, you are going to have to pay through the nose. If he is successful, then a $9M signing bonus will seem like a bargain. If not, will it really matter that Ford wasted $9M? And, at least so far Ford has not declared bankruptcy. I doubt they will unless they are about to shut the doors. If Ford declares bankruptcy, the Ford family will likely loose it's control of the company.
Ed
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with mising digits and hired on April Fools day?
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LOL. I do have a new appreciation of how history doesn't match reality. Too bad nobody will buy my book.
Ed
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<...>

I would not say that he was not smart enough. I would say that he did not have skills or talents or background that was needed. He was smart enough to get out of the way, which is saying something.
And sometimes having someone come in from the outside can make all the difference, even if someone from the inside would do the exact same things.
Jeff
<...>
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Ford also supports stem cell research and reproductive choice. And, they advertised on the "Two and a Half Men" show.
So they support respect, even if the people aren't like us, stem research and reproductive choice. Sounds a company I like more and more.
Jeff
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<...>

My impression is that Consumer Reports is slanted towards the Asian car makers.
There are a lot of changes besides the sheet metal since 1987. However, there never was a sudden change. Rather, lots of incremental improvements. The cars are all front-wheel drive (or maybe all wheel drive), have a longer wheelbase, are considered compacts (not sub compacts) and have more room and comfort, have better suspensions, the engines have more power and are all DOHC. They also have a lot more electronics (no more tape players), better pollution controls, ABS, air bags (and I don't mean the talkative passenger), more gears in the transmission and probably better gas milage, too.
The Toyota is not a flashy car. But it works. And works well for Toyota, being the #1 selling car in the US and the world.
I don't know why Toyota dealers rate worse than other dealers. It might be that they don't offer deep discounts like they do at Ford and GM. Maybe it is something else. Toyota ranks about average on all measures, however. http://www.jdpower.com/autos/ratings/sales-satisfaction That probably puts it in the 25th percentile overall.
Jeff
Jeff
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