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
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
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
"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
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 @