The Ford financial results were greeted as a nice surprise. There was a very small return to profit in the second quarter. If you break the group into two parts, what you find is that there is now a nice little business within it earning money out of making and selling cars in Europe and Asia.
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What spoils it is making cars in America and trying to sell them there. Quarter two lost Ford $US279m.
Perhaps it is because Alan Mulally, the CEO, sits in America and the CFO, Don Leclair, sits there with him, that they sound so miserable. They say they are “very, very encouraged by progress” but the tone of voice is not persuasive. If it was you sitting there with the prospect of yet another round of talks with the UAW about what the union might yield to rescue the business from bankruptcy, you might feel a little weary too.
When asked if there are any plans in the Ford recovery plan to issue equity to generate more cash to burn on restructuring costs, that is not denied. Usually, the last thing you do is to encourage the thought that if someone bought a Ford share today there would be cheaper ones around tomorrow. Maybe that is why the nice surprise yielded a share price rise of only 2%.
The other question was whether there might yet be a Chapter 11 filing to protect the business. Again, that was not thrown out as too wild a thought. The answer was: “That is not in our plans.”
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By GlobalDataFord’s financial performance was a turnaround from the same quarter last year of more than $1bn – a profit of $750m as opposed to a loss of $317m. There were three main contributors. The big one was the annualised cost saving of $1.1bn which arises from getting rid of so many people. Another was the much better effort in the overseas businesses – especially China and western Europe which is now a profit centre. The third was the one-time kicker of the sale of Aston Martin which yielded a gain of $206m. Pity the sale price was not just a little bit higher so that the guys at the British factory could at least feel that they could have kept Ford North America losses going for a full three months.
Four assembly plants have been shut in the US and there are plans to quadruple that to 16 within five years. Capacity that was 4.8m vehicles in 2005 will be 3.6m by next year.
On present indications then, Mulally reckons he can forecast profit from the automotive division, and from the North American business within it, by 2009. That was the plan. He reckons that he can get $5bn of cost out of the business by 2008 compared with 2005. That was in the plan already also. He thinks that he can deliver the planned market share stabilisation in North America at 14-15%. What is better than plan is a mere $17bn to be spent between now and the end of the year after next to fund trading losses and restructuring.
As for Jaguar and Land-Rover, they look more attractive than they did to a buyer.
The speculation though has Tata, the Indian company, as front-runner. Asked whether the jobs and plants in the UK would be safe in the hands of the new owner, Mulally ducked the question. All that was disclosed was that Ford is “encouraged by the interest and moving to the next stage of discussion.”
One wonders whether they can cheer themselves up by the thought of building the new luxury car strategy around Lincoln and Mercury?
Rob Golding
