Ford Posts $1.19 Billion Loss
As Revenue Drops 9%

JEFFREY MCCRACKEN / Wall Street Journal 22apr2006

Ford Motor Co. reported a large first-quarter loss, lower revenue and lower market share. But the story behind the numbers is Ford's continuing struggle to wean itself from dependence on profits from gas-hungry sport-utility vehicles.

Ford rode the 1990s craze for big pickup trucks and luxury sports-utility vehicles to record profits. Led by the Ford Explorer, profits from high-volume SUVs covered up the auto maker's losses on smaller sedans. But more recently, Chairman and Chief Executive Officer Bill Ford Jr. has said the company must fundamentally change its business model.

Mr. Ford says the company must make money on all of its vehicles. He said yesterday that he doesn't expect Ford to get higher prices for small cars amid rising gas prices. Instead, he said, Ford must aggressively shrink itself and cut costs. Ford says it will shed 34,000 North American jobs over the next six years.

"Our business structure had to be such that all of our vehicles had profit potential and that we were going to try and hit a lot of singles and doubles," said Mr. Ford on a conference call Friday. "If we hit some home runs in the process, that would be fine, but we weren't going to structure our business so that a very few products would carry us."

Executing this transformation so far is proving to be a substantial challenge.

Ford Friday reported a net loss of $1.19 billion, or 64 cents a share, for the first quarter, compared with net income of $1.21 billion, or 60 cents a share, for the year-earlier period. Earnings from continuing operations, in part excluding a $2.5 billion charge related to an overhaul of Ford's unprofitable North American operations, were $458 million, or 24 cents a share, down from $1.26 billion, or 62 cents a share, a year earlier.

North American auto operations had a pretax loss of $457 million, excluding restructuring costs. A year earlier, Ford North America had a pretax profit of $664 million.

In contrast to rival General Motors Corp., which had a first-quarter loss but managed to expand revenue by 14%, Ford's total revenue fell 9% to $41.06 billion from $45.14 billion. Revenue from automotive operations, which excludes Ford Motor Credit Co. revenue, fell 6% to $36.99 billion. Analysts were expecting automotive-operations revenue to rise 1%.

Ford Chief Financial Officer Don Leclair said Ford's $2.34 billion drop in automotive revenue was due to currency-exchange rates, along with the sale of lower-priced vehicles, overall lower vehicle pricing and lower production. He said Ford Credit's revenue will be down every quarter this year because of last year's sale of Hertz.

In North America, automotive revenue fell 6.3% to $19.8 billion in the quarter.

Ford not only sold fewer cars and trucks, but realized less revenue on average from each one. In North America, as SUV sales slumped, Ford's average revenue per vehicle fell $554, or about 2.3%.

No vehicle better captures Ford's painful evolution than its once-mighty Explorer, the home-run SUV that defined and dominated that segment during the 1990s. But Explorer sales have fallen by half since 1999 and are down 25% this year despite a major redesign in late 2005.

The Explorer held 25% to 30% of the midsize SUV market for most of the 1990s with sales peaking at 431,000 vehicles in 1998, followed by sales of 428,000 in 1999.

Ford posted profit of $7.2 billion in 1999, the best year ever for any of Detroit's three auto makers. Then in 2000, the Ford Explorer suffered a body blow. In February of that year, a Houston TV station, KHOU-CBS, reported on a rash of rollovers of Ford Explorers equipped with Firestone tires.

Later in the year, the National Highway Traffic Safety Administration opened an investigation, followed by Senate hearings, massive tire recalls, more accidents, countless lawsuits and bad press that extended into 2001.

The Explorer's share of the midsize SUV market fell to 19% in 2000 from 25.5% just a year earlier, according to data from J.D. Power & Associates. Last year the Explorer's share of the midsize SUV market was just 9.9%, despite a redesign.

Ford executives note that they began retooling the product line to put more emphasis on lighter weight, more fuel-efficient sedans and crossover wagons several years ago. Friday, Ford spotlighted expanding sales for a new line of midsize cars that includes the Ford Fusion, Mercury Milan and Lincoln Zephyr. In their 4-cylinder configurations, these vehicles are rated at about 30 miles per gallon on the highway.

At 4 p.m. Friday in New York Stock Exchange composite trading, Ford shares were off 7.9%, or 63 cents, at $7.32.