Ford, GM in parallel drop of fortunes Thud June 23, 2005 bY JAMIE BUTTERS FREE PRESS BUSINESS WRITER While the nation has been preoccupied with the struggles of General Motors Corp., Tuesday's announcement of white-collar job and benefit cuts at Ford Motor Co. shows the two rivals are fundamentally in the same boat. Late Tuesday, Ford announced plans to eliminate about 1,700 salaried positions by Oct. 1, suspend contributions to 401(k) retirement accounts and eliminate management bonuses for the year. The moves announced Tuesday were widely seen as an effort to woo the UAW by demonstrating that salaried employees would share the pain. Then the union might be willing to give Ford the same cost-saving agreements it is discussing with rival GM. "Ford also took the opportunity Tuesday to make a very clear (in our view) announcement to the UAW that if any health care concessions are on the table, Ford wants some, too" ... in keeping with UAW President Ron Gettelfinger's "suggestion that, if the union is going to play ball, that everyone should have some skin in the game," Chris Ceraso, who studies the industry for investors at Credit Suisse First Boston, said in a note. A spokesman said the union had no comment on that idea. Last month, Ford reached an agreement with the UAW over the transfer of Visteon plants back to Ford, which could be seen as a sign of their cooperative relationship. To fix its U.S. business, GM has said it is trying to work with the UAW to reduce health care inflation but hinted that it might have to take some actions with or without the union's consent. The UAW has said it will cooperate within the current 4-year contract but warned GM not to act unilaterally. The world's largest automaker said last month that it would eliminate 25,000 U.S. manufacturing jobs within four years. Besides announcing its own personnel cuts Tuesday, Ford said it would make less profit this year than it previously expected. Its stock dropped 4.4% Wednesday, closing at $10.68 and dragging down Michigan suppliers. GM stock finished trading at $34.82, down 1.09% on the day. With their declining market share, reliance on high-profit SUVs and 100-year-old Detroit roots, the automakers have more in common than not. Shares of the two automakers routinely rise and fall together. In the last year, both are down by well over 20%. Investors certainly see little difference between the two: The total value of either company's stock is just under $20 billion. There are some significant differences. Ford, for example, has a newer truck lineup, fewer costly retirees and a greener image, fueled by hybrid vehicles. But both automakers are losing ground to Asian competitors and their credit ratings are in danger of falling deeper into junk status. Credit-rating agency Standard & Poor's Corp. rates Ford's creditworthiness one notch above GM's but it said Wednesday that it is now more likely to lower Ford's ratings, which it cut to the highest junk, or speculative, level last month. Rival Moody's Corp. rates Ford's automotive debt at the lowest investment-grade level but is reviewing that rating for a possible downgrade. Ford Credit is rated one notch higher, and is also under review. A junk credit rating means big investors, like mutual fund companies, might not be allowed to invest in a company's bonds because they are considered too risky. Both automakers have lived on the strength of their financing businesses that lend money to car buyers and dealers. GM's finance arm, GMAC, is also a major lender for home and business mortgages. GM lost $1.3 billion on its automotive operations -- designing, manufacturing and selling to dealers -- in the first three months of the year, mostly in North America. Ford has been making money on automotive operations but now warns that it will break even at best with its automotive units this year. The problem for both is in the home market, where they keep losing market share to constantly growing foreign competition. Through the first five months of the year, the two combined to sell 44.8% of the vehicles sold in the United States. In 1980, GM held almost that much share by itself: 44.6%. The decline has been particularly painful this year, as consumers have shifted away from highly profitable truck-based SUVs, such as the Ford Explorer and Cadillac Escalade. Investors often treat the two companies almost as one, but they probably shouldn't, said David Healy, who studies the industry for investors at Burnham Securities. "They're really in the same boat, but Ford is in first class, and GM is in steerage," he joked. The salient difference between the two, says Healy, is that Ford is profitable and GM isn't. In the first three months of the year, Ford earned $1.2 billion, while GM lost $1.1 billion. The other way the two are similar but different is that they often reach for the same consumers. Many analysts speculated that Ford's dramatically reduced outlook for the second half of the year is in part a result of GM's success with its Employee Discount for Everyone promotion this month. "Blame lower-than-expected market share, and with strong" incentive-driven "June GM sales, the likelihood of larger production cuts and/or higher incentives in the back-half of the year," said Rob Hinchliffe of UBS. Ford spokesman Oscar Suris dismissed the idea that a 3-week-old GM campaign was to blame for Ford's market-share losses and lower profit outlook. "That's a leap," he said. Along with market-share worries, Ford cited suppliers' inability to cut costs in the face of rising prices for raw materials and falling production by Ford and GM. The two automakers account for the majority of sales for most Michigan-based parts makers. While Ford's and GM's stocks have plunged this year, they have both risen significantly over the last two months. The growing belief that the UAW will let GM save money -- and that Ford will see similar savings -- has fed a run-up in all auto stocks in the last two months. But that enthusiasm, which investors lavished on both automakers, was overblown, said Robert Barry of Goldman Sachs. "We think this recent strength both in Ford and GM shares is unwarranted," he said Wednesday in a note to clients. ------ Ford cuts more salaried jobs June 22, 2005 BY JAMIE BUTTERS FREE PRESS BUSINESS WRITER • Information with an article about reducing the salaried workforce at Ford Motor Co. incorrectly said the company has about 1.8 million shares outstanding. The correct number is 1.8 billion shares. MORE BELT-TIGHTENING Ford Motor Co. says its financial outlook for the rest of the year has worsened and that it will take the following steps: Cut 1,700 salaried North American automotive jobs, 5% of the total, by Oct. 1. This is on top of 1,000 job cuts announced in April. Eliminate 2005 bonuses for salaried management employees worldwide. Suspend 401(k) matches for salaried workers. Cut by 10% its use of agency and purchased services. Look for ways to cut personnel costs outside the United States. Acknowledging that weak sales will reduce profits this year, Ford Motor Co. is cutting its salaried workforce and the compensation of remaining workers, the automaker said late Tuesday afternoon. Reduce its estimate of 2005 profits to between $1 and $1.25 a share, excluding onetime losses and gains. The previous estimate was $1.25 to $1.50 per share. (Ford currently has about 1.8 million shares outstanding -- not counting bonds that can convert to common stock -- so a 25-cent reduction equals a drop in estimated profits of more than $400 million.) Ford said it will eliminate 1,700 white-collar jobs, or 5% of its salaried positions in North American automotive operations, by Oct. 1, and slash its spending on agency or purchased services by 10% by July 1. Ford had already announced in April that it was cutting 1,000 salaried jobs. Remaining workers will not get matches to investments in their 401(k) retirement accounts for the foreseeable future, beginning next month, and salaried managers worldwide will not receive bonuses for 2005, the company said. For the second time this year, Ford cut the amount of money it is telling investors it will earn for the year. Ford had been trying to steer clear of the negative attention showered on crosstown rival General Motors Corp., which in April withdrew any statements on expected 2005 profits and was rattled by corporate raider Kirk Kerkorian, who increased his stock ownership to 7.2% of the company. Both automakers are struggling to keep their place in the market in the face of growing foreign competition. GM's eight brands have lost 1.5 points of U.S. market share through the first five months of this year to fall to 25.7%; Ford's six main brands have lost 1 point to drop to 19.1%. But Ford Motor has had to lower its outlook repeatedly in the first half of this year. Earlier this year, Chairman and Chief Executive Officer Bill Ford had said that the company would not meet its longstanding goal of earning $7 billion before taxes next year, saying that the needed cuts could do permanent damage to the company. In April, the automaker trimmed its earnings guidance for the year from a range of $1.75 to $1.90 per share to a range of $1.25 to $1.50. On Tuesday, the guidance was shaved again to a range of $1 to $1.25 per share. Such guidance to Wall Street analysts excludes onetime expenses and gains. The announcement, released under the headline "Ford updates earnings guidance for 2005," was made at 4:01 p.m., right after trading ended for the day. Ford shares had closed at $11.17 after gaining 6 cents, or 0.5%, for the day. In after-hours trading, the shares fell to $10.75, a drop of 42 cents, or 3.8%. Ford also cited "continued supplier-related challenges." In an interview, Chief Financial Officer Don Leclair said that higher prices for steel and other raw materials, combined with lower production at Ford and GM, were making it hard for suppliers to pass on savings to automakers. Last month, Ford reached an agreement with former subsidiary and largest supplier Visteon Corp., under which Ford would take back control of 15 plants where workers are represented by the UAW and nine other related facilities. The deal would cost Ford at least $1 billion up-front, but the automaker said it would lead to savings of up to $700 million a year by the end of the decade. As at GM, Ford's biggest problems have been in the North American automotive market. While strong profits continue to flow from Ford Credit -- the financing unit was spared any job cuts -- it has not been enough to make up for flagging sales and the shifting of consumer tastes from high-profit trucks to cars. Last month at the company's 50th annual shareholders meeting in Wilmington, Del., Bill Ford called automotive profit "one of the most critical measures" of the company's performance. He said he would continue to forego a cash salary and would seek to have his future compensation tied more closely to automotive profits instead of overall profits. "I will also forgo any compensation -- at all -- until the compensation committee and I are satisfied that the company has achieved a sustaining profitability" in the automotive business, he said. The company has eliminated management bonuses during other difficult periods, particularly when it is asking for sacrifices from shareholders, employees and suppliers. Ford's 401(k) match had been 60 cents on the dollar, applied to the first 5% of an employee's salary set-aside in the retirement account. In recent years, Ford has suspended and restored the matching funds. Ford has filed to sell Hertz Corp., the rental-car company it owns. Ford's announcement did not mention the UAW. The union has worked with the Chrysler Group to limit health care inflation and is meeting with GM to save that automaker money. "We have ongoing discussions with the union, which we do not share with the outside," Leclair said. Although the company is lowering its outlook for the year, it now has higher expectations for the second quarter, which ends June 30. Jim Padilla, Ford's president and chief operating officer, said the automaker simply must adapt to the difficult conditions in the industry. But he added that he is hopeful that new models such as the Ford Fusion sedan and the redesigned Explorer SUV will help. "We're going at high-volume areas of the market with midsize cars, where we haven't been before. So I think that's an opportunity for us to grow share." ------ Ford and GM fail to update lines Jurassic Car June 22, 2005 BY SARAH A. WEBSTER FREE PRESS BUSINESS WRITER General Motors Corp. and Ford Motor Co. are not updating their model lineups as fast as their competitors and likely will continue to lose U.S. market share as a result, an annual analysis of the auto market by the brokerage Merrill Lynch says. A Merrill Lynch report says General Motors Corp. and Ford Motor Co. lag competitors in updating their product lineups. But the automakers caution that the findings are incomplete. Merrill Lynch's data suggest a link between the percentage of new models and how much market share an automaker gains or loses, with the freshest lineups doing the best. Above are vehicles expected to appear in showrooms for the 2006 model year. GM and Ford will replace just 16% and 15% of their lineups a year on average over the next four years, estimates Merrill Lynch's report, Car Wars 2006-2009: The Product Pipeline and its Investment Implications. Meanwhile, Korean, Japanese and European competitors will update their models much faster, replacing 30%, 21% and 15% of their lineups annually during the same period, a summary of the report says. The Merrill Lynch findings, which GM and Ford dismissed as incomplete and speculative, were released in a recent conference call and presentation, and the full Car Wars report is to be available in about two weeks. John Casesa, the Merrill Lynch auto analyst who writes the annual analysis on the auto industry, said Tuesday that Detroit automakers' relatively weak investment in new products compared with their Asian competitors "gets to the heart of the problem" at GM and Ford. Merrill Lynch's data suggest there is a strong correlation between the percentage of new models and how much market share an automaker gains or loses, with the freshest lineups doing the best. GM sales are down 6.7% for the year through May, while Ford sales are down 5.7%. Their combined share of the U.S. market the first five months of the year was 44.8% -- down from 47.3% a year ago. DaimlerChrysler AG, whose Chrysler Group is in Auburn Hills, "will continue to lead Detroit with the freshest lineup," Casesa wrote in the presentation summarizing the findings. He estimates the automaker will replace about 17% of its lineup annually between 2006 and 2009. Automakers do not typically release their future product plans, for competitive reasons. So Merrill Lynch's conclusions are based on proprietary research the company's analysts gather through auto suppliers, manufacturers and other sources. Ford spokesman Said Deep said the automaker does not believe the Merrill Lynch report accurately reflects its future product plans. He noted it excludes some new 2006 models, such as the Explorer and Mountaineer SUVs. "We've got a lot more coming," Deep said. "He doesn't have the full picture. ... We have publicly said that we're going to deliver more products faster, and we're doing that." GM spokesman Tom Wilkinson also said that, because the report is based on "data that we try to keep secret," the findings are not complete. He said the automaker is trying to replace more models faster. Wilkinson also noted that, because GM's portfolio of models is so large, at about 80 cars and trucks, it's more difficult to achieve higher replacement rates. Companies with a handful of vehicles can replace just a few models and achieve a much fresher lineup. "There's a built-in advantage for someone like Hyundai," Wilkinson said of the numbers. Overall, the Merrill Lynch report anticipates a continuing explosion of new vehicles coming to dealerships. The firm estimates 195 new products will be available for consumers between 2006 and 2009, for a total of 290 vehicles on sale that last year. That's an average of 49 new vehicles a year, compared to a historical rate in recent years of about 35 new cars and trucks a year. And it means that 71% of the models on the market will be replaced in the 2006-09 model years. GM and Ford will not be producing enough of those new vehicles to maintain its market share, the report concludes. Neither GM nor Ford would comment on their market-share projections. While Casesa predicts Chrysler will be able to maintain its market share with its product plans, Chrysler spokesman Jason Vines said the automaker expects to gain market share. DaimlerChrysler's share of the U.S. market through May was 15.2%. Casesa said GM and Ford could be doing better in the market if they invested more money in their engineering, manufacturing, design and marketing departments. "The revenue problem will be solved with new product and that is solved with investment," Casesa said. "You have to spend the money on the product and the people who develop the product." Casesa's estimates reveal that local automakers invest far less of their revenues on capital expenditures, such as new manufacturing equipment, and research and development than foreign competitors. On average, automakers invest about 10% of their revenues on capital expenditures and R&D. But, the report says, local automakers spend less, with GM spending 8% -- the lowest amount in the industry -- Ford spending 8.2% and Chrysler Group spending 8.5%. ------ Ford Trails F-Series Sales Goal Losing momentum... FAST By John D. Stoll WardsAuto.com, Jun 10 2005 SAN ANTONIO – Ford Div.'s new president picked the nation's largest commercial truck outlet as the stage to reiterate a Texas-sized sales goal, even as it trails the target by an estimated 50,000 units. Darryl Hazel, who was president of Lincoln Mercury Div. prior to his current post, says Ford is shooting to reach 900,000 F-Series deliveries in 2005, following a record year in 2004, when it sold 939,511. “We're a little behind,” Hazel admits during a media event at the Ford Grande Truck Center here. Through the end of May, he says internal data suggests Ford will sell 850,000 F-Series this year when adjusted for seasonal trends. Through the first five months, 335,267 F-Series have been delivered vs. 358,034 in like-2004, representing a 6% decline, according to Ward's data. Hazel points to a sluggish January and February, with just 49,319 and 59,562 deliveries, respectively, as reason for the sluggish pace. Ford saw enormous payback during the first two months, following a December in which 95,392 F-Series were sold on the back of generous rebates. F-Series incentives may move upward later in the year to quicken the sales pace, Hazel says. While he does not give marketing details, he does admit, “we have to pick it up a bit.” Although sales are trending upward, if the 3-month period spanning March through May is any indication, Ford's chances of hitting its goal are nil without a change in buyer behavior or increased spiffs. Even with increased momentum, the average number of units sold on a monthly basis so far has been 75,462, falling behind 76,356 in like-2004 by 1%, Ward's data shows. The push to reach 900,000 units comes as Ford struggles to maintain at least a facet of leadership in the U.S. truck market. “We intend to stay dominant in the truck business,” says Hazel. If Ford does hit its target in 2005, he says it will mark the first time in modern history an auto maker has sold 900,000 units of any vehicle in back-to-back years.