108
Ford Motor Co. racked up the largest quarterly loss in its history – totalling $8.7-billion (U.S.) in the second quarter – amid a collapse in sales of pickup trucks and sport utility vehicles that is causing a sweeping transformation in the way Detroit does business.
The Ford loss, which compares with a slim profit of $750-million a year earlier, points to deep pools of red ink developing at rivals General Motors Corp. and Chrysler LLC because all three firms rely on profits from pickups and SUVs to offset money-losing passenger car operations. GM has not said when it will report, but is expected to some time next month.
The latest crisis in Detroit and the record Ford loss stem from a dramatic shift in the vehicles Americans are buying – at least those who are buying – because of the surge in the price of gasoline above $4 a gallon and the devastation in the U.S. housing market.
Sales of pickup trucks have plunged. Deliveries of traditional SUVs such as the Ford Explorer and its larger siblings the Ford Expedition and Lincoln Navigator have all but evaporated. The crucial element of Ford's recovery plan is to take small cars and crossover-utility vehicles that have been successful in Europe and manufacture, or sell, them in North America.
Overall U.S. vehicle sales fell in June to levels not seen since 1993 and July sales are on pace to be even worse.
Ford said the market and its financial results likely will be worse this year than previously thought, next year will not be much better and a recovery is not in sight until 2010.
The change in the market means the Detroit Three have to jump back into passenger cars after all but conceding those segments of the business to their Asia- and Europe-based competitors.
To recover, Ford announced Thursday a radical shift in tactics along with the quarterly loss. It will convert two of its SUV assembly plants in the United States to factories that make cars or crossover-utility vehicles.
The turnaround plan also includes doubling the number of fuel-efficient four-cylinder engines that Ford makes and increasing the number of vehicles that will carry a new fuel-saving technology it calls EcoBoost.
In vehicle design, Ford's European, North American and Asian arms acted virtually independently for years, developing vehicles for individual markets instead of global cars, with small differences to reflect varied consumer tastes.
Ford chief executive officer Alan Mulally pointed to separate European and North American versions of the company's Focus compact car as an example of how the company's product development process needs to be overhauled.
“While these vehicles share the same name and are both excellent products, they are totally different designs requiring separate engineering and many unique components,” he said during a conference call with reporters and analysts.
While the shift will take time and cost billions of dollars, such a move is vital if Ford is to survive, some analysts said Thursday.
“Somebody's got to stand up and say we need a strategic transformation here,” said William Pochiluk, president of Pennsylvania-based consulting firm AutomotiveCompass LLC.
It took an outsider such as Mr. Mulally – who left aircraft maker Boeing Co. in 2006 to head Ford – to change the culture, added analyst John Casesa, managing partner of Casesa Shapiro Group LLC in New York.
“He's the only one willing to confront these problems head-on,” Mr. Casesa said.
The critical questions, though, are whether Americans will buy cars designed in Europe and whether Ford will be able to make money from them.
European-designed models, such as the Ford Contour and Mercury Mystique in the 1990s and the Merkur in the 1980s, flopped.
Ford insisted Thursday that the dramatic surge in the price of gasoline has permanently changed the landscape.
“The key will be making those vehicles less European in terms of the touchy-feely aspects,” said Joseph Phillippi, an industry analyst who now heads Auto Trends Consulting Inc. in Short Hills, N.J.
And what about profits?
Mr. Phillippi noted that in the glory days of the SUV in the late 1990s, every Expedition and Navigator generated about $15,000 in pretax profit.
The total U.S. price for a red, 2008 Ford Focus SE sedan with automatic transmission is $15,740 after a $500 rebate.
Among the other signs of trouble in Detroit, and now globally, were financial results from Daimler AG, whose quarterly profit fell 25 per cent to $2.2-billion, mainly because of its 19.1-per-cent share in Chrysler.
Daimler's results indicated that Chrysler lost an estimated $510-million in the first three months of this year. Chrysler has not officially reported results since private-equity firm Cerberus Capital Management LP of New York bought an 80.1-per-cent stake in the company last year.
With a report from Associated Press
