Ford’s record quarterly loss of $US8.7 billion is a big number and a bad number, certainly worse than many expected. But it has also taken some of the attention away from the strategy behind the company’s revamp.
The Ford website headlined it “Ford Accelerates Transformation Plan” which, could be translated to“last desperate throw of the fluffy dice to save this company”.
Following a loss of that size, if this move falls or stumbles, Ford is history. It will be remembered another American industrial dinosaur destroyed by its failure to adjust in time to its market and the economy generally.
Earlier, US rival Chrysler, which is in the throes of changing its business mix, said it would sack 1,000 white collar staff, a reaction that seems inadequate for the poor state the company’s sales are in.
German luxury giant Daimler revealed a small rise in sales and revenues in the June quarter, but cut its full year pre-tax profit forecast by 10%, or over $A1 billion to about $A11.4 billion. It was the first European car maker to issue a profit warning after Volkswagen, Fiat and Peugeot all reaffirmed full year forecasts, despite the increasingly difficult market conditions.
Daimler said its 2009 pre tax, pre-interest profit might match its 2007 figure, so no growth at all and tonight, Japan’s number three car group, Honda, is expected to reveal a similar situation for its first quarter, thanks to the problems in the US car market. But these are profitable car companies, selling vehicles consumers want to buy: small, fuel efficient petrol and diesel models.
Like its US peers, Ford is a near basket case. It’s further along the restructuring process than the others, but its stepped up version of plan released in May has to work and work quickly. At best it has two to three years for progress to be seen and even that might not be enough if oil prices resume their rise. It’s going to be tough, the major factors are beyond its control, as Ford acknowledged in its updated North American car industry planning assumptions:
- US economic recovery to begin by early 2010
- US industry sales to return to trend levels as the economy returns to health;
- Product mix changes are permanent, but some recovery will occur from the current share-of-industry for full-size pickups – though not back to levels experienced previously – as the economy and housing sector recover;
- Oil prices to remain volatile and high; No near-term relief from current level of commodity prices;
- About 14% US market share for Ford, Lincoln and Mercury brands.
The most telling sign of the new approach was the announcement that Ford would convert its once market leading Explorer Sports Utility Vehicle to the platform for a series of more efficient cars.
So far as Ford is concerned, the age of the SUV and pick up truck is gone and by the end of 2010, it will be spending two third of its car investment on cars and so-called crossover vehicles, compared to 50% now. The loss included $US8 billion in pretax write-downs for plant closings and the declining value of pick up truck leases at Ford Motor Credit Co.
Ford had pretax write-downs of $US5.3 billion for its North American car business and $US2.1 billion for vehicle leases at Ford Credit which were caused by the market value of pickups and sports utility vehicles dropping below the residual value of the leases. To counter this, Ford has had to increase the depreciation rate on the vehicles, hence the higher losses at its finance arm.
That is devastating the second hand car market in the US: there are millions of used cars whose value is shrinking daily. Car dealers are next.