Ford Cuts Trucks

[JackL]

Ford Cuts Trucks
Abandoning its goal of a profit in 2008, Ford admits it can no longer rely on big pickups and SUVs
by David Kiley


The unthinkable has happened—and probably not a moment too soon. Ford Motor (F) is cutting its production of its one-time cash cows, pickups and SUVs, to instead increase production of smaller and more fuel-efficient cars. In doing so, the automaker is forced to abandon its goal of turning a profit next year after several years of annual losses, but it might be able to better position itself long-term for a world of high oil and commodity prices.

The announcement sent Ford's share price down 57¢ to 7.23, or 7.3%, in midday trading May 22.

"What we are seeing [consumers leaving trucks and SUVs] is a structural change in the marketplace, not a cyclical one," said Ford Chief Executive Officer Alan Mulally in a morning conference call. "Unless there is a fairly rapid turnaround in U.S. business conditions, which we are not anticipating, it now looks like it will take longer than expected to achieve our North American automotive profitability goal," said Mulally, who predicted Ford would report a full-year loss this year and do no better than break even in 2009.

Ford is re-evaluating some aspects of the restructuring plan Mulally has been leading since he took over the struggling automaker in September, 2006. Specifically, Mulally told Wall Street analysts and media May 22 that the company is in the midst of negotiating commodity contracts for materials such as steel. In July, said the CEO, he will announce whether Ford will forecast full-year profitability by 2010, or delay guidance. "We will know much more by July," he said.

Standard & Poor's on Thursday changed its outlook on Ford to negative, from stable, citing heightened concerns over the North American auto industry, while Moody's Investors Service affirmed its rating on the automaker.

Shares' Roller-Coaster Ride
Ford's shares have recently been on a roll. The price bottomed out this year on Mar. 17 at 5.11 per share. In early April, shares were up to almost 6 when billionaire investor Kirk Kerkorian began accumulating shares. Kerkorian announced a tender offer last month to accumulate up to 20 million shares, or 5.5% of Ford's common stock. The offer is for 8.50 a share, or just about the price shares traded at the day Kerkorian filed with the Securities & Exchange Commission.

Ford said in a statement it will express no opinion about Kerkorian's offer. Mulally says he and Chief Financial Officer Don Leclair met with Kerkorian advisor Jerry York prior to Kerkorian's SEC filing. But the CEO offered a "no comment" when asked if the two executives did so without the knowledge of chairman William Ford Jr. or Ford's board of directors. Ford officials have speculated privately in recent weeks that the meeting took place without the chairman's knowledge, which surprised them. Kerkorian is widely viewed as a troublemaker in the auto industry. He had invested in General Motors (GM) in 2006, and tried to force an alliance between the automaker and Renault-Nissan (NSANY). Previously, he was a major shareholder of DaimlerChrysler, and at one time mounted a takeover attempt of Chrysler with former Chairman Lee Iacocca. He also sued DaimlerChrysler for misleading shareholders about the true nature of the merger of Daimler-Benz and Chrysler.

Mulally has generally been lauded by Wall Street, employees, and dealers, as well as Kerkorian, for moving swiftly to restructure and streamline Ford. Mulally was recruited from Boeing (BA) by Bill Ford, who has complimented the CEO both publicly and privately for shaking up Ford's hide-bound culture, which thwarted the scion's own attempts to reform the company while he was CEO between 2001 and 2006.

Inevitable Retrenching
Though Ford has been making great strides in cost reductions and product quality, a retrenchment of the company's goals was inevitable. The collapse of housing values, rising interest rates, skyrocketing oil prices, and the resulting higher gasoline prices at the pump and higher home heating costs are pinching consumers. Ford has added new cars and crossovers to its lineup to capture car buyers trading out of SUVs and pickups, but it's still dependent for profits on its F-Series pickups, the top-selling truck in the U.S. "From the decline in truck sales (BusinessWeek.com, 5/19/08), we think $3.50 per gallon was the tipping point," says Mulally.

And gas prices are expected to get a lot worse before they get back to $3.50. Already prices have topped $4 per gallon in some states. Goldman Sachs' (GS) influential energy analyst Arjun Murti predicts oil prices will climb to $200 per barrel, sending U.S. prices to $6 a gallon at the pump by next year, though that is still below the prices Europeans have been paying.

Ford says trucks and big SUVs represented almost 7% of auto sales in the first quarter. In the first half of May, the share of those vehicles was down to 4%. Ford is trimming its second-quarter production by 20,000 vehicles, and its third-quarter production by between 120,000 and 150,000. Ford has also revised its industry-wide sales estimate downward to 14.7 million to 15.1 million, compared with 16.1 million last year. While Ford hoped its own market share would be between 14% and 14.5% this year, it now says it is targeting 14% because of worse-than-expected sales for its trucks.

Pickup trucks overall were off 17% through April, according to Autodata. While SUVs were down 10%, sales of several models show the trade-off consumers are making from big SUVs like the Ford Expedition and Chevrolet Tahoe to lighter-weight SUVs that achieve as much as 50% greater fuel economy in some cases. Sales of Ford's Edge crossover were up 38%, and Ford Escape sales were up 12%. The Saturn Vue is up 8%, and the Honda CR-V is running 6% higher.

Limiting the Damage
To cope with falling consumer sales, Ford is increasing production of its passenger cars to meet demand, targeting specific assembly plants (especially those making SUVs, for employee buyouts to further cut payroll) and reducing its white-collar workforce for cuts through buyout and attrition. Mulally said the company may announce additional plant closures in July.

Ford is also burning more cash than it expected. It expects cash burn between 2007 and 2009 to cope with losses and the costs of buying out employees to run from $12 million to $14 million. Ford recently sold its Jaguar and Land Rover brands to Indian carmaker Tata Motors (TTM) to rid loss-making businesses and raise cash to see it through the crisis. Ford has $29 billion in cash on hand and $41 billion in total liquidity including credit lines.

"If lower-than-expected U.S. light-vehicle sales persist through 2009 or higher fuel prices cause an even more dramatic shift away from light trucks, Ford's liquidity could reach undesirable levels by late 2009," S&P said, in lowering the automaker's outlook. This could occur even if Ford continues to make progress on its turnaround program in North America, S&P added.

Ford Motor Credit, said Ford's Leclair, is seeing higher loan defaults, but will earn a profit in 2008. One of the issues creating losses for Ford is the number of trucks and big SUVs coming off lease back to Ford. The value of such vehicles at auction has been falling, forcing Ford to absorb the difference between what it projected resale value to be when it wrote the lease and what the market is actually delivering.

Ford has a few bright spots. Sales of the Edge crossover are up 38% as former Explorer and Expedition owners gravitate toward the less thirsty utility vehicle. Also, the redesigned Ford Focus is a surprise hit. The new design was derided by car reviewers before it went on sale last year. But with fuel economy above 30 mpg, sales were up 29% through April, compared with the same four-month period last year. Ford has a smaller, even more fuel-efficient vehicle, the Fiesta, arriving in the U.S. by 2010. Mulally said the company can't get it to dealerships any faster. But the company is looking at other designs to build off the same vehicle engineering platform. It is also developing a smaller, lighter, more fuel-efficient version of the F-Series pickup that could go on sale by 2011.


http://www.businessweek.com/bwdaily/dnflash/content/may2008/db20080522_219149.htm?chan=top+news_top+news+index_top+story

[Ida_Mann]

1970's here we come.

Id@

[JackL]

1970's here we come.

Id@

Cool, I miss Deep Purple and Sabbath on the radio.

[gtnwood]

No doubt

[big-daddy]

1970's here we come.

Id@

Cool, I miss Deep Purple and Sabbath on the radio.

Dont forget Jimmy 

[big-daddy]

Used car dealer aren't taking in any big SUV or pickup trucks. You can buy a Hummer 2 cheap right now.

[Ida_Mann]

1970's here we come.

Id@

Cool, I miss Deep Purple and Sabbath on the radio.

Dont forget Jimmy 

hendrix was allright(I may cause flak for myself here) but I never cared for more than a couple of his songs,,,,,,call me weird.

Id@

[Anoriginal]

1970's here we come.

Id@

Cool, I miss Deep Purple and Sabbath on the radio.

Dont forget Jimmy 

hendrix was allright(I may cause flak for myself here) but I never cared for more than a couple of his songs,,,,,,call me weird.

Id@

Id@ -

Have to agree with you there. Some songs are decent but, that's it. Mediocre guitarist too.

[Ida_Mann]

1970's here we come.

Id@

Cool, I miss Deep Purple and Sabbath on the radio.

Dont forget Jimmy 

hendrix was allright(I may cause flak for myself here) but I never cared for more than a couple of his songs,,,,,,call me weird.

Id@

Id@ -

Have to agree with you there. Some songs are decent but, that's it. Mediocre guitarist too.

oh that's it there buddy, you are headed straight for a ban with that comment ;-)

Id@

[Anoriginal]

lol. I mean, don't get me wrong...he was innovative in some ways (if you call setting a guitar on fire and playing with your teeth innovative), but not what I'd call a virtuoso.

And to think that people (not in the know) actually refer to him as one of the greatest ever.

[Ida_Mann]

I would say that the best guitarists I ever hear were Mark Knopfler and, Billy Gibbons.

Id@

[Ida_Mann]

and how could I forget, SRV,,,,holy crap if I could play a guitar at all I would like to play like he did.

Id@

[Anoriginal]

I am a guitar fanatic. I've been playing since I was six and love it. Got a half stack Marshall set up in the house right now with tons of pedals and several nice guitars. My favorite is a Les Paul Custom that's hot rodded quite a bit and is a joy to play. Have several Srats, Telecasters and Les Pauls as well as a couple of Ibanez JS series, Gibson SG's and even an old Kramer. Love it!

To me, the best out there (today) are probably Satriani, Vai, Malmsteen, Petrucci, Eric Johnson, MacAlpine, and Micheal Schenker. SRV was my alltime fav. I remember the day he died. I pulled off the road and cried.

Believe it or not, my next door neighbor is Rick Derringer (of the McCoys and Rock n Roll Hoochie Coo fame). He's a blast and fun to jam with from time to time. Excellent guitarist and really a purist. Still has tight riffs after all these years.   

[Ida_Mann]

I tried to get some lessons in playing a few years ago, but I have an interesting injury on my left forefinger that left some scar tissue right at the tip and makes it painful to put much pressure on it,,,,,,so, even pushing on the strings is painful with that finger,,,,,wanted to try out the slide guitar, but never got around to it.

Id@

[Anoriginal]

I lost the tip of my left pinkie finger about ten years ago and still play. You just have to figure a way around it. Tommy Iomi had two severed fingers and played with false extensions for years. Maybe you could find somethign to slip over your finger?

Maybe we'll get together some time and I'll show you some things? I like to blow the doors off the house from time to time and shread some old school hair metal (Dokken, Ratt, Ozzy, Maiden, etc.). Drives my wife nuts but she likes it too.

[FishaHallic]

David Gilmour 

[Anoriginal]

David Gilmour 

Yeah, the Comfortably Numb solo is one of the greatest ever. Smooth and solid delivery.

[greenmachine]

Eddie VanHalen

[qt314nfla]

Well I can turn out some mad tunes on my guitar hero.  Ok, no not really.  It kicked my azz last night.  I think I'm gonna go kick some penguins and has anyone got a baby seal I can have for lunch?  I'd like to f up some helpless endangered animals to work out my frustration.  Had to kill a manatee last night.  Hit him in the head w/ my guitar.  I saw some of the greats do that in concert.  Tried it out.  Now I have manatee burgers for life.

[greenmachine]

As for Hendricks, I was told because he was a poor kid, & left handed, he learned to play the guitar upside down & backwards.
If this is true, then he is pretty good.

[Anoriginal]

Eddie VanHalen

Here he is at his best (off the drugs for a few years) -

http://www.youtube.com/watch?v=boCqjDCzQYs

[gearhead400]

Thomas Erak from the fall of troy is pretty amazing. Funny QT mentions Guitar hero, they actually had a "bonus" song on #3.

[BIGWORM3699 ( ECP RACING)]

    METALLICA.

[Anoriginal]

Kirk Hammett actually took lessons from Joe Satriani early on.
Good solid guitarist.

[JackL]

I always liked Randy Rhoads. Sucks when your buddy crashes the plane...and of course Jimmy Page, one of the all time greats.