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Old 03-05-2006, 11:51 PM   #1
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Ford Adds Details to “Way Forward”


Ford Adds Details to “Way Forward”
Tiny piece by piece, company outlines recovery strategy.

by Joseph Szczesny (2006-03-06)

Ford Motor Co. has offered few details about the recovery plan that the company put in place in January - and the new 10K report the company filed with the Securities Exchange Commission (SEC) offered only a few additional insights.

The most significant disclosure was that the company doesn't expect its automotive business to make a profit in 2006 as it continues to struggle with declining U.S. market share and rising costs. Ford conceded in the cautiously written filing that it still hasn't stabilized its market share, which continues to decline. Ford's automotive operations lost $3.9 billion in 2005 but overall the company earned $2 billion thanks to profits from Ford Credit.

Ford also conceded that Ford Credit is under significant pressure and the report also noted that more than 28 percent of all Ford's sales are now wrapped up in one product line, the F-Series pickup truck.

An impossible goal?

In a note to investors, Goldman Sachs analyst Robert Barry said that Ford's goal of stabilizing market share in 2006 is "almost impossible to envision" since it faces significant competition from GM on trucks and sport-utility vehicles and its car sales could drop as newer imports reach the market.

Ford also disclosed that it was preparing to pile on at least $1 billion in one-time charges on to its balance sheet. The charges will include $250 million to cover the cost of reducing the size of its unionized workforce in North America and an additional $250 million to write off assets at North American plants.

The $250 million charge in the current quarter is related to the cost of its jobs bank, which pays idled workers' wages and benefits. Ford said that it has had relatively few workers in the jobs bank until now but is expecting that number to grow as it begins the permanent shutdown this spring of assembly plants in Atlanta and St. Louis.

Ford has about 1100 workers in the jobs bank right now, or about one percent of its hourly workforce in North America.

In one mild surprise, part of charges will be used to cover the continuing restructuring of the company's operations in Europe. The report didn't offer any details about the European charges but part of the charges will probably cover the ongoing expense of the downsizing at Jaguar's operations in Great Britain.

More money also was set aside to cover the cost of ongoing disaster at Visteon. Visteon transferred several plants back to Ford last autumn and Ford has already begun to reduce the size of the workforce at the former Visteon operations.

GM could still hurt

Overall, Ford's "Way Forward" plan calls for cutting 30,000 jobs and close to 14 facilities by 2012 as part of any effort to reduce the company's overcapacity. Ford said its North American plants are running at only 75 percent of their total capacity. Ford, however, offered no further hints at what other plants it was prepared to shut.

Ford also cautioned it could be hurt if one of its major competitors files for bankruptcy protection. Ford didn't name the competitor. However, speculation about a bankruptcy filing by General Motors Corp. has been floating around the car industry for months because GM has continued to sustain heavy financial losses and its market share has declined.

Ford said a bankrupt competitor could gain a significant advantage since it could negotiate cheaper labor contracts. GM executives have said that bankruptcy is not an option as it restructures its North American operations.

Ford also said that labor strife at any number of big suppliers also could disrupt the company's operations. Key Ford suppliers such as Dana, Tower, and Delphi are all now operating under court protection.

Ford also revealed in the filing that it gave Americas President Mark Fields a $1 million retention bonus when he was named to his new position last fall. Fields, who is one of the main architects of Ford's restructuring plan, will have to repay the money if he leaves voluntarily in the next two years.

The company said Ford Chairman and CEO Bill Ford will receive no salary, bonus, or long-term compensation this year unless the automaker reaches sustained profitability.

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