Ford says U.S. sales weaken further
By Poornima Gupta and Kevin Krolicki
DETROIT (Reuters) - Ford Motor Co (F.N) said on Friday it would slash output and delay a new version of its top-selling F-150 pickup truck due to a deepening slump in U.S. sales it warned would weigh on results this year and next.
Ford said it would post a deeper loss for its auto business this year and warned it would be difficult to avoid a loss in 2009. That was a weaker outlook than Ford offered just last month when it abandoned a long-held goal of returning to profit by next year in the face of record gas prices and plummeting sales for trucks and SUVs.
The warning weighed on Ford stock and bonds. Ford shares dropped 7 percent on the New York Stock Exchange.
The risk of continued losses raises the prospect Ford could be forced to raise liquidity, possibly through a deal with billionaire Kirk Kerkorian, who owns almost 6.5 percent of Ford and has offered more capital for its restructuring.
"This is a tough situation," said David Healy, an analyst with Burnham Securities. "They are probably going to do more financing. They might even take money from Kerkorian."
The struggling No. 2 U.S. automaker raised $23.5 billion in 2006 by pledging almost all of its assets, including the familiar Ford blue-oval logo, as collateral. But that financing was based on a turnaround plan the automaker now says has been thrown off track by the steep downturn in the U.S. market.
LOWERS FORECAST
Ford lowered its forecast for industrywide U.S. auto sales this year to a range of 14.7 million to 15.2 million vehicles, including medium and heavy-duty trucks. That was down from Ford's already reduced forecast of 15 million to 15.4 million.
In response, Ford said it would cut third-quarter production by 25 percent and fourth-quarter output by up to 14 percent as it throttles back the output of big trucks and SUVs that consumers are increasingly shunning.
Ford also delayed the launch of its new F-150 pickup truck, pushing back by about two months the first sales of the redesigned version of its best-selling vehicle. It said it was taking the unusual and costly step because it needed to sell down inventory of the current F-150 model.
"As gasoline prices average more than $4 a gallon and consumers worry about the weak U.S. economy, we see June industrywide auto sales slowing further, and demand for large trucks and SUVs at one of the lowest levels in decades," Ford Chief Executive Alan Mulally said in a statement.
Ford said that its finance arm, Ford Motor Credit, would suspend dividend payments to the parent company this year because it expects to post a loss due to the collapse in the auction values of used trucks and SUVs. Those resale values are a crucial component in the way that Ford Credit and other finance companies set the pricing for auto leases.
Ford Credit may need to write down $1.1 billion because of falling values of off-lease vehicles, Lehman Brothers analyst Brian Johnson said in a note for clients on Friday.
KERKORIAN IN FOCUS
The developments mark the first significant setback for Ford since Mulally took over as chief executive in 2006.
Ford lost $2.7 billion in 2007 and $12.6 billion in 2006 and the cornerstone of a restructuring plan Ford calls the "Way Forward" had been a return to profitability by 2009.
But Mulally and Ford have both won an endorsement from Kerkorian, a billionaire investor with a long record as an activist investor in the U.S. auto industry.
Kerkorian, who has invested about $1 billion in Ford, disclosed on Thursday that he had taken a 6.49 percent stake in the automaker. That represented a bigger bet on Ford's turnaround and came despite more than a 25 percent drop in Ford shares over the past two months.
Kerkorian, Mulally and Ford Executive Chairman Bill Ford Jr. met earlier this week to discuss Ford's turnaround strategy, a meeting the company described as positive.
Ford said it would provide more detail on the changes to its restructuring plan when it announces second-quarter financial results in July.
In the meantime, the company's lower production will cut revenue this quarter and next because Ford, like its rivals, books sales when vehicles are produced and shipped to dealers.
Healy said the production cuts would likely reduce Ford's pretax results by about $1 billion.
"It's what I call the perfect storm in the auto industry," he said. "Overall sales are down but the mix has changed rapidly."
The company's shares were down 44 cents to $5.88. Ford's bonds with a 7.45 percent coupon due in 2031 fell to 62.25 cents on the dollar, down from 65.5 cents on Thursday, according to MarketAxess.
(Editing by Brian Moss and John Wallace)
