Ford Cuts 2008 Profit Outlook for Finance Arm

DETROIT (Reuters) - Ford Motor Co (F.N) on Wednesday cut its outlook for Ford Motor Credit, saying its finance arm would be hurt by higher credit losses, steeper depreciation on leased vehicles and lower loan volumes.

In its annual filing with securities regulators, the No. 2 U.S. automaker said it expected Ford Motor Credit would be less profitable in 2008 than it had been in 2007 when it posted net income of $775 million.

Ford did not offer a more specific forecast, but its outlook was more cautious than it had been a month earlier when Ford had said it expected the profit from its finance unit would be "about equal" to 2007 levels.

Ford's finance unit provided about 78 percent of the inventory financing for Ford, Lincoln and Mercury dealers in 2007 and about 38 percent of the financing used by customers to buy and lease vehicles, according to the automaker.

Ford Motor Credit's earnings were down about 40 percent in 2007 from a profit of $1.3 billion a year earlier.

The company attributed that decline to higher borrowing costs, higher depreciation on leased vehicles and the costs associated with its restructuring of the finance unit.

Ford, which lost $2.7 billion last year, is targeting a return to profitability in 2009.

As part of its restructuring effort, Ford cut its global employment by 13 percent in 2007 to 246,000 workers, the company said in its filing with the Securities and Exchange Commission.

Most of the reduction came in North America, where Ford cut its work force to about 94,000 workers from 128,000 a year earlier, the company said.

Over the past two years, Ford has cut its North American payroll by 46,300 positions as part of an effort to cut annual operating costs in the region by $5 billion by the end of 2008.

Ford is forecasting industry-wide 2008 U.S. vehicle sales of 16 million units, a higher level than some analysts have said is likely given a battery of negative factors including the slump in the U.S. housing market.

In its filing, Ford said a weaker U.S. market because of a slower economy represented one of the risks to its outlook.

(Reporting by Kevin Krolicki; Editing by Braden Reddall)