Posted by: David Kiley on June 20, 2008
Prospects are worsening for Ford.
The automaker said today that 2008 results will be worse than previously forecasted, and that it will have trouble breaking even next year. It is further reducing factory shifts to reduce the supply of vehicles to dealers. And it is taking the extraordinary step of delaying its F150 pickup truck launch this Fall by two months in order to let dealers sell off as much of the old inventory, at discount prices, as possible.
Even Ford Credit, always a reliable profit generator, will incur a pre-tax loss this year, said Ford.
Delaying the F 150 pickup launch is akin to a farmer announcing he is going to plow under his crop rather than sell it at a loss. The F-Series pickup is still Ford’s biggest profit generator. It is Ford’s most important franchise. Two years ago, if an auto company was to come along and bought Ford, it is the truck business alone that would have been worth the purchase. But the economics of the pickup business is going sideways for Ford. With national gas prices hovering around $4.20 a gallon for regular unleaded, home construction cratered, job losses and home equity that would normally fund home rehab projects in the tank, demand for new pickups is in the pits.
Forecasters say that June auto sales are tracking at an annualized selling rate of 12.5 million. Compare that with the almost 19 million selling rate we saw some months after the terrorist attacks of September 11 when automakers were offering zero-percent financing, and the poor state of the U.S. auto market bcomes clear. An Ann Arbor Ford dealer has been advertising a basic, admittedly stripped down, new 2008 F-150 pickup for less than $10,000. That wasn’t seen as possible a year ago.
Ford’s problem, for now, doesn’t seem to be cash. As I wrote here only yesterday, Ford projected it would have cash burn of $12-$14b between 2007 and 2009. That figure is now $14b-$16b to cope with more headcount reduction than anticipated, as well as profit shortfalls because of a decline in higher-end SUVs. But the cash-burn is now being adjusted upward from there.
GimmeCredit’s Shelly Lombard estimates that Ford’s cash cushion is only about $7 billion to $9 billion if they continue to burn cash t the rate they are going this year and next. That’s because an automaker needs about $10 billion to keep the lights on and the water running. At the end of the first quarter, Ford reported $29 billion in cash and $12 billion credit lines. But if Ford actually had to tap those lines, she says, Wall Street and the ratings agencies would smell blood, like wolves to wounded caribou.