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.