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Ford's Shrinking Losses Play Up Mulally's Progress


A better-than-expected third-quarter performance shows its new CEO has the carmaker on the right track

Ford Motor (F) President and CEO Alan Mulally has made significant but painful headway in his ongoing restructuring efforts, as the carmaker reported a smaller-than-expected loss of $380 million for the third quarter, vs. a $5.2 billion loss in the 2006 quarter.

"The reason we're making such big progress here is we have aggressively resized our operations to [match] the lower demand," Mulally said, in a Nov. 8 conference call for analysts, investors, and reporters. "At the same time, we have accelerated our development of the vehicles consumers want, especially smaller and medium-size vehicles, and we will continue to do that going forward."

It's no coincidence that Mulally's turnaround plan is called "The Way Forward." Those measures—closing plants, cutting jobs, cutting costs, and switching the product mix from gas-guzzling trucks to smaller cars and car-like crossovers—are imperative, under the circumstances. Ford's U.S. sales through the 10 months of 2007 fell 13% from the year-ago period, to just under 2.2 million units. More ominously, that's more than 1 million units fewer than the same period in 2001. Ford's U.S. market share was 23.2% six years ago, vs. 15.9% at present, according to Automotive News.

The GM Comparison

In many respects, "The Way Forward" is not all that different from measures crosstown rivals General Motors (GM) and Chrysler LLC are taking. In fact, the marketplace is forcing the Detroit Three to take these measures, no matter who is in charge.

But Mulally gets credit for being realistic and for staying on message. It also helps him politically that he is an outsider, having joined Ford from Boeing (BA) just over a year ago. Mulally could also benefit by comparison with GM, which announced a net loss of almost $40 billion the day before, the biggest part of which was a write-off for the value of deferred tax assets.

Mulally did seem to reverse one aspect of the restructuring. He said Ford is not planning to sell Volvo. It had looked that way earlier this year, when Ford had its Jaguar and Land Rover units up for sale and announced it would "review" Volvo's future.

Of course, that could mean Ford simply couldn't find a buyer, said Brian Johnson, Lehman Brothers auto industry analyst. Ford expects to consummate the sale of its remaining British brands early next year, the company said. Ford sold Aston Martin earlier this year.

Profitability in 2009

"Our plan now is to not sell it [Volvo] and focus on improving it, especially the cost structure and the position of the brand itself," Mulally said. He said Ford will try to change Volvo's image as a "near-premium" brand and reposition it as a true premium brand.

Mulally also reiterated that Ford should regain profitability by 2009, depsite slower-than-expected U.S. auto sales. That trend was a reason cited by GM for its huge writedown (BusinessWeek.com, 11/7/07) on Nov. 7.

Don Leclair, executive vice-president and CFO at Ford, said his company expects U.S. auto sales of around 16 million this year and next. That's about the same as GM's newest forecast. Said Leclair: "That's lower than we were planning 15 months ago, but that's the way it is."

Jim Henry is a reporter covering the automotive industry and automotive trends in BusinessWeek's New York office.

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