Ford Motor Co.'s surprisingly strong first-quarter financial results lifted spirits in Dearborn, prompting CEO Alan Mulally to predict that no layoffs or involuntary separations would be needed for the automaker's North American hourly or salaried workforce.
"It's a new Ford," he told the Free Press in an interview Thursday.
Ford narrowed its losses to $282 million in the January-March period, a significant improvement from the $1.4-billion loss a year earlier and better than the $1-billion-plus loss predicted by most analysts.
Strong sales of luxury vehicles and Ford cars in Europe, combined with cost-cutting accounted for the improvement.
Mulally cautioned that there is more hard work ahead, as the automaker is only 16 months into a multiyear turnaround plan that fell off course and had to be revised late last summer.
That plan, referred to as Way Forward, calls for eliminating 44,000 jobs, closing 16 plants and eventually revamping the entire lineup of Ford, Mercury and Lincoln vehicles with one objective in mind: profitability in 2009.
Mulally offered the financial performance as hard evidence the company's 2006 turnaround plan is working, and, in a sigh of relief for workers, he said involuntary layoffs won't be needed for Ford to reduce the 20,000 more workers who need to go. That includes 2,100 salaried employees and more than 18,000 hourly workers.
Ford's North American unit for the United States, Canada and Mexico continued reporting the worst performance in the company, a pretax loss of $614 million. That's worse than the $442-million pretax loss the unit posted last year. But Mulally portrayed even that as good news, saying it should have been worse.
"They exceeded their expectations and ours," the chief executive officer said.
In a midday town hall-style meeting, which was webcast to Ford workers around the world, Mulally met with about 500 workers to share the news. "Our message was 'Congratulations, and thank you, and let's keep going, because we have a great plan, and we're making progress,' " Mulally said.
Given Ford's history of surprising Wall Street with stunningly good first-quarter results and of a disappointing endgame, Wall Street analysts remain cautious on Ford's long-term outlook. Some suspect that Ford often ships vehicles at high wholesale prices in the beginning of the year but has to slash their prices later with incentives.
But the three-month performance was reported by analysts to be "not as bad as feared" by Morgan Stanley; "stronger than expected" by Goldman Sachs, and "sharply better than expected" by J.P. Morgan.
That's because, excluding onetime expenses, Ford reported a first-quarter loss from continuing operations of $171 million, or 9 cents a share. On this comparable basis, Ford had been expected to report a loss of 60 cents a share, according to estimates from analysts surveyed by Bloomberg.
Investors nudged Ford shares up 4%, or 32 cents, to $8.20 on the New York Stock Exchange.
That price is well short of Ford's 52-week high of $9.48. But after more than a year of buyouts, plant closings and a pervasive economic funk in the Motor City, Ford's performance felt like an uplifting start for the struggling automaker and to the first-quarter earnings season in Detroit. General Motors Corp. and DaimlerChrysler AG are set to release their results in May.
Sticker prices, options help
Ford's revenue in the quarter rose 5.4% to $43 billion. While Ford's sales fell by 106,000 units to 1.65 million cars and trucks, consumers and dealers bought more-expensive vehicles with more-expensive options, which helped to offset lost sales to consumers and rental-car companies.
Looking at Ford's operations around the world, most of the credit for Ford's strong performance in the first quarter goes to Ford of Europe and the Premier Automotive Group.
Both reported big year-over-year improvements in profits. Ford of Europe reported a $219-million pretax profit, up from $65 million a year ago. Premier Automotive Group, which oversees the Jaguar, Land Rover and Volvo brands, reported a record pretax profit of $402 million, up from $152 million a year ago.
Together, those units improved their results by $404 million, or 186%.
But Ford's North American operations continued to drag the company down.
All of Ford's brands except Lincoln have posted sales declines so far this year in the United States. Even though consumers were opting for vehicles with a richer mix of content, the unit posted a pretax loss of $614 million, and it caused a lot of money leaks elsewhere, too.
Of the $113 million in special charges Ford booked during the quarter, $89 million was for severance packages for workers in North America.
In all, Ford reduced 18,000 jobs in North America during the first quarter.
Ford booked a $341-million interest expense in its "other" operations, part of the expense for what Mulally has been calling a "home improvement" loan to fix Ford, primarily North America. The collateralized loan Ford took out last year, which allows Ford to borrow up to $25.5 billion, will cost Ford about $1 billion in interest this year.
Ford still expects to burn through about $17 billion in cash through 2009, most to support its North American division.