Ford cuts N. American production, no longer expects profit by 2009 as gas prices hurt sales

May 2008 News
DETROIT (AP) -- Ford Motor Co. is cutting North American production of pickups and SUVs as car buyers eyeing record gas prices turn toward more fuel-efficient models. The automaker says it no longer expects to return to profitability by 2009 and didn't rule out layoffs and plant closures.

Dearborn-based Ford also on Thursday cut back its projections for total U.S. light vehicle sales in 2008 to between 14.7 million and 15.1 million vehicles. That's down from 17 million vehicles as recently as 2005. Light vehicle sales exclude heavy trucks.

"We all would like the basic business environment to not have deteriorated, but clearly the most important thing we can do for the long-term success of the Ford Motor Company is deal with this reality," Ford President and Chief Executive Alan Mulally said in a conference call Thursday.

Mulally said the company expects a longer and slower recovery from the economic downturn than it did several weeks ago and doesn't plan to set any further profitability targets at least July.

Ford said last month that 4,200 hourly workers -- just over half the number the company wanted -- had accepted the company's latest buyout and early retirement offers. On Thursday, Ford said it will continue offering buyouts to manufacturing workers on a plant-by-plant basis. Ford plans to give more details about possible salaried layoffs and plant closures in July, he said.

Ford shares dropped 70 cents, or 9 percent, to $7.10 in midday trading.

Ford said it will cut production by 15 percent in the second quarter, 15 to 20 percent in the third quarter and 2 to 8 percent in the fourth quarter. The cuts will primarily affect pickups and sport utility vehicles, which have seen sales plummet in recent months due to rising gas prices and the slowdown in new home construction.

Ford plans to increase its production of cars and crossovers through additional shifts and overtime. Ford's smallest offering, the Focus sedan, saw sales jump 29 percent in the first four months of this year, while its Ford Edge crossover was up 38 percent.

As recently as 2004, trucks and SUVs accounted for 70 percent of Ford's sales volume, according to George Pipas, Ford's top U.S. sales analyst. That has reversed completely: Retail sales of trucks and SUVs accounted for just over 30 percent of sales in April, he said. But Ford is still heavily reliant on the kinds of large vehicles that have been struggling in the current market. Ford's F-series trucks, long the best-selling vehicles in the U.S., were down 16 percent in the same period.

Still, Mulally said the company is not considering dropping any large SUVs from its lineup. Instead, it is working on improving the fuel economy of its current trucks and offering more options.

"There's always going to be a market for the truck-based platforms for their capability to tow and haul," Mulally said.

Ford said in addition to realigning its manufacturing capacity to produce more small cars and crossovers, it plans to accelerate the North American introduction of some of its small cars from Europe and South America. Mulally gave no details on what vehicles might come to the U.S., but he did say Ford can't get the subcompact Ford Fiesta to the U.S. any faster than 2010.

Ford had said in March it planned to cut second-quarter production by 10 percent and confirmed additional cuts at a factory in Michigan earlier this week. But it revealed the full extent of the cuts Thursday.

Production cuts hurt revenues, because automakers book vehicles as sold once they leave the factory.

Consumers have been shifting to smaller, more fuel efficient cars in the last few months at a pace that stunned the industry. Through April, U.S. sales of subcompact cars shot up 33 percent, while sales of large SUVs were down 29 percent, according to Autodata Inc. Overall U.S. sales were down 8 percent in that period.

"We're also really trying to understand what the real demand is going to be from this point forward," Mulally said.

Ford is projecting gas prices will be in the $3.75 to $4.25 range for the remainder of this year.

Ford said it is on track to reduce North American automotive operating costs by $5 billion by the end of this year. But it said the rising price of steel and other commodities are offsetting expected gains from its new contract with the United Auto Workers.

Ford Motor Co.:

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