Ford in the Slow Lane

The automaker is expected to report another weak quarter as its turnaround efforts crawl forward.
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Its new CEO may be still be enjoying a honeymoon period with investors, but

Ford

(F) - Get Report

cannot shake the perception that its "Way Forward" plan is moving way too slow.

At around $7.80, the automaker's share price has gained 4% so far this year after rising slightly in 2006. That performance comes after Ford tapped former

Boeing (BA) - Get Report

executive Alan Mulally to take over as CEO in September, the same month it unveiled plans to expand and speed up its restructuring plan, known as "Way Forward."

Seven months later, the outlook for Detroit's auto industry has continued to deteriorate amid sharp sales-declines and continued loss of market share.

Toyota

(TM) - Get Report

said Tuesday it overtook

General Motors

(GM) - Get Report

in worldwide auto sales for the first quarter, and the Japanese giant is creeping past Ford as the No. 2 seller of vehicles in the U.S.

Meanwhile, Ford doesn't expect to return to profitability until 2009, while rival GM is driving solidly forward on its turnaround. How long can Mulally's honeymoon last?

"While we are sympathetic to

Ford's longer term approach, we worry that the media and the markets may lose patience well before 2009 -- especially if Ford fails to stem its market share losses and needs to cut production in

the second half of this year," wrote Lehman Brothers analyst Brian Johnson in a recent note to clients.

In the near term, Johnson is more optimistic than his peers on Wall Street. He's expecting Ford to post a loss of 35 cents a share, before one-time items, when the automaker reports its first-quarter results before Thursday's opening bell. On average, analysts project a loss of 60 cents a share, according to Thomson First Call.

Either way, Ford's results won't be pretty. The company already has reported that its first-quarter sales declined 13.2% from a year earlier. Its market share slipped 2.3 percentage points to 16.4%, reflecting continued gains by low-cost foreign-based producers.

"It's going to be a weak quarter," says Argus Research analyst Kevin Tynan. "Everybody knows that. They'll focus on the cost benefits of the employee buyouts and the restructuring moves."

As part of its turnaround plan, Ford is cutting 14,000 white-collar jobs in addition to the 38,000 hourly employees that accepted buyouts and early retirement packages. It also plans to close 16 manufacturing plants by 2012.

The savings that will result from these moves should start showing up in the company's operating results, but continued declines in sales of its most profitable vehicles may overshadow it.

Burnham Securities analyst David Healy notes that production of Ford's sport-utility vehicles -- the Explorer, the Mercury Mountaineer, the Expedition and the Lincoln Navigator -- has declined 54% since 2003, reflecting a sudden drop in popularity for the models.

Meanwhile, sales of the company's iconic F-series pickups also have fallen off a cliff. So while the company has made some progress on its bottom line, there's no sign of a fix for its top-line woes.

"Both Ford and GM took severe financial hits as volume of their most profitable vehicles plummeted, but GM seems to have reacted somewhat more nimbly than Ford to the developing crisis," said Healy in a note to clients. "GM accelerated the redesign of it large SUV's, sharply improving their production, sales rates and pricing in the first half of last year."

He added, "To the casual observer, GM appears to be at least a year ahead of the apparently more leisurely pace of Ford's program."

While investors brace for more losses from Ford, they're looking ahead to the auto industry's upcoming negotiations with the United Auto Workers union, where a new labor contract will be hammered out that could make Detroit's automakers more profitable.

The industry's current master contract with the UAW expires on Sept. 14, so the negotiations are expected to begin in earnest a few weeks before then. Tynan, who holds a sell rating on Ford, has little hope that the automakers will get a fix for their damaged business models.

"The manufacturers aren't going to push hard enough against the union to get anything significant," says Tynan. "What the manufacturers really need to get is more than the union would be willing to give, so they run the risk of a labor disruption if they push too hard. Both sides will give a little and both sides will get a little, but not much will change."

Shares of Ford were recently up 4 cents, or 0.5%, to $7.86.