Ford Left in the Cold

The automaker's report shows further deterioration, a contrast to GM's signs of progress.
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Updated from 10:38 a.m. EDT

While

General Motors'

(GM) - Get Report

first-quarter results demonstrated the company's progress in reviving its fortunes,

Ford's

(F) - Get Report

report showed further deterioration and left investors uninspired.

Shares of the No. 2 U.S. automaker were trading lower Friday after the company said it swung to a hefty first-quarter loss as charges whacked its bottom line. Ford burned through cash, and its sales and market share declined in the important North American market.

Ford lost $1.19 billion, or 64 cents a share, in the quarter, compared with earnings of $1.21 billion, or 60 cents a share, last year. The latest quarter had pretax charges of about $2.47 billion related to the company's "Way Forward" plan, which calls for closing 14 North American factories and slashing up to 34,000 jobs over the next six years.

Excluding the charges, Ford earned 24 cents a share in the most recent quarter. Analysts surveyed by Thomson First Call had forecast earnings of 25 cents a share. Shares of Ford were recently down 41 cents, or 5.2%, to $7.54.

The market's reaction to Ford's report marked a sharp contrast to the way it received GM's first-quarter results Thursday. GM shares jumped 10% after its first-quarter report, which included

much lighter losses than it recorded for the same quarter last year.

The world's largest automaker posted a loss of $323 million, or 57 cents a share, for the quarter, narrowed from last year's loss of $1.3 billion, or $2.22 a share. Excluding all one-time items except for a big health care charge related to a settlement with workers, GM lost $529 million, or 94 cents a share, in the quarter. That compares with last year's adjusted loss of $988 million, or $1.75 a share.

Despite the continued flow of red ink and loss of market share, GM's results were viewed as progress for the company on its turnaround. Meanwhile, Ford's results gave rise to skepticism.

"We expect more meaningful light truck production cuts, and we do not expect Ford to successfully compete in the

small to mid-sized passenger car segment, which we believe will lead to meaningful U.S. market share declines in 2006," wrote Joseph Amaturo, analyst with Calyon Securities, in a research note. "We would be reducing positions in Ford as we expect future results to reflect even more profound North American losses."

Both Ford and GM suffered disastrous results in 2005 as foreign-based manufacturers with lower cost structures stole market share. Soaring fuel prices throughout the year sapped consumer demand for the large, gas-guzzling sport-utility vehicles and trucks that have been the chief money-makers for Detroit's auto industry in the last decade.

On a conference call with analysts, Ford CEO Bill Ford said he sees fuel efficiency and energy innovation as the long-term remedy for rejuvenating his iconic company. He pointed to hybrid technology and alternatives to fossil fuels, such as ethanol and hydrogen, as being the future of the auto industry.

"I don't see us finding cheaper oil anytime in the future," Ford said. "I think it's very wise for this company to push hard in seeking other solutions."

Ford's total first-quarter sales fell to $41.06 billion from $45.14 billion last year, reflecting a decline in automotive sales to $36.99 billion, from $39.33 billion, and a fall in financial-services revenue to $4.07 billion from $5.80 billion. Analysts projected sales of $39.67 billion.

Ford's North American operations had a pretax loss of $457 million before special items in the quarter, compared with a pretax profit of $664 million a year ago. Sales fell to $19.8 billion from $21.1 billion.

"The deterioration primarily reflected lower volumes associated with lower market share and a smaller increase in dealer inventories; increased incentives associated with a higher mix of leasing and fleet sales; the non-recurrence of favorable warranty reserve adjustments; acceleration of depreciation charges associated with announced plant idlings; adverse currency exchange; and losses associated with ACH, the former Visteon activities now controlled by Ford," the company said.

Worldwide, Ford's automotive operations had a pretax loss of $184 million before items in the first quarter, reversing a year-ago profit of $580 million. Worldwide, vehicle sales rose to 1.722 million units from 1.716 million a year earlier.

Higher borrowing costs resulting from rising interest rates, as well as Ford's downgrade to "junk" status, weighed on profits from the company finance unit. Ford Credit's earnings dropped to $479 million from $710 million a year ago.

The company burned through $1.4 billion in cash in the quarter, ending the period with $23.7 billion, down from $25.1 billion at the end of 2005.

"Although we do not believe the company is in a difficult liquidity position, we are concerned about the declining cash position," Amaturo wrote.

Despite all the difficulties, Ford expressed optimism about the prospects of its restructuring plans.

"While we are not satisfied with our performance, particularly a loss in North America automotive, we are encouraged by the success in our global operations and at the Ford Motor Credit Company," Ford said in a statement. "We have said we intend to restore automotive profitability in North America by no later than 2008 and we remain committed to deliver on our promise."