Ford posts biggest loss ever

With big red numbers on its balance sheet that amount to $1,925 for every car and truck it sold last year, one has to wonder if Ford has the money to keep the doors open long enough for its restructuring plan to take hold.

On Thursday, the 103-year-old industrial icon reported a staggering $12.7 billion loss for 2006, and it warned that losses would continue this year and next. The loss was the largest in Ford history, driven by slumping North American sales and $9.9 billion in special items, including restructuring costs tied to the planned closure of 16 plants.

"As expected, Ford's fourth-quarter and full-year results were ugly," analyst Shelly Lombard of bond research company Gimme Credit said in a research note. "Ford's undergoing the corporate equivalent of major corrective surgery, so the company's going to look worse before it gets better."

Chief Executive Alan Mulally, lured from Boeing in September to lead a turnaround at Ford, has cut jobs and closed plants, but losses are expected to continue at least through next year.

"We fully recognize our business reality and are dealing with it," Mulally said Thursday. "We have a plan and we are on track to deliver."

Mulally said he is confident Ford will return to profitability by sometime in 2009.

Investors initially appeared to be encouraged by Mulally's reassurances, even though the quarterly loss of $1.10 a share from continuing operations was wider than the consensus Wall Street expectation of a loss of $1.01.

Ford's stock jumped 4 percent after the report but slipped during the day amid a general market sell-off. Shares closed at $8.22, up 2 cents.

"The stock is trading on speculation that Mulally is the right guy for the job and that he will be able to mount some kind of comeback," said John Novack, auto analyst with Morningstar.

While the cost cuts may work, it's the revenue side that worries some analysts, and revenue is driven by new products.

Ford has promised that 70 percent of its cars and trucks would be new or significantly updated by the end of 2008. It is rolling out the new Edge crossover and plans new F-series Super Duty pickups, a new Focus small car and an updated Five Hundred large sedan by the end of the year.

But Pete Hastings, an auto-industry corporate-bonds analyst with Morgan Keegan, said he is among those who are skeptical of the new products.

"I don't see much that helps Ford," he said. "There may be one or two offerings that are newsworthy or that make a splash, but it's not enough to lift the overall company."

Although huge, Ford's losses were far from the largest annual corporate deficits on record; Time Warner reported a $97.2 billion loss in 2002, largely due to new accounting rules about how to value assets. Ford could not rely on accounting rules, however, to explain its total.

Ford's loss also wasn't the worst annual total in the auto industry. General Motors lost $23.4 billion in 1992, due mainly to accounting-rule changes on health-care liabilities.

The whopping 2006 loss surpassed Ford's old record of $7.39 billion set in 1992. It amounted to $6.79 per share versus a profit of $1.44 billion, or 77 cents a share, in 2005. The company also reported losing $5.8 billion in the fourth quarter and $6 billion on its North American operations.

Several analysts said the loss was not surprising, given Ford's high costs and falling market share and sales. Ford's future is cloudy at best, given the deficit that it must overcome, analysts said.

"They have a massive challenge in front of them. Their basic business is billions of dollars in the red," said Burnham Securities analyst David Healy.

Ford mortgaged its assets to borrow up to $23.4 billion to pay for the restructuring and to cover losses expected until 2009. About 38,000 hourly workers have signed up for buyout or early retirement offers, and Ford plans to cut its white-collar work force by 14,000 with buyouts and early retirements.

Mulally said Ford will continue to review its costs, looking for more cuts as it gains efficiencies from building more cars worldwide on fewer frames in more efficient factories.

"The more I review the details, the more confident I am that we can continue that cost reduction through 2009 and beyond," he said.

Ford's continued loss of market share in North America — 15.1 percent at the end of December, compared with 16.7 percent at the end of 2005, according to Autodata — is worrisome, said Novack, the Morningstar analyst. He noted that the new models Ford unveiled at the North American International Auto Show in Detroit this month were greeted tepidly by many analysts.

In a sign that market-share declines could continue, Ford said it would cut vehicle production in North America even more than previously expected during the current quarter, producing 740,000 vehicles instead of 750,000. That compares with 876,000 vehicles in the first quarter of 2005.