Video: For struggling Ford, smaller cars are job one

updated 7/24/2008 7:52:52 PM ET 2008-07-24T23:52:52

Bleeding cash and with its very survival uncertain, Ford Motor Co., an icon of American automaking, will try to import some of its success from across the Atlantic.

Ford reported its worst-ever quarterly loss Thursday and announced plans to bring over six small, fuel-efficient cars it makes in Europe and start selling them in North America, where Ford is losing billions on its truck-heavy lineup.

The company burned through nearly $11 billion of its cash stockpile in the past year and reported a second-quarter loss of $8.7 billion.

Ford is trying to save itself by quickly morphing from a truck company into a car company. But the help from Europe won’t arrive until 2010: It takes time to retool U.S. plants, and importing the cars directly is too costly.

Industry watchers wonder whether Ford has enough cash to survive until then.

“You have the gap before the plan can be fully executed,” said Jeff Schuster, executive director of global forecasting for J.D. Power and Associates. “You kind of have to weather the conditions, and you have to weather the fact that you’re still the old company in transition.”

Ford has successfully sold cars in Europe for years, and it made billions of dollars selling trucks to Americans. But U.S. drivers have recoiled this year from high gas prices and bolted for smaller cars.

Most of the European models will be built in North America. The Fiesta subcompact will be built in Mexico, the European Focus will be built in Kentucky and Michigan, and the Transit Connect small van will be imported from Turkey.

Ford won’t identify the other three. But analysts are betting on the Kuga, a small crossover vehicle, and the C-Max small van, both of built on the same underpinnings as the European Focus.

Ford also could bring its Mondeo midsize car from Europe to replace the Fusion and Mercury Milan.

Past efforts by U.S. automakers to bring in European cars have flopped, but Ford CEO Alan Mulally said the U.S. market as vastly different today, with gas at $4 consumers cleaning showrooms out of small cars.

“They want the vehicles to be neat and have a lot of features,” Mulally told reporters and industry analysts Thursday on a conference call. “We have seen this and the success of this in Europe and around the world.”

James E. Schrager, clinical professor of entrepreneurship and strategy at the University of Chicago Graduate School of Business, said Mulally has been talking about bringing over European cars since he arrived at Ford in 2006 from Boeing Co.

“None of this was very hard to imagine, and I think he imagined it,” Schrager said. He said Mulally prepared well by mortgaging factories to arrange a $23.4 billion credit line shortly after taking over the company.

Ford gave no forecast for a return to black ink, but Chief Financial Officer Don Leclair said Ford had enough cash and credit to make it through the downturn. He said he didn’t expect a recovery to start until 2010.

The company has about $38 billion in cash and credit lines, Leclair said, including more than $26 billion in cash. It burned through more than $2 billion in the second quarter alone.

No one knows for sure how far demand will fall. J.D. Power and Associates is forecasting about 14 million light vehicles will be sold in the U.S. this year, a drop about almost 2 million.

Whether Ford succeeds depends not only on building cars people want to buy, but also figuring out how to increase profit margins on them to replace the lost truck revenue, said Efraim Levy, a senior industry analyst with Standard & Poor’s.

That’s likely to mean more job cuts. The company has already announced plans to cut its salaried work force expenses by 15 percent, with 200 workers leaving the company as of June 30. Earlier this week it announced another round of buyout and early retirement offers at selected factories.

But cuts alone won’t be enough. That’s why Ford is banking on selling a lot of the European vehicles in addition to domestic models, including a new Taurus due out next year and hybrid versions of the Fusion and Milan this fall.

“Fundamentally, Ford’s offerings in Europe are pretty credible,” said Jeremy Anwyl, president of the Edmunds.com automotive Web site. He said some of them should sell well in the U.S.

Car buyers and automakers are in crisis mode because of high gas prices, but that could change — and work in Ford’s favor — if prices even out or come down, Anwyl said.

“Crises by definition don’t last,” he said.

And Levy said truck sales should recover some as people who need them for work replace what they have.

But Ford, General Motors Corp. and Chrysler LLC still have to make up ground on Asian competitors who have won a lot of the U.S. car market in recent years, analysts say.

The Detroit Three have faced the brink before but have managed comebacks, led by superior products such as Ford’s Taurus in the 1980s and the Chrysler 300 in the 1990s, Schrager said.

“We have a very strong headwind against American carmakers today,” he said. “You’ve got to get your hand on the tiller and just drive this boat in a different direction. I think Mulally has figured this thing out all the way along.”

“A huge part of the country really does want to buy American and support American workers,” he added. “We have been here before, and the American manufacturers have roared back.”

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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