Ford Motor Co. slashed its full-year earnings outlook Tuesday and said it was planning more job cuts and belt-tightening measures to offset its slumping U.S. vehicle sales.
The second-largest U.S. automaker, which has warned that its core automotive operations may not be profitable this year, said its full-year profit outlook was being cut to a range of $1.00 to $1.25 per share, excluding items, down from a previous forecast of $1.25 to $1.50 per share.
The 2005 earnings warning from Ford was its second so far this year. It follows a 12-month decline in the company’s U.S. vehicle sales and comes as Detroit’s automakers, led by General Motors Corp. , face some of their biggest challenges in decades.
In addition to the elimination of 2005 bonuses for salaried management employees worldwide, Ford said it was suspending 401(k) matching grants for its salaried workers and also planning to cut another 5 percent, or about 1,700, of its salaried jobs in North America.
The job cuts are in addition to 1,000 salaried positions Ford said it was targeting for cuts in April.
“We’re taking steps to immediately reduce our salaried-related costs,” Chief Financial Officer Don Leclair said in a statement.
“Challenges continue to mount,” said Leclair, referring especially to Ford’s North American automotive operations.
Both Ford and its larger rival GM have been reeling this year from a dramatic slowdown in sales of their mid- and large-size sport utility vehicles. The fuel-thirsty SUVs, former profit engines for Detroit’s automakers, have entered the slow lane of the U.S. vehicle market as consumer sentiment changes in the face of high gasoline prices.
Ford and GM, corporate giants wounded by a cut in their credit ratings to non-investment grade or “junk” status just last month, have been losing sales and U.S. market share even as more nimble Asian rivals report strong gains.
Analysts expect GM to get a badly needed boost in its June sales from an aggressive new discount program, under which it is selling off bloated inventories of new cars and trucks at bargain-basement prices. But another escalation of the industry’s long-running price war can erode profits for everyone, as companies from Ford to Nissan Motor Co. Ltd and Toyota Motor Corp. sweeten consumer incentives as well.
Ford said Friday that it had begun offering its U.S. workers and retirees up to $1,000 to get their friends, family and neighbors to buy vehicles with special employee discounts.
In addition to its planned job cuts in North America, Ford said it was “evaluating options for reducing personnel-related costs outside North America.”
It did not elaborate. But Tim Ghriskey, chief investment officer with Solaris Asset Management, said Ford was clearly looking at more sweeping turnaround efforts as it struggles to return its auto operations to sustainable profit.
“This is an initial foray into perhaps more restructuring moves to come. It’s certainly a good start, but well anticipated by Wall Street analysts,” Ghriskey said, pointing to Ford’s lowered earnings projection being in line with analysts’ expectations.
Wall Street analysts, on average, had been expecting Ford to earn $1.19 per share this year, according to Reuters Estimates. That excluded one-time items such as Ford’s costly bailout of former auto parts subsidiary Visteon Corp.
Ford cited “supplier-related challenges” as well as lower car sales as a factor behind its lower profit view and it said Visteon will shave 16 cents off its earnings per share in 2005.
“They’re making the point that the salaried personnel are taking the brunt of this restructuring. The next step is to trying to get the union to acquiesce to some changes as well,” Ghriskey added.
He was referring to the United Auto Workers union whose binding contracts with Detroit’s traditional Big Three automakers include virtual bans on plant closings, mass layoffs or unilateral cuts in health care and other benefits that are the gold standard of the U.S. manufacturing sector.
“It’s real. It’s big, but it’s also a prelude to going back to the union,” analyst David Healy of Burnham Securities added of the austerity package Ford unveiled Tuesday.
“The 400-pound gorilla is North America. That’s the big swing item and that’s where they’ve got to cut costs,” he said.
David Dreman, an adviser to Scudder Funds who owns a small stake in Ford, said he was not very hopeful about potential upside surprises at either Ford or GM this year.
“I’d be happy to make a dollar,” said Dreman, reacting to the cut in Ford’s profit estimate.
Ford also raised its second-quarter earnings outlook to a range of 30 cents to 35 cents per share, excluding special items, primarily due to a reduced tax rate assumption and stronger-than-anticipated results from Ford Motor Credit.
It had previously anticipated second quarter earnings in the range of breakeven to 15 cents per share, excluding special items.