Thursday, May 22, 2008

Ford: Fewer trucks, more losses

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) - Ford Motor Co. cited record-high gas prices in announcing Thursday that it will cut production of pickups and SUVs and likely miss its long-held goal of returning its core North American auto unit to profitability next year. The company said it now hopes to break even companywide next year as overseas profits balance out losses at home. It also announced it would slash production of pickups and SUVs due to changing consumer demand.

"We saw a real change in the industry demand in pickups and SUV in the first two weeks of May," said Ford Chief Executive Alan Mulally. "It seems to us we reached a tipping point." Ford now believes that the change in vehicle choice is structural, not cyclical, Mulally said. Mulally said the company in July will detail longer-term changes, including personnel reductions. Ford had already offered buyouts and early retirement to all of its U.S. hourly employees. Ford (F, Fortune 500) said it will ramp up production of some other models such as cars and so called crossovers, a vehicle designed to bring a more car-like ride to SUVs. But the cuts in its pickup and SUV output will be greater than its increased car production. Ford trimmed an additional 20,000 vehicles, or 3%, from its North American plans, for the second quarter, putting its target at 690,000 vehicles. That will leave output down 15% from year-ago levels. The company said it now plans to produce between 510,000 and 540,000 units in the third quarter, down 15-20% from the same period last year, while the fourth-quarter production target is now between 590,000 and 630,000 units, down 2-8% from year-earlier levels. The shift is bad news for the nation's No. 3 automaker, which has lost money on its North American auto operations since 2005. The smaller cars for which it will ramp up production - Ford Focus, Fusion, Edge and Escape, the Mercury Milan and Mariner, as well as the Lincoln MKZ and Lincoln MKX - generally have lower prices and profit margins than the light truck models for which it is cutting production, such as the F-Series pickup, still the nation's best selling vehicle.

Also since the car models cannot be built on the same assembly lines where the pickups and SUV are built, the decreased production will mean more idled plants. Ford will have to pay employees who are not working while it increases the hours for those at car plants. Ford said it plans further manufacturing capacity realignments and additional cost reductions as part of its turnaround plan. Also Thursday Ford said it was not taking a position on a previously-announced proposal by investor Kirk Kerkorian to buy an increased stake in Ford.