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August 22, 2006 > Ford, stung by losses and sales drops, announces production cut

Ford, stung by losses and sales drops, announces production cut

by Sarah Karush

DETROIT (AP), Aug 18 _ Ford Motor Co. says it will temporarily halt production at 10 North American assembly plants between now and the end of the year, blaming high gasoline prices for pushing many consumers away from its pickups and SUVs and toward higher-mileage models.

Ford said Friday that the cuts will reduce the need for costly incentives to reduce bloated inventories. But they also illustrate just how out of step the lineup at the nation's second-largest automaker has become, as it loses market share to mostly Asian competitors under the watch of Chairman and Chief Executive Bill Ford.

General Motors Corp. and DaimlerChrysler AG's Chrysler Group also have been caught in the shift away from trucks and SUVs to smaller cars and crossovers as consumers seek better fuel economy. The Big Three's combined U.S. market share fell to 54.5 percent for the first seven months of 2006, down from 58.7 percent in the same period a year ago.

GM already has announced it will cut production 7 percent to 8 percent in the third-quarter.

Ford announced a turnaround plan in January that called for shedding 25,000 to 30,000 jobs and closing 14 plants by 2012. By year's end, the company was to have cut production capacity 15 percent.

Bill Ford said last month that the plan _ dubbed the ``Way Forward'' _ would be accelerated. He said Friday that the details would be revealed in September.

In response to the production cuts, Fitch Ratings downgraded Ford's debt further into junk status, while two other ratings agencies placed the company on review. Analysts said next month's announcements could include more plant closures and job cuts, as well as speeded-up introductions of new cars and crossovers.

The company said fourth-quarter production would be down 21 percent, or 168,000 units, from last year. Third-quarter production will be 20,000 units below what was previously announced and 78,000 units below last year.

For the full year, Ford plans to produce about 9 percent fewer vehicles than last year for a total of just above 3 million.

``We know this decision will have a dramatic impact on our employees, as well as our suppliers,'' Chairman and Chief Executive Bill Ford said in an e-mail to employees. ``This is, however, the right call for our customers, our dealers and our long-term future.''

He said it was the company's biggest North American production cut in more than 20 years.

Ford, which lost $254 million (euro198 million) in the second quarter, said last month that the speed of the market shift away from trucks had taken it by surprise. Like other U.S. automakers, Ford is heavily dependent on sport utility vehicles and other trucks, which have far higher profit margins than cars. Last year, 68 percent of the vehicles sold by the company in the U.S. were trucks, compared with 58 percent for the industry as a whole.

``An unprecedented spike in gasoline prices during the second quarter impacted our product lineup more than that of our competitors because of the long-standing success of our trucks and SUVs,'' Bill Ford said in his note Friday.

The nation's second-largest automaker said that by better matching inventories to demand, it can avoid costly incentives and reduce inventory carrying costs for dealers.

Reducing incentives will help improve resale values of vehicles, and more rational inventories will help ``stabilize operating patterns for our plants and our suppliers,'' Mark Fields, Ford's president of the Americas, said in a statement.

General Motors Corp.'s top executive said the Ford annoucement is not necessarily bad. GM Chairman and CEO Rick Wagoner said Ford and GM are trying to build stability in the marketplace by regulating inventory.

``I'm not sure that's bad news,'' he told reporters Friday at a gathering for classic and custom cars in Detroit. ``The fact is, you've got to build from market demand back. That's what it seems to be these actions are all about.''

The Wall Street Journal, citing unidentified sources, reported Friday that Ford is considering shutting down more factories and cutting salaried jobs and benefits by 10 percent to 30 percent.

Ford spokesman Oscar Suris declined to comment on the report.

Company officials would not say what specific impact the production cuts would have on workers. In general, hourly workers placed on temporary layoff receive 95 percent of their wages through state unemployment benefits and a supplement by Ford.

The United Auto Workers had no immediate comment.

In response to the production cuts, Fitch downgraded Ford and its finance arm Ford Motor Credit Co. to ``B'' from ``B+'' and lowered its senior unsecured debt to ``B+'' from ``BB-.''

``Implicit in the production cutbacks are expectations of continued weak pickup sales that have resulted in extended inventories,'' the agency said. ``Volume declines in Ford's pickup segment, along with continued declines in mid-size and large SUVs, are likely to accelerate revenue declines and negative cash flows in 2006.''

Standard & Poor's Ratings Services and Moody's Investors Service both put Ford's credit ratings on review for possible downgrades further into junk territory.

Ford shares fell 17 cents, or 2.1 percent, to close at $8 on the New York Stock Exchange.

___

On the Net:

Ford Motor Co.: http://www.ford.com/

 
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