FORD Motor has announced cuts in production for the second time in two months and has given up on ending its losses by next year, as the scramble by all three Detroit car makers to switch to smaller cars begins to raise questions about how they will get enough cash to ride out the storm.
Ford said the plunge of US truck and SUV sales -- due to record-high petrol prices -- was forcing the new cuts. It even pushed back the launch of its redesigned F-150 pickup truck that once was expected to drive the company's recovery.
The moves suggest the company is bracing for a greater loss in 2008 than its $US2.7 billion loss last year, and Ford said it no longer expected to break even by next year.
In the past few days it has emerged that Ford and General Motors are seeking ways to raise new capital, while Chrysler has slashed costs to conserve cash.
GM CEO Rick Wagoner said the company had enough cash for 2008 but he declined to elaborate any further.
On Friday, Ford chief financial officer Don Leclair said the company had enough liquidity to see it through the year. But earlier in the week CEO Alan Mulally met billionaire investor and major Ford shareholder Kirk Kerkorian and the two discussed Ford's likely need for more capital.
Beyond the next 12 months it would be uncertain what cash the three car makers would have, said Moody's analyst Bruce Clark. "We're looking at 24 months that could stress the liquidity positions," he said. "There could be an unabated burn for every quarter for the next eight, nine or 10 quarters."
Credit ratings firms on Friday warned of impending downgrades of the Detroit Three, raising further concerns about their future cash positions. Standard & Poor's said it was likely to cut ratings on Ford, GM and Chrysler, while Moody's put Ford and Chrysler on the path to a downgrade. GM and Ford led the market down on Friday to its lowest close since mid-March. The Dow Jones 500 slid more than 220 points, or 1.8 per cent, in a broad market rout.
Ford's stock has dropped more than 36 per cent in the past year and, as of March 31, it had cash reserves of $US33.8 billion, with GM's reserves at $US23.9 billion. Both companies are burning cash and spending billions to develop new models.
Making matters worse, Ford and GM's credit arms, which buoyed the car makers in the past, are now suffering losses on truck loans and leases as a result of declining values for used vehicles.
Ford executives said the company had cash for at least a couple of years, and that despite the current problems, Ford would rebound. They said at least some buyers would return to trucks after this year, including the F-150. Ford plans to increase passenger car production by 15 per cent in the third quarter. Ford is also working to bring small cars from its European unit to the US and is looking at converting at least one US truck plant to car production.
Like Ford, GM is slashing production overall to try to stave off a revenue implosion from fast-falling US sales of pickups and SUVs, which generate a huge chunk of Ford's and GM's revenue and profits.
Chrysler, which as a private company no longer reports earnings, faces similar problems and is looking closely at additional cuts to its truck production. Each of the Big Three is likely to report big falls in sales in June. GM, the US market leader for decades, could fall behind Toyota for the month for the first time, according to a report by JD Power & Associates on sales in the first half of the month.
On Friday, Ford said it would delay the much anticipated F-150 launch for two months, until November. It also said it no longer expected to break even in 2009. In April, Mr Mulally said the company expected to make money next year, and in May, after the drop in truck sales worsened, scaled that back to break even.
The retreat represents a black eye for Mr Mulally.
He had appeared to have the company heading in the right direction when Ford surprised investors with $US100 million in net income in the first quarter. Now the former Boeing executive is working on an effort to cut its cash outflow and ramp up production of more fuel-efficient vehicles like cars and hybrids.
"Clearly, we are working our way through changes in the marketplace," Mr Mulally said. "We're trying to give the best guidance we can."
The rise in petrol prices set off a dramatic shift among US car buyers. Trucks that used to be strong sellers suddenly piled up in dealer inventories and consumers started flocking to small cars. Those had appealed to a smaller segment of the market dominated by Toyota and Honda, which had already battered the US makers with their lower cost structures, higher margins and rising sales.
In addition to funding ongoing operations, each of the Big Three has agreed to put billions of dollars into a trust fund over the next few years to cover the costs of health care for their retired UAW workers.
"They (car makers) need to come up with a funding plan, and need to prove to Wall Street they have a strategy to back that plan up," said one large car industry investor.
In recent weeks, GM said it would shutter four truck and SUV assembly plants by 2010, and cancelled development of new pickups and SUVs slated to hit the market in 2012.
Ford is pushing back the F-150 launch, in part to gain more time to clear its inventory of current model trucks. Ford is struggling to sell the 2008 versions with consumers fleeing to cars and hybrids. Even a move this month to offer "employee pricing", discounts Ford offers employees, did nothing to move F-150s out of dealerships. "It's been a blip on the radar screen," said Carlos Garcia, a sales manager at North Country Ford Lincoln Mercury in Coon Rapids, Minnesota, of the incentive program.
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