From the Desk of Mike (The Hammer) Garvin

Despite $380 million loss, Ford is optimistic
Will buy Ballard’s fuel cell power systems

By Nick Bunkley
International Herald Tribune

DETROITFord Motor said Thursday that it had lost $380 million in the third quarter, slipping back to a loss after a surprise profit in the second quarter. Executives said that they also expected a loss in the fourth quarter and that the company might post a small loss for the year. But Ford essentially broke even on its operations and said its restructuring plan was on track.

The U.S. automaker also said that it had decided not to sell Volvo, its Swedish brand, after conducting a strategic review of the company. Ford said that it would set up Volvo as a separate operation and that it would report results for Volvo, beginning next year.

Ford said it was negotiating with a group of potential buyers for its Jaguar and Land Rover brands. It said it hoped to conclude talks by early next year.

The automaker also announced that it had reached an agreement with Daimler of Germany to buy the automotive fuel-cell business of Ballard Power Systems. Ford and Daimler hold stakes in Ballard; the fuel-cell business will be swapped for those shares.

Ford earned money in every region outside North America. It earned a pretax profit of $293 million in Europe, compared with a pretax loss of $13 million last year. But its Premier Automotive Group - Volvo, Jaguar and Land Rover - lost $97 million, compared with $508 million last year. Ford said Volvo had lost money, while Jaguar and Land Rover had been profitable.

Ford's overall loss was much smaller than some analysts had forecast for the third quarter, and Ford said it was seeing "significant improvement" with its restructuring plan. But Ford still lost $1 billion in North America, where it is nearly two years into the restructuring. Globally, the company lost $362 million on automotive operations.

Both numbers were considerably better than those of a year ago, but analysts said Ford could have difficulty improving further because of a slowdown in the U.S. market.

$88 million profit

Ford has earned an $88 million profit through the first nine months of the year, after losing a record $12.6 billion last year. Executives said they expected full-year results to be "a small loss to break even."

"Our third-quarter performance is very encouraging," the Ford chief executive, Alan Mulally, said in a statement. "We can see our plan taking hold with significant improvement continuing in our core automotive operations."

The overall loss is equal to 19 cents a share. Last year, Ford lost $5.2 billion during the third quarter, or $2.79 a share. It lost $2.1 billion in North America in the third quarter of 2006.

Analysts had expected Ford to lose more than twice that amount, although it is difficult to gauge where its results will end up because the company does not provide guidance.

Ford said it was on track to meet its goal of being profitable in North America and in all of its automotive operations by 2009.

The company said it expected its restructuring plan to cost $12 billion to $14 billion, well below the $17 billion it had estimated when it announced the plan in 2005.

Its third quarter revenue rose 11 percent, to $41.1 billion. Excluding non-recurring income and expenses, Ford said it essentially broke even. It lost $24 million on operations, or 1 cent a share, compared with a loss of $850 million, or 45 cents a share, in the period a year earlier.

"Our third-quarter and year-to-date performance indicate that our plan is working," Mulally said. "Our full-year pretax outlook, excluding special items, is to be substantially better than 2006. We remain committed to improving our business and delivering our plan."

Ford, which has mortgaged most of its assets to raise money for the turnaround, still has a long road ahead on its way back to success. Its earnings announcement listed 29 risk factors, including declining industry sales and stricter government regulations, that could hinder its progress.

Last week, Ford reached a tentative agreement with the United Automobile Workers union on a contract that was expected to cut labor costs significantly. The deal shifts about $21 billion in retiree health care liabilities to an independent trust and sets starting pay for new employees at about half the current rate.
In exchange, Ford agreed to close six fewer plants than it had planned to shut down and delay the closing of two other facilities by a year.

Micheline Maynard contributed reporting.