Ford posts record net loss of $12.7 billion in 2006

DEARBORN, Mich. -- With big red numbers on its balance sheet that amount to $1,925 for every car and truck it sold last year, one has to wonder if Ford Motor Co. has the money to keep the doors open long enough for its restructuring plan to take hold.

On Thursday, the 103-year-old industrial icon reported a staggering $12.7 billion loss for 2006, and it warned that losses would continue this year and next. The loss was the largest in Ford history, driven by slumping North American sales and $9.9 billion in special items, including restructuring costs tied to the planned closure of 16 plants.

Chief executive Alan Mulally, who is leading the massive remaking of the storied automaker, is confident in its plan to return to profitability by sometime in 2009.

But some industry analysts, while impressed by Ford's cost-cutting efforts, are skeptical that its new product lineup can carry the company that invented the assembly line back into the black.

"We know where we are. We are dealing with it and we're on plan," Mulally told reporters and industry analysts in a conference call after the numbers were announced.

Although huge, Ford's losses were far from the largest annual corporate deficits on record; Time Warner Inc. reported a $97.2 billion loss in 2002, largely due to new accounting rules about how to value assets. Ford could not rely on accounting rules, however, to explain its total.

Ford's loss also wasn't the worst annual total in the auto industry. General Motors Corp. lost $23.4 billion in 1992, due mainly to accounting rule changes on health care liabilities.

The whopping 2006 loss surpassed Ford's old record of $7.39 billion set in 1992.

It amounted to $6.79 per share versus a profit of $1.44 billion, or 77 cents a share, in 2005. The company also reported losing $5.8 billion in the fourth quarter and $6 billion on its North American operations.

Several analysts said the loss was not surprising, given Ford's high costs and falling market share and sales. Ford's future is cloudy at best, given the deficit that it must overcome, analysts said.

"They have a massive challenge in front of them. Their basic business is billions of dollars in the red," said Burnham Securities analyst David Healy.

Ford is banking on the restructuring to pull it through the next two years. Mulally, hired from aerospace giant Boeing Co., is leading the drastic efforts to turn around the company.

Ford mortgaged its assets to borrow up to $23.4 billion to pay for the restructuring and to cover losses expected until 2009. About 38,000 hourly workers have signed up for buyout or early retirement offers, and Ford plans to cut its white-collar work force by 14,000 with buyouts and early retirements.

Chief financial officer Don Leclair said Ford expects favorable results from its automotive business in 2007.

But because of interest on its debt, "total automotive results are expected to be worse in 2007 than in 2006," he said.

Leclair said the company finished 2006 with $33.9 billion in cash available for its automotive operations, including $12 billion that it borrowed in December. He said the company could tap into nearly all of that cash to fund its operations.

The company is on target, though, to achieve its goal of cutting $5 billion in annual costs by 2008 compared with 2005 levels, Leclair said.

Mulally said Ford will continue to review its costs, looking for more cuts as it gains efficiencies from building more cars worldwide on fewer frames in more efficient factories.

"The more I review the details, the more confident I am that we can continue that cost reduction through 2009 and beyond," he said.

While the cost cuts may work, it's the revenue side that worries some analysts, and revenue is driven by new products. Ford has promised that 70 percent of its cars and trucks would be new or significantly updated by the end of 2008. It is rolling out the new Edge crossover and plans new F-series Super Duty pickups, a new Focus small car and an updated Five Hundred large sedan by the end of the year.

But Pete Hastings, an auto industry corporate bonds analyst with Morgan Keegan & Co. Inc. in Memphis, Tenn., said he is among those who are skeptical of the new products.

"I don't see much that helps Ford," he said. "There may be one or two offerings that are newsworthy or that make a splash, but it's not enough to lift the overall company."

Ford said it expects to burn up $10 billion in cash to run its business through 2009 and spend another $7 billion to invest in new products.

Excluding special items, Ford lost $1.50 per share in all of 2006, worse than Wall Street predicted. Fourteen analysts surveyed by Thomson Financial expected a loss of $1.35 per share for the year, excluding special items.

Still, the company's shares rose 2 cents, or 0.24 percent, to $8.22 on the New York Stock Exchange.

Ford, which has relied on truck and sport utility vehicle sales for much of its profit, was hurt last year as $3-per-gallon gasoline sent consumers fleeing to smaller, more fuel-efficient vehicles. Ford has seen its market share deteriorate in recent years. At the same time, Toyota Motor Corp. has seen its U.S. sales rise, beating Ford out for the No. 2 sales spot in July and November.

Sales for the fourth quarter fell to $40.3 billion from $46.3 billion a year ago. Annual sales dropped to $160.1 billion from $176.9 billion in 2005.

Even though all the numbers look bad at the moment, Healy predicted that Ford eventually will become marginally profitable.

But as far as investing in the company, he's a little leery.

"My opinion is I'd just as soon watch it from the sidelines," Healy said.

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