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Ford slashes 4Q outlook
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December 5, 2001: 11:29 a.m. ET
Troubled No. 2 automaker blames weak U.S. economy, higher costs.
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NEW YORK (CNN/Money) - Ford Motor Co. slashed its fourth-quarter guidance Wednesday, citing a surge in customer defaults on loans and leases after the Sept. 11 terrorist attacks.
The No. 2 automaker now anticipates a loss of 50 cents a share in the period, excluding one-time items, instead of the 14-cents-a-share loss predicted by Wall Street analysts, according to earnings tracker First Call.
That's a far cry from Ford's previous guidance that it expected fourth-quarter operating results to improve from the third-quarter loss of 28 cents a share.
Ford (F: down $0.94 to $16.80, Research, Estimates) shares sank 94 cents in Wednesday afternoon trading following the announcement.
The automaker, which has been suffering from quality problems and the after-effects of last year's Firestone tire recall, blamed increased credit loss reserves stemming from the weakened U.S. economy and higher marketing and product costs. Ford added that "earning a profit would be difficult."
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CNNfn's Amanda Lang reports on Ford's financial standing.
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"Since mid-September there has been a sharp decline in economic conditions. Unemployment is up, bankruptcy filings continue at high levels, and both of those factors are contributing to higher delinquencies and credit losses," Ford Chief Financial Officer Martin Inglis told analysts during a conference call Wednesday.
To help support the credit business, Ford said Wednesday that the unit would forgo a $100 million to $150 million dividend payment to the parent company this year.
Some analysts were skeptical of Ford's explanations Wednesday. Bear Stearns' Domenic Martilotti questioned how the automaker could say repossessions and rising unemployment were running in line with their expectations, but not have enough reserve on hand.
"If they were in line, why'd they have to take extra reserves? It's a bit displeasing," Martilotti said. "It seems like they don't have a grasp on what's really happening."
The auto industry has been offering zero-percent financing and other strong incentives to drive sales amid the slowing economy and the aftermath of the Sept. 11 terrorist attacks on the World Trade Center and the Pentagon that left thousands dead.
Inglis said Wednesday that Ford had begun to scale back zero-percent financing on some vehicles, but that the company had extended the promotion through Jan. 2.
Such deals undercut the bottom line at all the automakers, including General Motors (GM: up $1.23 to $51.03, Research, Estimates) and DaimlerChrysler (DCX: up $0.70 to $42.30, Research, Estimates). But Ford has been hit harder since it did not place as much into reserve. High-profile quality problems and negative publicity related to the Firestone tire recall have further hurt its business.
Ford declined to provide specific numbers on the performance of its credit business, deferring until January when it next reports earnings, but Inglis said that company business models indicate that in addition to higher repossession rates, the resale value of returned leases will continue to deteriorate as customers opt for zero-percent financing on new cars.
The company, which in late October installed William Clay Ford Jr. as CEO, replacing the embattled Jacques Nasser, plans to announce details of a major restructuring initiative in January to stem the losses. Ford offered a preview Monday of what's coming when it disclosed a series of cost-cutting measures that included suspending matching contributions to employee 401(k) plans and eliminating the second shift at the Edison, N.J., assembly plant in February.
The company also said it could lay off 600 hourly workers and 30 salaried employees.
Inglis said Wednesday the entire restructuring program would save $300 million a year after taxes.
Also on Monday, Ford announced a 4.4 percent increase in November sales, driven mainly by zero-percent financing, which also has cut into profit.
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Though the warning was widely expected on Wall Street, the magnitude of the change surprised many analysts, including Gary Lapidus of Goldman Sachs.
Lapidus was expecting a loss closer to 37 cents a share, and noted that financial services likely would have logged either no profit or a loss for the results to fall as far as 50 cents.
"Frankly, it looks like financial services earnings would have to be negative unless losses in the automobile business are just staggering," Lapidus said.
He added that it would be "stunning" if Ford Credit, which he said logged $700 million in pre-tax earnings in the year-earlier quarter, saw no profit. But even if that happened, combined with the company's planned 120,000-vehicle production increase over the third quarter, Ford's loss should have only widened to about 37 cents a share, Lapidus said.
Ford released the revised forecast ahead of the 9 a.m. ET meeting with analysts. 
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