NEW YORK (CNNfn) - Ford Motor Co. said Monday it would halt production at three truck assembly plants for two weeks beginning Aug. 28 in order to free up 70,000 tires so they can be used as replacements in the Firestone recall.|
The news came on the same day that The Center for Auto Safety, the Washington, D.C.-based consumer group responsible for getting Ford's infamous Pinto recalled in the 1970s because of gas tanks that exploded on rear impact, sued Firestone and Ford in federal court to replace every one of the recalled tires.
David Healy, an auto parts analyst for Burnham Securities said he estimates Ford will take between $100 million and $200 million net charge in the third quarter as a result of idling the three plants.
On Aug. 9, Firestone, a unit of Japanese owned Bridgestone/Firestone, recalled 6.5 million of its Wilderness AT, ATX and ATX II tires after it determined the treads could separate on vehicles traveling at a high rate of speed. The National Highway Traffic Safety Administration is investigating 750 accidents, involving 62 deaths, allegedly related to the tires.
The companies said Monday that all the recalled tires were manufactured at Firestone's Decatur, Ill., plant.
Jac Nasser, Ford's president and chief executive officer, plans to reassure consumers in a nationally televised ad to appear during Monday Night Football.
"You have my personal guarantee that all the resources of Ford Motor Company are directed to resolve this situation," Nasser says in the ad. "I want all of our owners to know that there are two things that we never take lightly. Your safety and your trust."
Halting production at the three plants, Edison Assembly, in Edison, N.J., Twin Cities Assembly in St. Paul, Minn., and St. Louis Assembly in Hazelwood, Mo., will cut 25,000 trucks from Ford's third-quarter production schedule, said Della DiPietro, a Ford spokeswoman.
DiPietro said the measure was intended to buy some time as all tire companies ramp up production to meet the overwhelming consumer demand to exchange their tires.
The company also said it had agreed to replace the tires with new Firestone or other brand tires and expanded the number of outlets performing this work.
The company also added call centers to answer consumer questions around the clock and has taken full-page ads in newspapers, and also mailed letters to Ford owners.
Ford also said Explorer sales are running at 97 percent of objective month-to-date, but have been weaker since last week and will likely be down for the month.
The company said it would share the expense of the recall with Firestone, and that it recommends a lower inflation rate, 26 pounds per square inch, than Firestone, which recommends an inflation rate of 30 PSI.
Separately, Ford expects its August sales to fall by mid-single digits, with flat truck sales and a double-digit decline in cars.
Ford intends to brief analysts about the earnings impact within the next 48 hours.
Martin Inglis, the company's senior vice president, said Ford will be able to recoup most of the lost production of the 2001 Ford Ranger, about 10,000 units, over the remainder of the year. However, lost production of about 15,000 2001 model year Explorers, most of which carry the recalled tires as original equipment, will be pushed into next year.
Healy agreed that Ford would be able to recoup some of the lost profit in the fourth-quarter.
"I think they're pretty smart to take the earnings hit now," Healy said, adding that earnings have been pretty thin lately anyway.
John Casesa, an auto analyst with Merrill Lynch, said in a research note Monday that the longer this issue lasts, the more Ford risks its reputation.
"In short, while the negative press will likely hold back the stock near-term, we don't think it will have a lasting impact, and in our view, Ford remains relatively attractive," Casesa said.
Consumer group sues Ford
The Center for Auto Safety, which in addition to getting the Pinto recalled was influential in getting Firestone to recall its 500 tire in the 1970s, sued both Firestone and Ford in U.S. District Court for the District of Columbia, in an effort to get all the Wilderness and ATX tires replaced. As it now stands, the recall involves only 15-inch models of the tires.
The Washington law firm of Cohen Milstein Hausfeld & Toll's filed the suit on behalf of the center.
Clarence Ditlow, the group's director, said he didn't buy Firestone and Ford's claims that the defective tires were all produced at Firestone's Decatur, Ill., plant because other tires produced there were fine.
"That argument just doesn't hold up," Ditlow said. "We believe that it's a design problem that goes across that tire's production."
Ditlow said part of the center's proof involved product liability settlements regarding other non-recalled tires, adding that the 1970's recall of 14.5 million Firestone 500 tires followed a similar track. In that case, he said, investigators discovered the treads separated because infiltrating heat and humidity deteriorated the bond between the steel belt and the rest of the tire.
The complaint also alleges that Firestone recalled the tires overseas before the U.S. government persuaded the company to recall the 15-inch tires in the United States.
Ford spokeswoman Susan Krusel said Monday that Firestone has already recalled every one of the ATX tires, as well as all Wilderness tires produced at the Decatur plant, and that a wider recall is unnecessary.
"The data clearly indicates the tires with the higher-than-normal tread separation rate were recalled, and that it's absolutely unnecessary to recall any of the other tires," Krusel said. "There are some attorneys out to cash in on the recall."
Shares of Ford (F: Research, Estimates) closed down 1/2 to 27-1/4 on Monday.
-- from staff and wire reports