Ford Motor Co (F.N) said on Friday it
would slash output and delay a new version of its top-selling
F-150 pickup truck due to a deepening slump in U.S. sales it
warned would weigh on results this year and next.
Ford said it would post a deeper loss for its auto business
this year and warned it would be difficult to avoid a loss in
2009. That was a weaker outlook than Ford offered just last
month when it abandoned a long-held goal of returning to profit
by next year in the face of record gas prices and plummeting
sales for trucks and SUVs.
The warning weighed on Ford stock and bonds. Ford shares
dropped 7 percent on the New York Stock Exchange.
The risk of continued losses raises the prospect Ford could
be forced to raise liquidity, possibly through a deal with
billionaire Kirk Kerkorian, who owns almost 6.5 percent of Ford
and has offered more capital for its restructuring.
"This is a tough situation," said David Healy, an analyst
with Burnham Securities. "They are probably going to do more
financing. They might even take money from Kerkorian."
The struggling No. 2 U.S. automaker raised $23.5 billion in
2006 by pledging almost all of its assets, including the
familiar Ford blue-oval logo, as collateral. But that financing
was based on a turnaround plan the automaker now says has been
thrown off track by the steep downturn in the U.S. market.
Ford lowered its forecast for industrywide U.S. auto sales
this year to a range of 14.7 million to 15.2 million vehicles,
including medium and heavy-duty trucks. That was down from
Ford's already reduced forecast of 15 million to 15.4 million.
In response, Ford said it would cut third-quarter
production by 25 percent and fourth-quarter output by up to 14
percent as it throttles back the output of big trucks and SUVs
that consumers are increasingly shunning.
Ford also delayed the launch of its new F-150 pickup truck,
pushing back by about two months the first sales of the
redesigned version of its best-selling vehicle. It said it was
taking the unusual and costly step because it needed to sell
down inventory of the current F-150 model.
"As gasoline prices average more than $4 a gallon and
consumers worry about the weak U.S. economy, we see June
industrywide auto sales slowing further, and demand for large
trucks and SUVs at one of the lowest levels in decades," Ford
Chief Executive Alan Mulally said in a statement.
Ford said that its finance arm, Ford Motor Credit, would
suspend dividend payments to the parent company this year
because it expects to post a loss due to the collapse in the
auction values of used trucks and SUVs. Those resale values are
a crucial component in the way that Ford Credit and other
finance companies set the pricing for auto leases.
Ford Credit may need to write down $1.1 billion because of
falling values of off-lease vehicles, Lehman Brothers analyst
Brian Johnson said in a note for clients on Friday.
KERKORIAN IN FOCUS
The developments mark the first significant setback for
Ford since Mulally took over as chief executive in 2006.
Ford lost $2.7 billion in 2007 and $12.6 billion in 2006
and the cornerstone of a restructuring plan Ford calls the "Way
Forward" had been a return to profitability by 2009.
But Mulally and Ford have both won an endorsement from
Kerkorian, a billionaire investor with a long record as an
activist investor in the U.S. auto industry.
Kerkorian, who has invested about $1 billion in Ford,
disclosed on Thursday that he had taken a 6.49 percent stake in
the automaker. That represented a bigger bet on Ford's
turnaround and came despite more than a 25 percent drop in Ford
shares over the past two months.
Kerkorian, Mulally and Ford Executive Chairman Bill Ford
Jr. met earlier this week to discuss Ford's turnaround
strategy, a meeting the company described as positive.
Ford said it would provide more detail on the changes to
its restructuring plan when it announces second-quarter
financial results in July.
In the meantime, the company's lower production will cut
revenue this quarter and next because Ford, like its rivals,
books sales when vehicles are produced and shipped to dealers.
Healy said the production cuts would likely reduce Ford's
pretax results by about $1 billion.
"It's what I call the perfect storm in the auto industry,"
he said. "Overall sales are down but the mix has changed
The company's shares were down 44 cents to $5.88. Ford's
bonds with a 7.45 percent coupon due in 2031 fell to 62.25
cents on the dollar, down from 65.5 cents on Thursday,
according to MarketAxess.
(Editing by Brian Moss and John Wallace)
The fate of the world's largest
leveraged buyout hangs in the balance ahead of Friday
afternoon's decision by the Supreme Court of Canada on whether
BCE Inc (
agreeing to a $34.8 billlion ($34.5 billion) takeover.
The country's top court has made its decision with unusual
speed, only three days after an oral hearing on whether to let
a consortium of Canadian and U.S. investors proceed with the
buyout of Canada's largest telecom company.
Legal experts said the quick turnaround, and the fact that
the media won't get an advance look at the ruling before the
public announcement, suggests a straight up-or-down decision,
with written reasons provided only at a later date.
"I highly doubt they'll give reasons. It's such a
complicated case," said Anita Anand, a law professor at the
University of Toronto.
Billions of dollars of shareholder value is at stake in the
decision. The value of BCE's existing bonds is also at risk,
the debtholders say, having challenged the deal on the grounds
that it would entail the assumption of too much new debt,
devaluing their securities.
Ontario Teachers' Pension Plan, with U.S.-based private
equity firms Providence Equity Partners, Madison Dearborn
Partners and Merrill Lynch Global Private Equity, are offering
C$42.75 a share to take BCE, parent of Bell Canada, private.
BCE shares rose slightly after Tuesday's hearing, with
investors judging that the bondholders got the toughest
questions from the Supreme Court, but were still only C$34.49
early Friday afternoon, up 2 Canadian cents from Thursday.
That is partly because of uncertainty about which way the
court will rule and partly because investors are aware of the
challenges of concluding the deal even if the court rules in
favor of BCE and the investors who want to take it private.
The banks that agreed to finance the buyout are asking for
better terms. The market is also aware of the trouble that
proposed buyout of U.S. chemical maker Huntsman Corp (HUN.N)
ran into on Thursday, highlighting potential pitfalls for BCE.
The BCE deal has a June 30 deadline for completion.
Central to the case is whether the Bell Canada bondholders
could have expected that BCE would never get a buyout offer
that would entail large amounts of new debt.
"The key question really is can the bondholders reasonably
expect to be entitled to rights that they did not negotiate for
contractually. That's really what it boils down to," said
Mohamed Khimji, who teaches law at Dalhousie University in Nova
The University of Toronto's Anand said it depends on how
broadly the Supreme Court wants to interpret its decision in a
2004 case, Peoples Department Stores Inc. v Wise, that defined
some responsibilities that corporate boards have beyond those
"If the decision is based on the strict law alone, in my
mind, the law as it stands is in BCE's favor," she said.
During Tuesday's hearing, however, some judges asked BCE if
boards could agree to load up their companies with as much debt
as the banks were willing to finance.
The Supreme Court will announce its decision at 4:30 p.m.
(2030 GMT). That is after the market close though BCE's shares
listed on the New York Stock Exchange can still be traded after
hours at that time.
(Edting by Frank McGurty)
Stocks extended losses on Friday, and
the Nasdaq slid more than 2 percent, as investors turned
cautious on equities due to concerns about the outlook for U.S.
banks and the impact of higher oil prices on consumer spending
The Dow Jones industrial average (.DJI) slid 153.56 points,
or 1.27 percent, to 11,909.53. The Standard & Poor's 500 Index
(.SPX) fell 18.01 points, or 1.34 percent, to 1,324.82. The
Nasdaq Composite Index (.IXIC) tumbled 52.16 points, or 2.12
percent, to 2,409.90.
(Reporting by Ellis Mnyandu; Editing by Jan Paschal)