Ford Posts US$14.6-bil. Net Loss for 2008

Ford reported its fourth-quarter and full year 2008 results yesterday, capping a disastrous year with worse-than-expected results. For the fourth quarter, Ford posted a net loss of US$5.9 billion, a decrease of over US$3.0 billion from the same period in 2007. For the full year 2008, Ford posted a US$14.6 billion loss, a dramatically worse result from the US$2.8 billion loss seen for the full year 2007. The amount lost in 2008 is a new record for Ford, outdoing the previous record losses seen in 2006. Unlike 2007, the company's results among its various subsidiaries and global regions was decidedly mixed. Total revenue fell by 15.2% to US$146 billion, down a staggering US$26 billion from 2007, and a significant measure of how much Ford cut production during the year. "We faced nearly unprecedented challenges in our global markets," said Ford CEO Alan Mulally in a conference call with the media. "The severe economic challenges had a significant impact on our fourth-quarter results." The company reported that it had gross cash of US$13.4 billion on hand as of the end of the year, nearly US$21 billion down from the same point in 2007.

North America continues to be the biggest stumbling point for Ford, but results for the region were actually somewhat better than some Wall Street analysts had anticipated, due to significant cost-cutting that the automaker has undertaken for its biggest region. "The progress we continued to make in the fourth quarter gives us great confidence that we have the right plan, the right people, and the right products to create a viable, profitably growing Ford for all of our stakeholders," Mulally said. In North America, Ford lost US$1.9 billion for the quarter, up from a US$1.5 billion loss for the fourth quarter of 2007. Revenue for the region was US$11.3 billion, down significantly from the US$17.3 billion the company recorded in the fourth quarter of 2007.

The South American region recorded a profit of US$105 million on revenues of US$1.7 billion, down significantly from a profit of US$418 million in the fourth quarter of 2007 on revenues of US$2.4 billion. The company blames lower industry volume and higher material costs for the degradation in performance. Europe did not fare much better for the quarter, losing US$330 million compared with a profit of US$223 million in the same period last year. Far lower volume and unfavourable exchange rates contributed to lower revenue as well, down from US$10.4 billion in the fourth quarter of 2007 to just US$7.6 billion in the fourth quarter of 2008. The Asia-Pacific and Africa region went from a US$10 million profit in the fourth quarter of 2007 to a US$208 million loss for the most recent quarter; revenue also fell from US$1.7 billion a year ago to US$1.4 billion.

As for Ford's subsidiary companies, Swedish brand Volvo turned in a dismal performance for the quarter, posting a US$736 million loss, as opposed practically breaking even in the fourth quarter of 2007. The brand had revenues of US$5.1 billion a year ago, but posted only US$3.3 billion in revenues for the wholly owned subsidiary. Ford's stake in Mazda is still roughly one-third for the fourth quarter of 2008, but the brand still contributed US$79 million in profits to Ford's bottom line, up slightly from a US$75 million profit one year ago. Ford has sold off a considerable portion of its stake in Mazda, and has said that it will no longer be reporting income from its remaining stake beyond the current report.

Outlook and Implications

Analyst are very concerned about Ford's cash position. The company announced that it had acted to draw down a revolving line of credit to the tune of US$10.1 billion, which will be in its coffers next week, as it was not confident in the stability of the banking system. It felt that despite the fact that it may or may not need the money depending on its future cash burn, it was a safer bet to actually grab it while it was there, and keep it on hand. It is generally thought that Ford needs US$10 billion in cash on hand just to fund operations; with a little over US$13 billion in the company coffers and a cash burn rate from the past quarter of US$1.7 billion per month, most analysts have said that Ford will need to find an additional source of cash by the end of February or face a crisis. The company has stated that it has sufficient liquidity, and including the money taken from the revolver earlier this week, total liquidity stands at just over US$26 billion in total. Ford officials said that the US$10 billion revolver would not be used for operating expenses, but if push comes to shove, it is hard to imagine that it would not draw upon that fund to keep itself alive.

Ford has stated that it does not want to take government money, as Chrysler and General Motors (GM) have done, and that despite asking for a US$9 billion line of credit from the government, it still does not intend to ask for any definitive money at this moment. The company also lowered its sales projection for the United States in 2009 as well, down to 11.5 million units from over 12.5 million previously. At these levels however, by Ford's own documents presented to the U.S. Congress late last year, it will almost certainly have to go on the government dole for low-interest loans sometime in 2009. IHS Global Insight is predicting a 10.3 million unit light-vehicle sales level (Ford includes medium and heavy duty in its total forecast), a level at which Ford by its own admission said that it would need government help. The company is reportedly preparing Volvo for a sale, has divested itself of most of Mazda, has cut costs fairly dramatically, and is basically doing all it can to try and delay asking for government money as long as it can, in order to try and separate itself from the image that GM and Chrysler have had to undertake.