10-QPeriod: Q3 FY2005

FORD MOTOR CO Quarterly Report for Q3 Ended Sep 30, 2005

Filed November 7, 2005For Securities:FF-PCF-PDF-PB

Summary

Ford Motor Company reported a net loss of $284 million for the third quarter of 2005, a significant decline from a net income of $266 million in the same period last year. This downturn was primarily driven by the Automotive sector, which posted a substantial operating loss of $1,599 million compared to a loss of $673 million in the prior year. The Financial Services sector, however, continued to perform relatively well, with income before taxes of $1,222 million. Key factors contributing to the automotive losses include a large valuation allowance against employee-related receivables from Visteon, higher material costs, unfavorable currency exchange rates, and restructuring charges. The company is actively working to address these challenges, including plans for significant cost reductions, plant closures, and personnel reductions. The sale of The Hertz Corporation is expected to close by year-end 2005 and is projected to result in a pre-tax gain of $1.1 billion to $1.3 billion. Investors should note the ongoing credit rating downgrades for both Ford and Ford Credit, which have increased borrowing costs and restricted access to unsecured debt markets. The company is focusing on improving its cost structure, optimizing its manufacturing footprint, and strengthening its balance sheet while investing in product innovation and growth markets.

Key Highlights

  • 1Ford Motor Company reported a net loss of $284 million for the third quarter of 2005, a significant decrease from a net income of $266 million in Q3 2004.
  • 2The Automotive sector incurred a loss of $1,599 million before income taxes, a deterioration from a $673 million loss in the prior year's third quarter.
  • 3The Financial Services sector, including Ford Credit and Hertz, reported income before income taxes of $1,222 million, though lower than $1,391 million in Q3 2004.
  • 4A significant Visteon-related charge of $180 million for a valuation allowance against employee-related receivables impacted the Automotive sector's results.
  • 5The company announced plans to sell The Hertz Corporation for approximately $15 billion, with expected cash proceeds of $5.6 billion and an estimated pre-tax gain of $1.1 to $1.3 billion.
  • 6Credit ratings for both Ford and Ford Credit have been subject to multiple downgrades and negative outlooks by major rating agencies, increasing borrowing costs.
  • 7Ford is implementing cost reduction measures, including personnel reductions and potential plant closures, and is exploring new product alliances, such as with Fiat Auto SpA for a new small car platform in Europe.

Frequently Asked Questions

The net loss of $284 million in the third quarter of 2005 was primarily due to a significant deterioration in the Automotive sector's performance. This was exacerbated by specific charges, such as a valuation allowance against employee-related receivables from Visteon, increased material costs, unfavorable currency impacts, and restructuring charges. The Financial Services sector provided some offset but was also down from the prior year.

The sale of Hertz, valued at approximately $15 billion, is a strategic move to de-emphasize vehicle sales to daily rental car companies and to focus on Ford's core automotive business. The transaction is expected to provide significant cash proceeds of $5.6 billion and generate a substantial pre-tax gain of $1.1 billion to $1.3 billion, which will strengthen Ford's financial position.

The multiple credit rating downgrades by agencies like Moody's, S&P, Fitch, and DBRS have increased Ford's and Ford Credit's borrowing costs. Access to unsecured debt markets has become more restricted, leading Ford Credit to increase its reliance on securitization and other asset-based funding. This could impact Ford Credit's profitability and its ability to support vehicle sales in the future.

Ford is undertaking several cost-reduction initiatives, including personnel reductions in both salaried and hourly roles, potential significant plant closures, and efforts to optimize its global manufacturing footprint. The company is also working with suppliers to improve cost structures and has initiated programs like the Visteon facility integration and the Premier Automotive Group (PAG) Improvement Plan.