Ford shows it may be able to avoid federal bailout

[April 25, 2009]  DEARBORN, Mich. (AP) -- Better-than-expected earnings from Ford raised hopes Friday that the automaker's restructuring and new products may be enough to spare it from a federal bailout, while General Motors received more government help and Chrysler raced to avoid bankruptcy.

Ford still lost $1.4 billion from January through March, but that was less than expected, and executives said the outlook for future sales was good enough to increase production of its most popular vehicles.

Ford Motor Co. has taken steps over the last few years to avoid government intervention: cutting costs, focusing on its core brands, and introducing new vehicles and advanced features.

"Ford is building the best stuff it's ever made in terms of quality rankings and critical reviews," said Aaron Bragman, an auto analyst at IHS Global Insight. "The vehicles are sufficiently improved and people are starting to realize that."

While Ford tries to go it alone, federal officials are questioning every penny spent by General Motors Corp. and Chrysler LLC, which are both subsisting on government loans.

On Friday, the Treasury Department said it loaned $2 billion to GM, bringing the automaker's total to $15.4 billion. Chrysler has borrowed $4 billion and could get $500 million more so it can keep running while it restructures.

But Ford, under the leadership of former Boeing Corp. CEO Alan Mulally, mortgaged all of the automaker's assets - including the trademark blue logo - a few years ago, when loans were easier to get from the private sector.

As of March 31, Ford had $21.3 billion in cash to help it survive the worst market for U.S. auto sales in 27 years.

The company said Friday it had spent just $3.7 billion of its cash during the first three months of this year, far less than the $7.2 billion it burned in the fourth quarter of 2008. Investors sent Ford's shares up 11 percent.

"I think the important comparison for us is 'Are we improving versus the fourth quarter?'" said Chief Financial Officer Lewis Booth. "Because the fourth quarter, things were really dreadful.

He said cost cuts and better pricing for its vehicles helped the company narrow its losses from $5.9 billion in the fourth quarter, and he expects continued improvement for the remainder of the year.

Ford said it was able to charge more for its vehicles, which are now coming loaded with features such as electronic blind-spot detection and technology that links drivers' cell phones and MP3 players to a voice-activated command center.

Chrysler, on the other hand, spent more on sales incentives than any other automaker, averaging about $5,000 per vehicle in March, according to Edmunds.com.

With a government-imposed deadline for massive restructuring less than a week away, Chrysler and federal officials held out hope that they could keep the automaker out of bankruptcy court, according to two people briefed on the talks.

Chrysler and the Treasury Department are preparing paperwork for bankruptcy filings - one as a reorganization in Chapter 11 with government funding and the other as a liquidation if no government money is available, both people said, speaking on condition of anonymity because the fast-moving negotiations are private.

Chrysler has until Thursday to work out a joint venture with Italian automaker Fiat SpA. GM has until June 1 to make dramatic cuts.

Ford jumped ahead of both competitors in February with a new labor agreement that saved $300 million in the first quarter. A debt-for-equity swap shed $10 billion in debt.

Ford's overall work force in North America shrank 41 percent since December 2006, when it employed 122,400 salaried and hourly workers and began restructuring.

Ford wants to trim its work force even more. Of the 72,300 employees it had in March, 51,000 were union workers who have until May 22 to accept or reject a buyout.

"We started on this transformation of Ford two to three years ago," Mulally said last week in an interview with The Associated Press. "We were very clear with the government that we believed we had sufficient liquidity to make it through this, and we were not asking them for money."

President Obama has dismissed GM and Chrysler's viability plans as overly optimistic, given the current sales climate and the company's sluggish pace of restructuring.

While not discounting Ford's problems, analysts said the company has been more aggressive in key areas where the administration found fault with GM and Chrysler.

For instance, GM was faulted for its unwieldy size, with eight different brands. Ford sold its Aston Martin, Land Rover and Jaguar lines in 2008. It also reduced its stake in Mazda and is currently looking to sell Volvo. That will let Ford focus on Ford, Lincoln and Mercury.

Chrysler was also faulted for focusing on SUVs and minivans, leaving it ill-prepared for high gas prices. Ford is rolling out a mix of fuel-efficient vehicles that have been well-received by consumers who may be concerned about the uncertainty surrounding GM and Chrysler.

Ford's midsize Fusion model is a viable competitor against Toyota Motor Corp.'s popular Camry, with the 2010 models getting praise for quality, safety and fuel economy. More than 40 percent of the 2010 Fusions sold have been hybrids that get 41 mpg on the highway.

Ford is also bringing the Fiesta, its small European car, stateside next summer, and its compact Focus is selling well.

Ford's assembly plants will be churning out more of those products in the second quarter.

One day after GM said it would temporarily close 13 North American plants for up to 11 weeks this summer to slash inventories, Ford said it expects its production to increase 19.5 percent from the first quarter.

"We believe, with the decisive actions we have taken over the last few quarters, we have the dealer stocks well in line," Mulally said. "And with what we see with the reception of the new products, we believe we can go up a little bit more to support the real demand."

Ford said it's on track to break even or turn a profit in 2011. But the company isn't squeaky clean. It still has debt, an underfunded pension plan and a primary market - the U.S. - where consumers are skittish about buying a new car amid mounting job losses in a recession.

Should GM or Chrysler, or even a key supplier file for bankruptcy, Ford's production is likely to be affected. Mulally said the company has met with the government's auto task force to help it "understand the importance" and "interdependencies" of the supply base.

"The health of the supply base is probably the most critical issue as the government helps GM and Chrysler restructure," he said. "I think they will continue to pay the highest priority as they restructure to the supply base to make sure it stays intact for all of us."

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Associated Press auto writers Tom Krisher in Detroit and Dan Strumpf in New York contributed to this report.

[Associated Press; By KIMBERLY S. JOHNSON]

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