Ford Credit Cuts Staff in Response to Market Challenges
DEARBORN, Mich. — Ford Motor Credit announced today that it is restructuring U.S. operations, which will result in a reduction of staff and agency positions of about 20 percent.
Overall, about 1,200 positions will be eliminated, according to the company. These cuts will impact servicing, sales and central operations positions and will occur this year via attrition, retirements and "involuntary separations."
Officials said the restructuring is "to meet changing business conditions, including lower auto sales and the planned reduction in Jaguar, Land Rover and Mazda receivables, and to maintain a competitive cost structure."
For 2008, Ford Credit reported a net loss of $1.5 billion in 2008, a decrease of $2.3 billion from net income of $775 million a year earlier.
On a pre-tax basis, the company posted a loss of $2.6 billion in 2008, including the second quarter 2008 impairment charge of $2.1 billion for North America operating leases, compared with earnings of $1.2 billion in the previous year.
The decrease in full-year pre-tax earnings is "more than explained" by the impairment charge, a higher provision for credit losses and higher depreciation expense for leased vehicles, officials indicated.
For the fourth quarter, the company posted a net loss of $228 million, down $414 million from a year earlier. On a pre-tax basis, it reported a loss of $372 million, compared with earnings of $263 million in the previous year.
The decrease in fourth quarter pre-tax earnings were mostly due to higher provision for credit losses, higher net losses related to market valuation adjustments to derivatives, lower volume and a lower financing margin, executives explained. Also, they noted that lower operating costs were largely offset by other expenses.
"The drastic and rapid deterioration in the economy, credit markets and auto sales in 2008 brought unprecedented challenges to Ford Motor Credit," said Mike Bannister, chairman and chief executive officer.
"The historic decline in used-vehicle auction prices across the industry affected our North American lease portfolio and led to a second quarter impairment. Tough external challenges are expected in 2009. However, we will continue to manage our business through consistent and sound risk management, lending and servicing practices," he continued.
As of Dec. 31, Ford Credit's on-balance sheet net receivables totaled $116 billion, compared with $141 billion at year-end 2007. Managed receivables were $118 billion as of Dec. 31, down from $147 billion in the previous year.
"The lower receivables primarily reflected lower North America receivables, changes in currency exchange rates, the impact of divestitures and alternative business arrangements, and the second quarter 2008 impairment charge for North America operating leases," officials said.
On the automaker side of business, Ford reported a fourth quarter net loss of $5.9 billion, or $2.46 per share. This compares with a net loss of $2.8 billion, or $1.33 per share, in the fourth quarter of 2007.
"Ford and the entire auto industry faced an extraordinary slowdown in all major global markets in the fourth quarter that clearly had an impact on our results," explained Alan Mulally, Ford president and CEO. "We continued to take the decisive actions necessary to lower production to match the lower worldwide demand and reduce costs, which we expect will allow us to significantly reduce negative operating cash flow in 2009 and position Ford for growth when the economy rebounds.
"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 added. "Our market share growth in the fourth quarter in the U.S. and Europe is a positive sign that customers recognize the value of our new products and understand that a new and different Ford is emerging."
Based on current planning assumptions, Ford continued to state that "it has sufficient liquidity to fund its business plan and product investments."
The automaker concluded the year with $24 billion in available automotive liquidity, including $13.4 billion in automotive gross cash.
Furthermore, officials stressed that their company "does not need a bridge loan from the U.S. government, barring a significantly deeper economic downturn or a significant industry event, such as the bankruptcy of a major competitor that causes disruption to the company's supply base, dealers or creditors."
Executives said the company remains on track for both its overall and North American Automotive pre-tax results to be breakeven or profitable in 2011, excluding special items.
However, given the turmoil in the global economy, officials said they are "drawing its (Ford's) available credit lines." They expect "to receive the funds on Feb. 3 and will add the $10.1 billion to its cash and reflect it" on the first quarter 2009 balance sheet.
"Ford went to the credit markets two years ago when they were functioning normally and obtained the funding necessary, including our credit lines, to support our product transformation and restructuring," Mulally said.
"Given the instability of the capital markets with the uncertain state of the global economy, we believe it is prudent to draw these credit facilities at this time," he pointed out.
The company also announced that the UAW has agreed to end the "jobs bank." Apparently, the automaker and union are still working out the details of this.
Discussing other aspects of business, the automaker said total vehicles wholesaled in the fourth quarter were 1,138,000, compared with 1,643,000 units a year ago.
Looking specifically at the fourth quarter in North America, this division reported a pre-tax loss of $1.9 billion, compared with a loss of $1.5 billion a year ago.
"The decline was more than explained by lower industry volume and lower dealer stocks, partly offset by cost reductions. Fourth quarter revenue was $11.3 billion, down from $17.3 billion a year ago," officials stated.
Taking a look ahead at its overall business, the automaker said it "anticipates weak volumes this year across all markets, with worldwide sales down more than 10 percent. Significant government policy stimulus is being implemented in most markets and is expected to improve the environment for sales later this year.
"However, financial markets remain under significant stress, and further government and central bank actions to provide liquidity and stabilize banks are needed," according to Ford.
Moreover, the company indicated, "The year ahead will be marked by an unprecedented number of new product introductions. In North America, 2009 sees the introduction and sale of upgraded gas and hybrid versions of the Ford Fusion midsize sedan, new Ford Mustang, including a new convertible model and new Shelby GT500, new Ford Taurus and Taurus with fuel-saving EcoBoost engine, Ford Flex with EcoBoost, an entirely new type of small commercial van for the North American market called the Transit Connect, upgraded Mercury Milan and new Milan Hybrid, upgraded Lincoln MKZ, Lincoln MKS with EcoBoost, all-new Lincoln MKT three-row premium crossover and the first full sales year for the new Ford F-150 pickup."
In conclusion, Mulally said, "Despite the tough fourth quarter, we saw many positive developments that make us more confident than ever that we have the right plan and are taking the right actions to survive this downturn and emerge as a lean, globally integrated company poised for long-term profitable growth."