Ford to cut one-third of work force

Detroit: Ford Motor Co said on Friday it will slash $5 billion in costs and one-third of its work force as it warned its auto business would not make a profit in North America for another three years.

The automaker also ruled out an immediate sale of its Jaguar brand, disappointing investors who wanted Ford to press ahead with asset sales to raise cash.

Ford shares dropped as much as 15 per cent Friday, the biggest single-day percentage decline in almost four years. Ford also suspended its dividend and pledged to revamp its vehicle line-up, an area of weakness widely cited by analysts.

In its third turnaround plan in five years, the No 2 US automaker said it would close 16 North American factories by 2012, two more than originally scheduled. Ford said it will cut 10,000 white-collar jobs on top of the 4,000 jobs already cut this year.

All of Ford's 75,000 factory workers are being offered buyouts under a deal with the United Auto Workers union. Ford hopes to cut 30,000 factory jobs by 2008.

The steps were the latest sign of the financial stress on the traditional Big Three. General Motors Corp is on track to shutter 12 plants and cut $9 billion in recurring costs as part of its turnaround plan.

DaimlerChrysler AG's Chrysler Group said Friday it could lose about $1.27 billion this year, a much deeper loss than it forecast in July because of mounting inventory and slower truck and SUV sales.

Ford warned its North American operations would not post a full-year profit before 2009, a year later than first projected.

It also targeted $6 billion in materials cost savings by 2010 by streamlining purchasing.

But other steps urged by Wall Street were notably missing from the plan.

Analysts questioned whether new Chief Executive Alan Mulally will have to make deeper cuts down the road.

"The plan does not address the tremendous losses at Jaguar or asset sales. It does not materially accelerate product introductions ... It does not cut capacity deeper. It's missing a lot," said Merrill Lynch analyst John Murphy in a note to clients. He cut Ford's rating to "sell" from "neutral."

Ford said it would burn through nearly $4 billion in cash over the final two quarters of the year, leaving it with $20 billion in cash for auto operations at the end of 2006.

"From a credit point of view, I am disappointed," said Philip Watkins, auto analyst at Commerzbank in London. "I was looking for liquidity enhancement initiatives because they are running low on cash."

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The automaker did not announce any plans to sell a stake in its Ford Credit arm, which has suffered higher borrowing costs after its debt rating was cut into junk territory.

Analysts also suggested Ford drop its Mercury brand and sell Jaguar or another luxury nameplate. Ford has said it is seeking a buyer for British sports car maker Aston Martin.

Commerzbank's Watkins said he hoped Ford would sell a majority stake in its financing arm, which he estimated could bring in $45 billion. "They don't need to be thinking about cash burn. They need to be thinking about making and selling cars," he said.

On Sept. 5, Ford named Mulally, a former Boeing Co executive, as CEO, ending the troubled five-year stint of Bill Ford Jr as the operational head of the automaker.

Morningstar's Novak said it was questionable whether Mulally, a highly regarded manufacturing executive but one of the few CEOs at a major automaker without prior industry experience, had much input in the new plan.

Ford's new restructuring replaces the company's initial "Way Forward" plan, which was announced in January and called for cutting up to 30,000 jobs and closing 14 plants by 2012.

After Ford posted a $1.4 billion loss in the first half and saw declining sales of its market-leading pickup trucks, the automaker promised more aggressive steps.

"In the first quarter, full-size pickups did fairly well, with sales about even with last year," said Mark Fields, the Ford executive who spearheaded the revised turnaround plan.

"But in the second quarter, the bottom fell out." Ford's US auto sales have dropped 10 percent so far this year, dragged down by its F-150 pickups, which have been hurt by slower demand from construction crews and higher interest rates. Industrywide, auto sales are off about 4 percent.

In a pullback from its recent, more optimistic forecasts, Ford now expects its US market share to slide to a range of 14 per cent to 15 per cent from near 17 per cent. "These cuts need to be ahead of the curve," said Erich Merkle, an analyst at IRN Inc. "(The lower forecast) gives me some confidence that they're at least coming clean here."

Ford's dividend was 20 cents annually for its common stock. Ford shares dropped $1.09 to $8 on the New York Stock Exchange, down 12 per cent, after falling as low as $7.75 earlier in the session. The stock had rallied from just above $6 in late July.