Ford Overhaul to Take Some Time

On July 24, Ford (F - Analyst Report) reported a second quarter net loss of $8.7 billion or $3.88 per share, compared to a net profit of $750 million or $0.31 per share in the year-ago quarter.

The company aims to reduce $5 billion in annual cost in North America by 2008. The ongoing negotiation with the labor union will also be helpful to the company. However, rising gas prices is affecting the company’s operations. Ford dropped its plans of becoming profitable by 2009 due to difficult operating environment including uncompetitive cost structure. Hence, we reiterate our Hold recommendation and set a six-month target price of $5.00.

Ford is expected to produce 250,000 hybrids annually by 2010, and an additional 250,000 E85 vehicles. The company’s near-term focus is the new Ford ECOnetic line of ultra-low CO2 emission cars and bio-ethanol powered Flexifuel vehicles. It is also working on a range of affordable new petrol engines under the name Ford EcoBoost, all-new four-cylinder engines.

It will also adopt lean and flexible manufacturing capacity utilization that will result in the closure of 16 facilities by 2012, reduce capacity by 10-15% by the end of 2008 and improve operating rates to 84%. Ford plans retrench up to 15% of its salaried staff by August 2008. The introduction of new models in Europe and China should go a long way in strengthening Ford’s position.

However, Ford’s prospects are clouded by the loss of market share as well as high costs due to incentives and product launches. We expect North American vehicle sales to be down compared to last year. Market share is likely to fall continuously, as the company's portfolio is skewed towards trucks.

Read the full analyst report on F

Read the full analyst report on F