Ford Motor Co. posted a record €5.5 billion quarterly loss as it wrote down the value of slumping truck and SUV operations and revamped plans in a bid to break its reliance on the gas-guzzlers that have been its franchise vehicles for a decade.
The second-quarter loss was deeper than analysts had forecast and Ford shares fell by 15 per cent. Its bonds also traded lower.
Ford cautioned that it did not expect a US economic turnaround until 2010 with oil prices remaining "high and volatile" and no relief for the high prices for steel and other commodities that have hit automakers hard.
In response to the sudden premium on fuel efficiency, the No. 2 US automaker said it would retool truck plants in Michigan and Kentucky to make small cars in addition to an already announced conversion for a Mexican truck plant.
In addition, Ford will bring four previously unannounced small cars to North America, including a Mercury-branded derivative of its popular Focus. It also said it would double its hybrid output next year and double its capacity to make fuel-saving four-cylinder engines by 2011.
Analysts have increasingly focused on whether Ford and rival General Motors Corp have the cash needed to ride out the economic downturn in a market moving away from the light truck segment the US automakers have dominated.
Ford ended the second quarter with a cash position of €17 billion down €1.3 billion from the first quarter.
"We're confident that we have enough liquidity to get through," chief financial officer Don Leclair told reporters.
Calyon Securities Mark Warnsman said in a note he was "cautiously optimistic" about Ford's future but said the time it would take the automaker to complete its turnaround represented a risk for investors.
The collapse in demand for trucks and SUVs since the start of the year forced major automakers, including industry leader Toyota Motor Corp., to cut production. One analyst warned that Ford's results were a warning sign for GM.
"We think the quarter has a negative read across for GM, as the shortfall to Ford earnings seems to have been largely a function of a weaker (economy) not cost execution," Goldman Sachs analyst Patrick Archambault said in a note.
Ford said it was on track to cut 15 per cent of its white-collar expenses by August 1 and would cut more deeply next year after reducing recurring costs by €3.1 billion by year end.
Executives declined to offer a timeline for returning to profitability after more than €9.5 billion of losses the past two years, citing the industry's continued uncertainty.
"I think it really goes with the economy both with the US and worldwide," chief executive officer Alan Mulally told analysts.
Total revenue fell to €26.4 billion, from €28.1 billion a year ago.
The quarterly charges underscored Ford's exposure to the rapid decline in US light truck sales, a segment where Ford's sales dropped 18 per cent in the first half.
"The magnitude of the special items reported by Ford suggests that the company is striving to get the bad news behind it," Calyon's Mr Warnsman said. "The problem is that this has been done in the past and yet the company is now taking further write-offs."
Ford took a €1.3-billion charge to write down the value of leases written by its Ford Motor Credit finance unit.
About 85 per cent of the charge reflected a sharper-than-projected decline in the resale values of light trucks.
Ford also took a €3.3 billion charge to write down the value of its North American operations to reflect its more cautious view that the boom for trucks and SUVs that took off in the 1990s will not return.
Standard & Poor's equity analyst Efraim Levy warned the shift to smaller vehicles would be costly, but said Ford's plan would deliver lower costs and better flexibility over time.
Cars historically have generated lower profits than trucks and SUVs and Ford will have to invest heavily to convert the truck factories starting in December.
Ford plans to maintain production of its Ranger compact pickup truck until 2011, keeping a Minnesota plant open two years longer than previously planned.
Ford said it would keep its Mercury brand and revitalise the nameplate with new products after analysts had questioned its commitment to the brand.
The latest turnaround plan assumes that Ford's three core brands - Ford, Lincoln and Mercury - would maintain about a 14-per cent market share in North America.
In May, Ford abandoned a long-standing goal of returning to profitability next year and said it would delay the launch of its redesigned F-150 truck by two months to sell down inventory. Ford also cut its North American production plans in the third and fourth quarters sharply and slashed its outlook for this year's US industry sales by 700,000 vehicles to a range of 13.7 million to 14.2 million.
The cuts reflect "the rapid pace of deterioration in the North American volume and mix environment," Mr Archambault said.