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Ford slows rate of cash burn in posting $1.4 billion net loss

Fri, 24 Apr 2009

Ford Motor Co., the only U.S. automaker operating without federal bailout loans, burned through $3.7 billion in cash during the first quarter in posting its fourth straight quarterly loss.

Ford slowed the burn rate from the fourth quarter of 2008, when cash declined by $5.5 billion. Ford finished the quarter with cash reserves of $21.3 billion, up from $13.4 billion at the end of 2008. The company drew down a $10.1 billion line of credit in the first quarter.

The net loss for the quarter was $1.4 billion, compared with net income of $70 million a year earlier. The pretax operating loss, excluding special items, was $2 billion, compared with pretax income of $686 million during the year-ago period.

Ford, which analysts estimate needs $9 billion to $10 billion in cash on hand to fund operations, is trying to avoid a federal bailout as U.S. auto sales remain at 27-year lows. Detroit rivals Chrysler LLC and General Motors are surviving on $17.4 billion in U.S. loans and are on the brink of bankruptcy.

"Our results in the first quarter reflected the extremely difficult business environment and weak demand for autos around the world," CEO Alan Mulally said in a statement.

Ford's revenue plunged as first-quarter-U.S. vehicle sales fell 44.4 percent amid a recession that's now the longest since the Great Depression. Ford said revenue declined to $24.8 billion from $39.2 billion.

The loss was lower than analysts' projections, triggering a 16.7 percent rise in Ford shares to $5.25 at 9:45 a.m. in New York Stock Exchange trading.

First may be worst

CFO Lewis Booth said that Ford expects its first-quarter cash burn to be the highest for the year.

"We can expect to see continued improvements in cash during the year," Booth said. "We expect to see sequential improvement."

He said most of the reduction in cash burn came from structural cost cutting. He also said the company is seeing higher vehicle transaction prices. Ford expects some improvement in the U.S. economy in the second half of the year, as well, he said.

Booth said Ford expects to have sufficient cash for the remainder of 2009, despite a "very, very difficult environment."

"We're certainly confident of getting through this year," he said.

Contingency plans

Booth also said Ford risked being at a disadvantage if GM or Chrysler should file for bankruptcy, but the automaker has been preparing contingency plans should such a filing lead to disruptions in its parts supply base.

Ford reiterated that it was on track to at least break even in 2011. The company hasn't had an annual profit since 2005, and last year's $14.7 billion net loss was a record.

Ford's automotive operations lost $1.9 billion before taxes in the latest quarter. The North American unit lost $637 million before taxes. Ford of Europe posted a pretax loss of $550 million.

The $3.7 billion first quarter cash burn figure included a $500 million payment to Ford Motor Credit for subvented financing.

Ford announced earlier this month it had slashed its automotive debt by $9.9 billion, or by about 38 percent, to bolster its finances amid the industry downturn.

In the first quarter, special items increased Ford's pretax profits by 15 cents per share, with gains from debt restructuring offsetting a $700 million impairment charge for Volvo.

Ford classified the Swedish Volvo brand as held for sale, which implies that there is a probability of a sale in the next year. The charge pushes the book value of the business down to what Ford believes is the estimated fair market value.

Ford has been in discussions with potential buyers for the brand, the last overseas marque left from its former premier auto group. It previously sold Aston Martin, Jaguar and Land Rover.

By Dave Guilford- Automotive News