Ford Cuts Production

[Keith Browning]

Quote:

To: The U.S. Dealer Network

While we have made great strides together in the past year, today we are announcing that we must take decisive action in the face of the rapidly changing U.S. business environment that is affecting Ford and the entire auto industry.

In recent months, you have done an outstanding job answering consumers' sharply growing demands for cars, even outperforming our targets for car-segment growth. Still, we have seen significant deterioration in an already weak U.S. auto market, a dramatic shift away from trucks and SUVs driven by high gas prices, and a rapid increase in steel and other commodity prices.

In response, we are cutting North American production, while at the same time planning further manufacturing capacity realignments, additional cost reductions and changes to our model mix in order to bring more small cars and crossovers to market faster. As a result of the weakening business environment and production cuts, we are revising our near-term outlook and no longer expect that our North American operations will be profitable in 2009.

We are meeting today with representatives of the news media and investment community to discuss these changes. We also invite you to join our employees at a town hall that Alan Mulally and Mark Fields will host today. You can view and listen through the FORDSTAR Dealer Communications Network at 11 a.m. EDT

In taking these actions, it is important that you understand we remain committed to executing our ONE FORD goal of profitable growth for all.

Each of you has helped Ford make great progress in the past year in a very tough business environment. Your commitment to Ford and our customers is truly appreciated. Working together, we will create an exciting and viable future.

Jim


Special Town Hall broadcast on the FORDSTAR Dealer Communications Network May 22, 2008 - 11:00 a.m. (EDT)

The news release with facts and important perspective is included below.




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Ford Adjusts Production to Lower Industry Volume and Shift in Customer Preferences; Profit Outlook Revised

North American car production increased and truck production reduced for remainder of 2008 to reflect the continuation of rapid changes in customer buying preferences
Lower industry volume, reduced overall production, dramatic model mix shifts away from large trucks and SUVs, and higher commodity costs force a change in Ford's near-term profit outlook
Ford now expects to be about break-even companywide in 2009 on a pre-tax basis, excluding special items, as North America Automotive profitability is delayed
North America Automotive operations remain on plan to reduce annual operating costs by $5 billion by the end of 2008
Investment in smaller, fuel-efficient vehicles accelerates; further manufacturing capacity realignments planned in line with the introduction of more small cars and crossovers
DEARBORN, Mich., May 22, 2008 – Ford Motor Company [NYSE: F] today said it is making adjustments to its production plan and revising downward its near-term North American Automotive profit outlook, while planning further manufacturing capacity realignments, additional cost reductions and changes to its product mix to respond to the rapidly changing business environment in the U.S.

The company said it is increasing 2008 North American production of the hot-selling Ford Focus, Fusion, Edge and Escape, Mercury Milan and Mariner, as well as the Lincoln MKZ and Lincoln MKX. At the same time, Ford is reducing 2008 production of large trucks and SUVs, as gas prices soar and customers move more quickly to smaller and more fuel-efficient cars and crossovers.

"We are continuing to make great progress on our plan," said Ford President and CEO Alan Mulally. "We are profitable and growing outside of North America, and our transformation plan in North America is working. The challenge affecting the entire industry is the accelerating shift in consumer demand away from large trucks and SUVs to smaller cars and crossovers – combined with a steep rise in commodity prices and the weak U.S. economy."

Ford said it now plans to produce 690,000 vehicles in North America during the second quarter, a further reduction of 20,000 units from previously announced planned production levels and a decline of 15 percent from the second quarter of 2007. The company plans to produce between 510,000 and 540,000 units in the third quarter, down 15 to 20 percent from the same period last year. Fourth-quarter production is expected to be between 590,000 and 630,000 units, down 2 to 8 percent from year-ago levels.

The second-half production plan includes higher car and crossover production compared with a year ago and will be achieved through overtime and added shifts at Ford's smaller car and crossover assembly plants. Large truck and SUV production in the second half will be lower than a year ago, with reductions achieved through a combination of additional downtime, shift reductions and line-speed actions.

The lower overall production, dramatic model mix shifts and substantially higher commodity costs are forcing a change in Ford's near-term financial outlook, the company said.

"Rapidly rising commodity prices – particularly steel prices – and higher gasoline prices that are accelerating consumers' shift away from large trucks and SUVs together are having a tremendous impact on our sales, our manufacturing operations and our profitability as we look to 2009," said Mark Fields, Ford's President of The Americas.

"Unless there is a fairly rapid turnaround in U.S. business conditions, which we are not anticipating, it now looks like it will take longer than expected to achieve our North American Automotive profitability goal," Mulally said. "Overall, we expect to be about break-even companywide in 2009 – with continued strong results in Europe and South America."

Given the external challenges, Ford said it is more critical than ever to continue executing its transformation plan, which includes:

Aggressively restructuring to operate profitably at the current demand and changing model mix
Accelerating the development of new products that customers want and value
Financing the plan and improving the balance sheet
Working together effectively as one team, leveraging Ford's global assets
"The most important thing we can do right now is to continue to take decisive action implementing our plan to respond to the rapidly changing business environment," Mulally said.

Ford remains on track to reduce by $5 billion its annual North American Automotive operating costs by the end of 2008 – at constant volume, mix, and exchange and excluding special items – compared with 2005. However, further cost reductions and recognition of anticipated retiree health care savings from Ford's recent UAW labor agreement will be needed to offset higher commodity costs. Ford previously had anticipated that ongoing retiree health care savings in 2008 would allow it to exceed the $5 billion target.

In addition, the company said it is planning further manufacturing capacity realignments, as it accelerates the introduction of more fuel-efficient small cars and crossovers.

Cash outflows associated with operating losses and employee separations now are projected to be between $14 billion and $16 billion for 2007 to 2009. This is a deterioration compared with previous guidance but remains better than the original $17 billion outflow projection. Ford's Automotive net liquidity remains substantial. Total liquidity – including available credit lines, the majority of which are in place through Dec. 15, 2011 – was $40.6 billion as of March 31. Ford said it will continue to evaluate overall liquidity and alternatives to further improve its balance sheet.

Ford now expects 2008 U.S. industry volume, including medium and heavy trucks, to be between 15 million and 15.4 million units. Ford, Lincoln and Mercury U.S. market share is expected to be approximately 14 percent this year – supported by the introduction of several new products.

"We are making great progress on the acceleration of new products, and our initial quality is among the best in the business," Fields said. "The new Focus, Edge and Escape have had significant sales growth this year, and the pace of our product introductions accelerates even further this summer."

Production of the Ford Flex crossover and Lincoln MKS sedan is under way and soon will begin for the new generation of the F-150. Ford also just introduced the 2009 Ford Escape and Mercury Mariner small utility vehicles. They have new 4- and 6-cylinder engines with 11 and 20 percent more horsepower, respectively, and 5 percent better fuel economy, thanks to new engine technology, aerodynamic improvements and new six-speed transmissions. In fact, Ford now offers more vehicles with fuel-saving six-speeds than any other automaker.

New versions of the Ford Fusion, Mercury Milan and Lincoln MKZ mid-size cars also debut later this year, as do all-new hybrid versions of the Fusion and Milan.

By the end of this year, 70 percent of all Ford, Lincoln and Mercury products by volume in North America will be new or significantly upgraded compared with 2006 models. By the end of 2010, 100 percent of the product lineup will be new, including the next-generation Mustang in 2009, new fuel-saving EcoBoost engines in 2009, a new European-engineered Transit Connect in 2009 and all-new Ford Fiesta small car in 2010 – as well as several other vehicles not yet announced.

As an example of working together and leveraging its global assets, Ford said that it is accelerating even further the North American introduction of many of the small cars and crossovers that the company profitably sells today in Europe and South America.

"We remain absolutely committed to creating an exciting, viable Ford going forward – and to transforming Ford into a lean global enterprise delivering profitable growth over the long term," Mulally said. "We continue to make progress on every element of our plan, and we are taking steps in the near term to ensure our long-term success."