Ford Motor's bonds traded up a couple of points after the company announced restructuring plans. Its long-term paper outperformed the shorter-term paper, according to a trader. Ford Motor Co.'s 7.45% '31 bonds traded up two-and-a-half points to 71 1/2. Ford Motor Co.'s five-year credit default swaps also tightened 100 basis points to trade at 880.
As part of its efforts to turn around the business, Ford announced it is cutting up to 30,000 jobs and is closing 14 manufacturing facilities. It plans to expand its vehicle production to include small cars and more cross-over autos.
Ford reported a pre-tax loss of $1 billion in its worldwide auto division in 2005, compared to an $800 million net loss a year ago. Ford's North American automotive operations reported a pre-tax loss of $1.6 billion, compared to a $1.4 billion pre-tax profit in 2004. The loss reflects bad cost performance and lower U.S. market share and dealer inventories, according to a company press release. As a whole, Ford Motor Co. posted a 2005 net income of $2 billion, compared to a $3.5 billion net income in 2004.
Malcolm Polley, chief investment officer at S&T Wealth Management Group, said Ford's restructuring does not go far enough because it does little to reduce its underfunded healthcare and retiree benefit costs. "Ford's legacy costs are its biggest problem. The only way to solve the problem is to renegotiate the United Auto Workers contract to get the legacy costs under control," he said. Ford's other post-employment benefit (OPEB) obligations were underfunded by $32.8 billion in 2005, compared with $32.3 billion in 2004.
A Ford spokeswoman said the company has taken steps to reduce its OPEB obligations. She cited the agreement with the UAW to reduce company healthcare costs and the contribution limit for healthcare benefits the company set as two steps towards reducing OPEB obligations. Ford announced it reduced its overall retiree healthcare and life insurance obligations by $5 billion in 2005, with projected cost savings of $650 million on a pre-tax basis.