Ford posted a record $12.7 billion loss in 2006

Ford lost $12.7 billion in 2006. From New York Times

This is just incredible. From the New York Times:

DEARBORN, Mich., Jan. 25 — The Ford Motor Company had the worst year in its history in 2006, losing $12.7 billion and suffering sharp erosion of its share of the United States auto market.

Ford lost $5.8 billion in the fourth quarter alone, the company reported today. In the same period a year earlier, it lost a comparatively trivial $74 million.

The company took in $160.1 billion in revenue in 2006, 9 percent less than in 2005.

Ford’s full-year loss, equivalent to $6.79 per share, far exceeded the $7.39 billion it lost in 1992, the worst previous year in its 103-year history, and it even surpassed the $10.6 billion loss posted by General Motors in 2005. But it is still short of the $23.5 billion that G.M. lost in its worst year, 1992.

Most of Ford’s red ink in 2006 came from the cost of shrinking and reorganizing the company, buying out workers and writing down asset values. Those charges accounted for $9.9 billion of the full-year loss after taxes. But Ford’s day-to-day business did very poorly as well, with a loss of $2.8 billion on continuing operations, compared with a $1.9 billion loss in 2005.

The figures were an unwelcome surprise to many Wall Street analysts, who on average had forecast a loss of about $2.5 billion for the year, excluding restructuring charges and other costs that Ford considers one-time items.

Ford’s woes are greatest in North America, where its automotive operations lost $6.1 billion before taxes, and sales revenue fell by 14 percent to $69.4 billion. The North American losses, four times as bad as the year before, more than wiped out profits from automotive operations overseas.

A breakdown of Ford's losses. From the New York Times

Ford is getting its arse wiped by the Japanese automakers. For the past sixteen years or so, Ford concentrated on manufacturing full-size trucks and SUVs, which provide large profits for Ford, and poor gas mileage for consumers. While Ford was milking the profits on big trucks and SUVs, the Japanese carmakers were shifting their own research into hybrid technologies. Gas prices went up over the past six years. This is what the NY Times reports as a result of Ford's woes:

The biggest blow to Ford in recent years has come from rising gasoline prices, which depressed sales of the big pickups and sport utility vehicles it depends on for profits.

And this little detail is especially interesting:

Ford expects to lose its grip on second place in the American market sometime this year, when it is overtaken by Toyota. Ford’s market share has fallen to 17.5 percent last year, from 25.7 percent a decade ago. By the end of the year, Ford’s internal projections show that the company may even fall to fourth place, behind Toyota, the Chrysler unit of DaimlerChrysler and General Motors, the market leader.

[Ford's new chief executive, Alan R.] Mulally caused a stir in Detroit last month when he flew to Tokyo to meet with Fujio Cho, the chairman of the Toyota Motor Company. Mr. Mulally said he asked for Mr. Cho’s advice on ways to streamline Ford’s manufacturing operations, and that the the two men had discussed cooperation on some technical matters.

But Mr. Mulally could well have sought Mr. Cho’s financial counsel, too, because the Ford loss for 2006 happens to almost exactly match the profit Toyota earned in 2005. That means there is a difference of more than $25 billion between the two companies’ financial performances.

Toyota pretty much took Ford's profits--probably in the American car market with the new hybrid cars, hybrid SUVs, and some of the more radical car designs such as the Matrix, the Avalon, and six different SUV models. It is no wonder that Ford is in such trouble.

What is even more amazing is how Ford is now going to Toyota to ask for help in manufacturing cars. It was Henry Ford that first created the assembly line process which is used for the mass production of automobiles. Toyota took Ford's assembly line process and perfected it with their ownToyota Production System, thus eliminating waste, and improving both productivity and quality of their cars. Ford is going to Toyota to learn how to adapt this new philosophy into their own business.