Ford: Job Cuts, Dividend Halt, Delays Profitability

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1. Ford: Job Cuts, Dividend Halt, Profitability Delay
2. Is Inflation Under Control?
3. Oil Prices Resume Fall, Now Below $63
4. Manufacturing Output Falls Unexpectedly

1. Ford: Job Cuts, Dividend Halt, Profitability Delay

MoneyNews told you yesterday of a report that Ford is facing up to a $9 billion loss for the year. Today, Ford announced that it is accelerating its ‘Way Forward' plan by laying off more than 10,000 salaried workers, offering buyouts to all of its 75,000 hourly workers in the U.S., and shuttering two additional plants.

Ford also suspended its quarterly dividend payment for the fourth quarter of 2006.

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Ford, the world's third biggest automaker, says the measures will save the company $5 billion in operating expenses. Still, the company acknowledged that it wouldn't return to profitability until 2009, a year later than it had previously pledged.

The company also said that its market share would fall to 14 - 15 percent, down from 18 percent of the auto sector as of August.

According to the company, it will complete cuts of 30,000 hourly jobs by the close of 2008, four years ahead of its original schedule. Those cuts would amount to 29 percent of the hourly workers at Ford.

Ford had cut 4,000 jobs in the first quarter of the year, said the company. The additional 10,000 job cuts are expected to shave off a third of the salaried workforce at Ford.

Ford said that salaried workers would leave through early retirements, voluntary separations, and "if necessary, involuntary separations," according to USA Today.

The company says that it needs to shrink in order to be a competitive automaker. Ford's inability to transition away from gas-guzzling SUVs and pick-up trucks as its main profit center has been eating away at the company's profitability ever since gas prices started rising.

Like other American automakers, Ford is hampered by so-called legacy costs, or big pay and benefits packages that the company negotiated with autoworker unions.

"The simple fact is that the business model that served us in North America for decades no longer works," Mark Fields, Ford's president of the Americas, said during a morning teleconference, reports the AP.

As part of its original plan, Ford scheduled closings for 14 of its plants. The two additional plant closings will be a stamping plant in Maumee, Ohio, in 2008 and an engine plant in Windsor, Ontario, in 2007, says the Associated Press.

Ford also accelerated the closings of an assembly plant in Norfolk, Va. and one in St. Paul, Minn., and it will cut shifts at these plants even prior to shuttering it for good.

Ford's stock dropped 10 percent on the news, as Wall Street was looking for more cuts and changes at Ford.

Ron Tadross, analyst for Bank of America, told the AP that the plan "omits any bold steps to fix the business. We had hoped Ford would close additional assembly plants and make remaining ones highly more flexible, announce the exit-sale of several brands."

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2. Is Inflation Under Control?

Consumer prices in the U.S. rose 0.2 percent in August, compared to last month's increase of 0.4 percent. The tame inflation numbers will likely keep the Federal Reserve from hiking rates at its upcoming meeting.

Excluding food and energy costs, core CPI still came in at 0.2 percent, matching the July increase but rising at a slower pace than in the four previous months when CPI increased at 0.3 percent. In fact, gas prices inched up 0.2 percent in August, but are expected to show a big drop in September.

"Inflation is starting to turn," said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis, to Bloomberg News. "The core may remain stubbornly high for the rest of the year, so while inflation may have peaked, we're going to stay at elevated levels and the Fed will have to keep its eye on the ball."

The Fed meets next week to discuss interest rates and the outlook for inflation. The Fed halted its rate hike cycle last month, saying that the 17 previous rate hikes hadn't yet worked their way through the economy. The drop in CPI indicates that the rate hikes may in fact be working to slow inflation.

"I don't think this does anything to change the Fed's probable path of sitting sidelined on September 20," Richard Yamarone, Chief Economist at Argus Research in New York, tells Reuters.

The annual rate of overall consumer prices inched down in August to 3.8 percent from 4.1 percent in July. Core prices, on the other hand, inched up to a 2.8 percent pace for the year from 2.7 percent in July.

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3. Oil Prices Resume Fall, Now Below $63

Crude-oil prices eased below $63 a barrel Friday after natural gas prices plunged to a two-year low, and supply concerns eased after Nigerian oil workers prematurely ended a strike in Africa's largest producer.

OPEC, meanwhile, sharply lowered its expectations for demand for its crude, increasing the prospect that the group may reduce its production quotas later this year. In its monthly oil market report, the Organization of Petroleum Exporting Countries cut expected need for its oil in the last three months of this year by 320,000 barrels a day from its month-ago estimate, to 28.86 million barrels per day.

Light, sweet crude for October delivery fell 28 cents to $62.94 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. Brent crude dropped 36 cents to $63.18 on the ICE Futures Exchange in London.

In other Nymex trading, natural gas was down 10.6 cents at $4.786 per 1,000 cubic feet, heating oil was up fractionally at $1.7125 a gallon and unleaded gasoline was up less than a tenth of a cent at $1.5529 a gallon.

On Thursday, natural gas futures plunged 10 percent to a two-year low after U.S. government data showed record supplies.

The "selling was about natural gas prices," said analyst Phil Flynn at Alaron Trading Corp. "The Nigerian news was another reason to sell."

Nigerian oil workers ended a three-day strike a day early to negotiate for better security conditions in the Niger Delta.

The strike, which started Wednesday, was prompted by the recent deaths of two oil company employees, and growing concern about worker safety in the oil-rich delta region.

Nigeria is Africa's largest crude exporter and the fifth-largest supplier to the United States. Attacks and kidnappings in its Niger River delta have cut production by nearly 900,000 barrels since the beginning of the year.

Geopolitics, which helped push prices to an all-time high of $78.40 in July, could still force a spike, Fimat USA analyst John Kilduff said in a research note.

"In the end, our bias still has to remain with the upside," said Kilduff. "It is only for the moment that psychology has shifted more to an economic track, and even there, we don't see the global economy breaking down, only a softening at the margins."

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4. Manufacturing Output Falls Unexpectedly

Output at U.S. factories, mines and utilities fell unexpectedly by 0.1 percent in August as utilities production declined with cooler weather, a Federal Reserve report showed on Friday.

Capacity use slipped to a smaller-than-expected 82.4 percent from a revised 82.7 percent in July, the Fed said.

Analysts polled by Reuters were expecting industrial production to rise 0.2 percent and capacity utilization to edge up to 82.5 percent from the previously reported 82.4 percent use rate in July.

It was the first decline in industrial production since January and the lowest level of capacity use since May.

Even so, capacity utilization was 1.4 percentage points above its 1972-2005 average of 81.0 percent and 2.1 percentage points above its level in August 2005.

But the slowdown in production could provide additional evidence of easing economic growth for a central bank that is deemed likely to keep short-term interest rates steady at its policy-setting meeting next week.

"The economy has slowed down from what we have seen earlier in the year, but it is still consistent with growth overall," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla.

U.S. Treasury debt prices extend their gains after the weaker-than-expected output report. The dollar was largely unchanged after the data.

Manufacturing output was unchanged in August as a rise in the production of durable goods was offset by a decrease in nondurables production, which included slides in output of textiles, paper, and plastics, the Fed said.

Mining output was down 0.3 percent due to a drop in oil and gas extraction, while utilities production slipped 0.8 percent on a 1.1 percent decline in electric utility output.

Manufacturing capacity use slipped to 81.0 percent from July's 81.2. Still, it was 1.2 percentage points above its 1972-2005 average of 79.8 percent and 2.2 percentage points above its year-ago level of 78.8 percent in August 2005.

Motor vehicles and parts production was up 1.0 percent on the month but was down 2.7 percent from its year-earlier level.

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Editor's Notes:

The Baby Boom crisis is just beginning. Protect your wealth from this looming tidal wave before it's tool late. Go here now.
Discover how to hedge your portfolio against inflation … without investing in a single stock. Go here now.
Find out the top 5 ways you can profit from the coming Oil Bust. It's already begun! Go Here Now.
Three steps to success! Discover how you can multiply your profits and cut risk down to size in three easy steps. Go here now.
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