Ford seen narrowing loss, focus on cash burn

Ford's cash burn rate, and the fate of its labor costs -- with a United Auto Workers union ratification vote on concessions headed toward failure -- also will be a close focus for investors.

Uncertainty over the strength of the U.S. economic recovery has grown in recent weeks, and several of the top U.S. auto dealership groups have pointed to a much slower recovery in U.S. auto industry sales next year than Ford has projected.

Analysts on average expect Ford to post a loss of 12 cents per share from continuing operations and excluding one-time items in the quarter, compared with a loss of $1.31 per share a year earlier, according to Thomson Reuters I/B/E/S.

But Ford could produce a positive surprise after gaining market share and sales from the "clunkers" program and raising production in North America, said Autoconomy.com analyst Erich Merkle, who expects Ford to post an annual profit in 2010.

"I think they could have their profitability moment here in the third quarter, but it will still be a little tricky," Merkle said. "Will it be sustainable and how much of it will be because of cash for clunkers?"

Merkle expects U.S. auto industry sales to be substantially higher in 2010 than this year, rising to more than 12 million vehicles from slightly above 10 million in 2009.

Ford, the only large U.S. automaker not to reorganize with a government-supported bankruptcy this year, has planned on U.S. auto industry sales of more than 12 million vehicles in 2010, roughly 1 million vehicles above some dealer forecasts.

The ability to avoid the bankruptcies that engulfed General Motors Co and Chrysler has given Ford a leg up, but now may be working against it in a union vote on whether to approve concessions that would bring its costs in line with rivals.

Ford's U.S. factory workers at several UAW locals have rejected making further concessions to the automaker and the overall vote may fail. If the vote fails, Ford's long-term labor costs would not be in line with rivals.

In February, Ford completed a revised labor agreement with the UAW that cut costs by about $500 million per year. The automaker has said it needs additional concessions to keep it cost-competitive with GM and Chrysler over the long term.

The proposed agreement workers are chafing at includes a "no-strike" clause on wages and benefits and a reduction in job classifications for skilled trades workers, as well as some production commitments and a $1,000 one-time bonus.

CASH BURN KEY

Morningstar analyst David Whiston said the automaker's touting of increased U.S. market share and improved quality may be working against it in the UAW vote. He does not believe a rejection would have an impact on Ford's stock performance.

"Ford has a lot of good things going," Whiston said, adding that he believes Ford has a good chance to post a profit in 2010, one year ahead of its target.

Ford posted net losses totaling $30 billion from 2006 through 2008 and has said it expects to return to at least break-even in 2011, which would make a stunning rebound after the deepest U.S. economic downturn in decades.

Until the U.S. economic recovery takes off, cash will remain king for Ford, which borrowed more than $23 billion in late 2006 to finance its turnaround and believes it has enough money to complete its restructuring.

Ford burned through $4.7 billion of cash in the first half of the year. Ford has said it expects the second half outflow to be substantially slower than it was in the first half.

J.P. Morgan believes Ford could turn a third-quarter profit, with a faster-than-expected return to profitability in North America also possible.

Ford has been restructuring since 2005, trimming excess production capacity, hourly and salaried workers and divesting brands to focus on Ford, Lincoln and Mercury.